PEO and Co-employment

PEO and its Client Company

A legal concept now in place still less than fifty years, the co-employment  relationship involves a contractual allocation and sharing of employer responsibilities between two separately-owned but integrated employers; the PEO and its respective client company. Because insurable interest does not exist amongst all of the disparate clients of a PEO, the PEO enters into contractual arrangements of co-employment allowing it to become the employer for all of them on a pooled basis.

As legal co-employers with their client companies, bound by a legal client service agreement (“CSA”), PEOs contractually assume substantial employer rights, responsibilities, and risk through the establishment and maintenance of an employer relationship with the workers assigned to its clients. More specifically, according to the National Association of Professional Employer Organizations (“NAPEO”), a PEO establishes a contractual relationship with its clients whereby the PEO:,typically%20called%20a%20client%20service%20agreement%20%28CSA%29.%20%E2%80%8B

The National Council of Compensation Insurance (“NCCI”) has addressed PEO’s on their website, with a host of other PEO specific questions.  This is a tremendous resource to find out the different State by State regulations that PEO’s comply with such as policy structures allowed, endorsements available and other PEO-specific insights.


  • Co-employs workers at client locations, and thereby assumes responsibility as an employer for specified purposes of the workers assigned to the client locations to include employment related insurance products such as workers’ compensation and major medical insurance.
  • Reserves a right of direction and control of the employees.
  • Shares or allocates with the client employer responsibilities in a manner consistent with maintaining the client’s responsibility for its product or service.
  • Pays wages and employment taxes of the employee out of its own accounts, after funds transferred from the client companies.
  • Reports, collects and deposits employment taxes with state and federal authorities to include the Internal Revenue Service.
  • Establishes and maintains an employment relationship with its employees that is intended to be long term and not temporary.
  • Retains a right to hire, reassign and fire the employees.

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