In today’s ever-changing business environment, many companies are looking to reduce the time and money spent on recruiting, hiring, and payroll by utilizing outside agencies in a co-employment agreement.
Based on data from SHRM, it takes companies 36 days on average to fill a new position at an average cost of $4,425.
Co-employment arrangements allow busy businesses to focus on providing co-employees’ duties, day-to-day schedules, and expectations while the Recruiting Agency handles personnel matters such as onboarding, payroll, sick leave, and benefits. This hybrid form of employment means that the contract employee is technically working for both parties, the business, and the recruiting agency at the same time.
Contractors and gig workers are becoming a vital and growing force to be reckoned with in the business world so it is important for businesses to be aware of the benefits, as well as the risks associated with co-employment agreements.
Some business owners may avoid hiring contract workers due to the fear of risks and potential lawsuits. While there are numerous compliance factors to adhere to, the reality is that hiring someone under a co-employment agreement is really no more risky than hiring a full-fledged employee. In fact, in some cases, it may be less risky for the business. A business can greatly reduce their risks by working with a competent and reputable recruiting agency.
What Risks Are Associated With Co-employment?
While some businesses utilize recruiting agencies to outsource the recruitment and hiring of contingent employees as a way to reduce their risks, this unique co-employment partnership still contains inherent risk factors.
Many of the risks boil down to one singular issue: employee classification.
A contract employee may decide to take legal action against a business if they feel that they are operating on a day-to-day basis as an employee. For example, if a co-employee is working the same hours as a regular employee, using identical equipment, reporting to the same manager, or sharing similar duties, a company could fall victim to a lawsuit due to co-employment classification issues. If the contractor does decide to take legal action, both the business and the employment agency could be held responsible for financial compensation.
While there are many benefits to both the co-employee and the co-employer in a co-employment agreement, some contractors may feel that they are entitled to the benefits of full-time staff members so it’s imperative that businesses know how to mitigate co-employment risks.
How Do You Mitigate The Co-employment Risks?
When a business enters into a co-employment arrangement, they typically have three primary duties to the contractors: coordinate and outline their day-to-day duties and schedule, ensure safe work conditions are in place, and detail the length of the co-employment agreement.
The recruiting agency will then take over onboarding and paying the employee their agreed-upon wage. While this agreement may seem cut and dry there are legal risks to the business and the recruiting agency if certain factors are not accounted for.
How to mitigate co-employment risks:
- Properly classify employees
- When an employee is misclassified, employers could be responsible for high penalties, lawyer fees, and in some cases criminal liability. You can read more about classification here.
- Independent contractor screening
- Screening a potential contractor is one of the most important ways to mitigate your co-employment risks.
This important step can help your business avoid costly fines, litigation, and bad press. Nexus Contingent Workforce’s independent contractor screening services allow business owners to have peace of mind when entering into a co-employment agreement. The screening process at NexusCW is conducted by licensed attorneys and holds up against state and federal audits.
- Education is the best prevention
- While a business owner may understand the intricacies of how to treat a co-employee to avoid risks, their other employees and managers may not. It’s important to have a clear, detailed playbook of how to treat a contractor to avoid sticky situations.
- Choose your recruiting agency wisely
- Unfortunately, many recruiting agencies who utilize co-employment agreements do not fully understand the laws and risks associated with these arrangements. Experienced firms, such as NexusCW have decades of experience managing positive co-employment agreements and understand the benefits as well as the dangers.
As the world and businesses shift to favor a more flexible and digital workplace ecosystem, more and more companies will rely on outside agencies to recruit, hire, and manage independent contractors. By reducing the time and money spent on finding the right talent, businesses can grow and thrive with fewer constraints.
Co-employment arrangements offer busy firms talent without the fuss. While this arrangement may seem like a no-brainer for many it is still imperative to understand the risks associated with co-employment and how to mitigate them. As co-employees work for both the company and the employment agency, there are several legal risks to employee misclassification that can affect both parties financially.
By working with an experienced team of professionals to manage your contingent labor, you can rest assured knowing your risks are being reduced and managed daily. NexusCW keeps up to date with the latest legislation, compliance to help you manage your contingent workforce program properly.