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The PEO relationship involves a contractual
allocation and sharing of employer
responsibilities between the PEO and the client;
this shared employment relationship is called
co-employment. When evaluating the employer role
of either the PEO or the client, the facts and
circumstances of each employer obligation should
be examined separately, since neither party alone
is responsible for performing all of the
obligations of employment. Each party will be
solely responsible for certain obligations of
employment, while both parties will share
responsibility for other obligations. When the
facts and circumstances of a PEO arrangement are
examined appropriately, both the PEO and the
client will be found to be an employer for some
purposes, but neither party will be found to be
"the" employer for all purposes.
Both the
PEO and the client company establish common law
employment relationships with worksite employees.
Each entity has a right to independently decide
whether to hire or discharge an employee. Each
entity has a right to direct and control worksite
employees - the PEO directs and controls worksite
employees in matters involving human resource
management and compliance with employment laws,
and the client company directs and controls
worksite employees in manufacturing, production,
and delivery of its products and services.
The
client company provides worksite employees with
the tools, instrumentalities, and place of work.
The PEO ensures that worksite employees are
provided with a workplace that is safe, conducive
to productivity, and operated in compliance with
employment laws and regulations. In addition, the
PEO provides worksite employees with workers'
compensation insurance, unemployment insurance and
a broad range of employee benefits programs.
PEOs
create an employment relationship with their
workers. This relationship exists in fact, not
just in form. PEOs can manage the risks attendant
to the personnel functions that they perform only
if they establish an employment relationship with
their worksite employees. Unless a PEO has a right
to direct and control worksite employees, as well
as a right to hire, supervise, discipline, and
discharge these employees, the PEO will merely
assume liability without having a means to manage
that liability.
PEOs
manage their employment liability exposure by
monitoring and requiring compliance with
employment laws, developing policies and
procedures that apply to worksite employees,
supervising and disciplining worksite employees,
exercising discretion related to hiring new
employees, and ultimately terminating worksite
employees who do not comply with requirements
established by the PEO.
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