The Difference Between Employee Leasing and Co-Employment

What's the difference between employee leasing and co-employment? While the terms have had similar meanings, this is where they differ.



When you’re considering outsourcing your human resources (HR), you’ll hear plenty of talk and advice about “employee leasing” and “co-employment.” But what do these words mean? 

In the past, these terms were used interchangeably. However, as the business landscape has evolved, they have become two very different concepts that are often misunderstood. Because these terms are typically used in relation to a Professional Employer Organization, or PEO, the confusion may cause businesses to hesitate to work with a PEO. 

Overall, the key difference between employee leasing and co-employment is staffing. Employee leasing provides workers for your company, whereas co-employment does not provide any staff members. But let’s break these terms down individually.

What is Employee Leasing?

Employee leasing describes an arrangement between an employee leasing company and a business in need of specific professional workers. The employee leasing company supplies the workers, typically on a temporary basis, who then perform all the work duties of a regular employee.

In an employee leasing arrangement, the leased employees work for you to get the job done, but they are not on payroll because they are not your employees. Legally, they are employed by the leasing agency and will return to their employer after completing the job you outsourced, or leased, them to do. 

What Is An Example of Employee Leasing?

Employee leasing is anytime you enter into a contract with a staffing or employee leasing agency to lend you an employee to perform work for your company. Work responsibilities are typical to those of a regular employee at your business, such as customer service, executive assistant, marketing, and so on.

For example, let’s say you have a small company with only one or two employees with marketing responsibilities. You would like to launch a new marketing effort but only anticipate needing the help of a Chief Marketing Officer (CMO) for less than a year.

In this scenario, you may want to contact a marketing agency to lease, or outsource, your CMO. Once you meet your marketing objectives, you can decide whether to create new goals and renew the contract with the marketing agency, or end the contract altogether.

What is Co-Employment?

Co-employment is an arrangement in which two organizations, namely your company and a PEO, share responsibilities for an employee. The PEO handles the administration responsibilities while your company manages the day-to-day duties of your employees.

In a co-employment arrangement, the PEO becomes the employer of record for your staff for tax purposes. After you hire a new employee, you report the new hire to the PEO who then submits paperwork to the government under the PEO’s employer identification number. From this point forward, the PEO has the fiduciary responsibility to accurately report and pay both employer and employee taxes for that worker. 

Although several PEOs offer far more than payroll duties, many companies choose to partner with a PEO simply because it relieves them of multiple administrative burdens and liabilities.

PEOs and Co-Employment

When you enter into a co-employment arrangement with a PEO, your company continues to make all hiring, promotion, and termination decisions about the people who work for you. In fact, your company maintains control over all staffing decisions. The PEO handles the HR administrative tasks, such as onboarding, legal paperwork, taxes, workers’ compensation, payroll services, benefits administration, and so on.

With co-employment, the PEO is liable for ensuring your employees and benefits are paid, employment taxes are covered, workers’ compensation insurance is current, and any other relevant compliance concerns are met. In short, your PEO assumes liability for all the HR services it provides to your company.

Interested in co-employment with a PEO?

When you partner with a PEO in a co-employment arrangement, you save time recruiting, hiring, onboarding, and training an employee or manager. The best full-service PEOs also provide you with certified HR experts who work as your consultants. They offer answers and guidance about all of your human resources concerns, such as managing liabilities, developing employee handbooks, and creating policies to protect your organization from potential risks. Other benefits PEOs may offer include:

  • Labor law compliance 
  • Fully-integrated HR technology
  • Elimination of payroll errors and penalties 

To learn more about all the benefits a PEO can offer, check out our blog on 8 reasons to outsource HR.

In addition to providing professional consulting and advice, a full-service PEO like Stratus HR enables you to attract and retain top talent by offering competitive employee benefits at economies-of-scale pricing to make you an employer of choice. 

If you want to see this in action, book a free consultation today. We’ll answer your questions, audit your company’s current HR situation, and let you know if it makes sense for your business to partner with a PEO.

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