All you need to know about co-employment: Benefits, risks & strategies

There’s a mistaken belief that it’s possible to eliminate nearly all forms of co-employment risk. This leads many companies to focus on risk removal rather than risk management.

• So what is co-employment? 
• What are the misunderstandings around it? 
• And what are the potential risks of co-employment  that need managing?

In this blog, we’ll explore these questions and provide insights into understanding and managing co-employment risks.

What is co-employment?

Co-employment is when a third-party supplier (i.e. a staffing agency) works with a client (i.e. an operator) to fill roles at the client’s company. Crucially, that supplier doesn’t just find employees for a fee, but takes an active role in their employment arrangements.

This might mean shared responsibilities for employment issues. 

For instance, the supplier may handle payroll and employment taxes for temporary workers while the client manages their place of work, supervises workloads, and handles on-site health and safety. 

Hence the term “co-employment”.

Is co-employment for you?

Deciding whether co-employment is right for your company involves weighing both the risks and benefits of employing contingent workers.

On the one hand, contingent workers offer flexibility, allowing you to scale your workforce up or down based on demand, and they bring specialised skills that can enhance your team's capabilities.

Additionally, co-employment can lead to cost savings on employee benefits and payroll taxes. However, managing the impact of risks is crucial, such as compliance with employment laws and potential liability issues.

Proper management strategies and a clear understanding of co-employment relationships can help you leverage these benefits while minimising risks.

Benefits of a co-employment relationship

Co-employment offers numerous advantages for companies looking to enhance their workforce management. By incorporating contingent workers, businesses can achieve greater flexibility and access specialised skills while also realising cost savings and reduced hiring risks

Here are some key benefits:

Flexibility

Easily adjust your workforce based on current demands, making it ideal for handling seasonal peaks or project-specific needs.

Access to specialised skills

Bring in contingent workers with unique expertise to complement and enhance your existing team's capabilities.

Cost savings

Reduce expenses related to benefits and payroll taxes typically associated with full-time employees.

Increased productivity

Quickly deploy skilled workers for specific projects, boosting overall efficiency and productivity within the company.

Reduced hiring risks

Evaluate workers on a temporary basis before making long-term hiring decisions, minimising the risk of poor hires.

Understandably, there are risks associated with a co-employment agreement

What if the new contractor causes a safety incident or has legal issues relating to visas? Does the supplier or client take responsibility?

The rules around co-employment are far from clear and are also country-specific, which doesn’t help with the energy industry having international operations.

Knowing where primary employer responsibility lies can also become a legal issue, naturally leading clients to minimise the risk of having this burden shifted onto them.

Old wives’ tales and misunderstandings

This results in a number of misinformed practices.

For example, to avoid independent contract workers being counted as employees, some operators force contractors to leave for six months after working with them for two years. But in a legal setting, this offers limited protection.

Or there’s the idea that by spreading contracts across various workforce solution suppliers, there’s lower risk. However, this loses the benefits of a preferred supplier relationship.

Similar to most supply chain issues, suppliers are more inclined to actively resolve any risk-related issues if you are a bigger client for them.

The risk-mitigation triple check: avoiding co-employment issues

Source: Pexels/Vitaly Gariev 

If there’s a major incident, co-employment can be a thorny subject and there are no guarantees.

Rather than trying to completely offload the risk, you can mitigate it by picking the right partner. 

However, this requires due diligence in three key areas:

Finance: 

If a problem occurs, your supplier must have the financial clout to weather the storm. 

A smaller supplier may feel easier to dictate terms to. But if it can’t afford to settle the liability, lawyers will most likely look to the client to cover costs.

Legal and compliance:

A supplier well-versed in employment law is less likely to create risk. 

• Does the prospective partner have experience dealing with legal and compliance issues? 
• How well resourced is their compliance team? 
• How efficient is their record-keeping? 

Safety

The most important consideration in any workplace is employee safety.

So, it’s important to consider:

• Where your prospective partner is registered
• Their health and safety policies
• Their culture and track record managing employment relationships. 

The latter two aspects are linked to geographic footprint too. Suppliers with a global network of offices and an established track record in different countries are more likely to keep up with local employment law and safety issues than those based in a few locations.

So, on the matter of co-employment risk elimination, are companies wasting time prioritising perfection rather than pragmatic policies?

Quite possibly – but by conducting thorough due diligence to find the right partners, companies can take a more informed and lower-risk approach. 

At Airswift, we offer compliant workforce solutions tailored to meet our clients' unique needs. Our comprehensive range of services that support every stage of the talent lifecycle. From sourcing and recruiting top talent to managing employment contracts and ensuring compliance with local labour laws, our solutions are designed to align with your strategic goals.

Our Employer of Record services set us apart, enabling us to handle all aspects of international employment administration, including payroll, benefits, tax compliance, and more. This makes us uniquely positioned to support your needs when you expand into new markets, consolidate operations, or review your overall talent strategy.

Whether you're managing projects across multiple regions or seeking to streamline your HR processes, our expertise ensures a seamless and compliant experience.

Contact us to learn more about how we can help you.