Life requires risk. Using your oven, driving your car, or even walking out your front door all involve a degree of danger. You do them daily, however, because they make life productive and interesting–co-employment is kind of like that.

The same is true for hiring and managing shared employees. Whether sourced through a traditional staffing provider or a payrolling service such as an employer of record, these employees are jointly employed by the hiring company and the staffing vendor.

The only way to truly eliminate risks associated with co-employees is to not hire them all. But just like driving your car, maintaining a contingent workforce or temporary staffing program brings value as well as risk. The better option, then, is to know the risks and manage them effectively.

From seasonal businesses like resorts to defense contractors, companies use staffing or payrolling services for all sorts of reasons. Co-employees can cover for absent team members, plug talent holes, and help companies save on benefits costs.

In fact, co-employment is more common than most people assume. An estimated 24 million U.S. workers — about 15.8 percent of the nation’s labor force — fit into this category. Co-employment relationships exist for roles from receptionists to lifeguards to highly trained engineers.

Reducing Co-Employment Risks

Co-employment work models aren’t going away. If anything, they’re becoming more common. By this decade’s end, more than 40 percent of the American workforce will work for multiple companies.

If your company uses staffing or payrolling services or plans to soon, it can reduce co-employment risks in the following four ways:

1. Keep your temporary employees close — and your staffing vendor closer.

If your staffing vendor tells you that it assumes all risks associated with temporary employees, it’s lying to you. For instance, in California, if you hire an employee through a staffing agency, your company could be on the hook for wage or workers’ compensation violations of the staffing agency.

That’s why it’s essential to work with an experienced, honest staffing or payrolling provider. Each vendor has its own approach to risk mitigation. Before signing on the dotted line, learn what steps it takes to reduce risks for itself and its clients.

2. Know what trouble looks like.

With the web of federal, state, and local employment laws, you need to know where your responsibilities end and where your staffing or payrolling vendor’s begin.

It’s primarily the provider’s burden to maintain I-9 forms and respond to immigration audits on work eligibility issues. The same is true of wage and hour claims, though you’re typically responsible for paying overtime hours on top of your staffing firm’s bill rate.

Discrimination and harassment prevention are a shared responsibility. However, your company’s risk exposure related to these issues is no greater for a temporary employee than it is for an employee you’d hired directly. If a temporary employee files a claim, your staffing or payrolling partner should have resources available to help with the investigation and, if it doesn’t go well, insurance policies to help with the cost.

Another area to pay attention to is leaves of absence. The staffing or payrolling vendor takes the lead role on Family and Medical Leave Act liability as well, but your company shares the responsibility of reassigning an employee back to a similar role at the company after his or her FMLA leave ends.

3. Have the benefits conversation.

The best way to address your concerns about the risks of co-employment is to discuss them directly with your staffing or payrolling vendor. Let’s say, for example, your company is worried that a temporary worker might claim that they qualify for benefits.

Contrary to popular belief, assignment limits do not mitigate this risk. Instead, request that your partner provide temporary employees with a benefits package. If they’re unreceptive to your request, find one that does provide benefits.

At the same time, work with your HR and legal teams to ensure that temporary and contract workers are explicitly excluded in your company’s benefits plans and plan documents. And while you can exclude temporary employees from your 401(k) plan, you may be required per IRS rules to include them in your discrimination testing.

Together, these steps mitigate benefits-related risks much more than limiting assignment lengths. Temporary employees who arrive at your door with benefits are less likely to try to find a backdoor to your own benefits plan, and they’re more likely to stick around because of the benefits they receive. 

4.Get it in writing.

As with any business relationship, you need a contract to define each party’s role. That document should set out exactly what your company’s relationship will be to both the vendor and to the temporary employees.

To protect yourself, insert a confidentiality clause into the contract. Adding provisions indemnifying your company from risks brought about by malicious or negligent actions by the vendor is also a good idea. Consult an attorney about this because the “magic words” for effective indemnification differ from state to state.

Importantly, your contract should include an insurance provision. Request certificates of insurance from the staffing or payrolling vendor that include the following coverages: general liability, professional liability, hired and non-owned automotive, workers’ compensation, crime, and cyber insurance. If you utilize temporary employees in healthcare, engineering, financial, IT, or legal roles, the staffing or payrolling agency may need additional coverages beyond its professional liability policy.


Nothing you do is without risk, including growing and managing your team. But as long as you and your staffing vendor communicate clearly and delineate responsibilities effectively, you’ll find co-employment to be a risk worth taking.


Tania Fiero is vice president of human resources at Innovative Employee Solutions, a leading nationwide employer of record that specializes in human relations and payroll services. Founded in 1974 in San Diego, California, IES has grown into one of the city’s largest women-owned businesses and been named one of its “Best Places to Work” for 10 years in a row.

An expert in joint employment and the Affordable Care Act, Tania helps employers embrace contingent workers in their staffing strategy and culture. She is a Society of Human Resources Certified Professional (SHRM-CP) and a certified Professional in Human Resources (PHR) via the Human Resources Certification Institution. Tania previously served on the Board of Directors for the National Human Resources Association of San Diego. She was recognized in 2016 by the San Diego Human Resources Forum Board of Directors at its HR Executive of the Year event and in 2011 by the San Diego Business Journal as San Diego’s HR Professional of the Year.

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