# Co-employment

> Co-employment is a contractual arrangement where a business and a Professional Employer Organisation share defined employer responsibilities, such as payroll, tax filing and benefits administration, for the same workforce.

Co-employment is a formal, contractual arrangement in which a client company and a Professional Employer Organisation (PEO) each hold certain employer responsibilities for the same group of workers. The PEO typically handles payroll processing, employment tax filings and benefits administration, whilst the client company directs day-to-day work, sets pay rates and makes hiring decisions. Both parties sign a Client Service Agreement (CSA) that spells out exactly who is responsible for what. Neither party is "the" employer for every purpose: the PEO is the employer on record for administrative matters, and the client remains the employer for operational ones. Co-employment is a well-established and legal arrangement in the United States, used by more than 230,000 businesses. It is not the same as an Employer of Record (EOR) model, where a single entity holds full legal responsibility for employment across a given jurisdiction, including compliance with local labour law.

## How does co-employment work in practice?

You sign a Client Service Agreement with a PEO. The PEO runs payroll, files employment taxes and administers benefits under its own employer identification number. You keep control of who you hire, what they do and how much they earn.

Because the PEO pools workers from many client companies, it can often access group-rate benefits that a small employer could not negotiate alone. The downside is that both you and the PEO carry shared legal exposure if something goes wrong.

## Is co-employment the same as an EOR?

No. In a co-employment arrangement the client company retains some employer liability alongside the PEO. With an Employer of Record, the EOR is the sole legal employer in that country, and your company has no direct employment relationship with the worker there.

EOR arrangements are typically used to employ people in countries where you have no registered legal entity. PEO co-employment is most common in the United States, where you already have an entity and simply want to outsource HR administration.

## When does co-employment make sense?

Co-employment suits companies that already have a legal entity in the country where they are hiring and want to outsource payroll, benefits and compliance administration without giving up day-to-day control of their workforce.

If you are hiring across multiple countries where you have no entity, an EOR approach is generally more appropriate, since a PEO cannot typically serve as the compliant legal employer outside the jurisdiction where it is registered.

## What risks come with co-employment?

Because both parties share employer status, you may share liability if a worker brings a claim or if employment taxes are filed incorrectly. Vetting the PEO's compliance record and financial stability is important before you sign a Client Service Agreement.

Misclassifying an independent contractor as a co-employed worker, or the reverse, is a separate risk and can lead to tax penalties. Always confirm the correct employment status before entering any co-employment arrangement.

## Key facts

- **US businesses using PEO co-employment:** More than 230,000 (Source: NAPEO Industry Overview, verified 2026-06-24)

## Co-employment (PEO) vs Employer of Record (EOR)

|  | Co-employment (PEO) | Employer of Record (EOR) |
| --- | --- | --- |
| Who is the legal employer? | Shared between PEO and client | EOR is sole legal employer |
| Client keeps employer liability? | Yes, in part | No |
| Best for | Hiring in a country where you have an entity | Hiring where you have no entity |
| Geographic scope | Primarily domestic (e.g. US-only PEOs) | Cross-border, multi-country |
| Worker sees which employer on contract? | Both client and PEO named | EOR named only |
| Payroll and tax filing | Handled by PEO under its EIN | Handled by EOR under local registration |

## Frequently asked questions

### Is co-employment legal?

Yes. Co-employment is a well-established and legal arrangement, particularly in the United States, where it is governed by a Client Service Agreement between the client and the PEO. It is not inherently problematic, but the agreement must clearly allocate responsibilities to avoid compliance gaps.

### Do my employees know they are in a co-employment arrangement?

Usually, yes. In a PEO co-employment arrangement, workers typically sign onboarding documents that name both your company and the PEO. This is different from an EOR arrangement, where only the EOR appears on employment paperwork.

### Can a PEO co-employment model work in multiple countries?

Most PEOs operate within a single country and cannot act as the legal employer in jurisdictions where they have no registered entity. For international hiring, an Employer of Record arrangement is typically the appropriate model, as the EOR holds the local legal entity needed to employ workers compliantly.

### What is the difference between co-employment and joint employment?

Co-employment in a PEO context is a voluntary, contractual split of employer responsibilities. Joint employment is a legal determination, often unintended, where two or more companies are found to jointly control a worker's terms. Joint employment can create unexpected liability and is generally something companies try to avoid.

## Sources

- [What is co-employment? How it works and benefits](https://www.adp.com/resources/articles-and-insights/articles/p/peo-what-is-co-employment.aspx), ADP
- [Industry Overview](https://napeo.org/intro-to-peos/industry-overview/), NAPEO
- [PEO vs. EOR: Key Differences Explained for Employers](https://www.uschamber.com/co/run/human-resources/peo-vs-eor), US Chamber of Commerce
- [Co-employment vs. joint employment: What you need to know](https://www.rippling.com/blog/coemployment-vs-joint-employment), Rippling

_Last updated 2026-06-24. Reviewed by Teamed's in-house employment-law team. Source: https://www.teamed.global/glossary/co-employment_