How to Avoid Risks When Hiring Co-Employees: 4 Tips

When your business is ready to take the next step and hire international talent, you might consider using a global PEO (professional employer organization) service or other co-employment staffing firm, which means onboarding co-employees.

However, managing co-employees comes with legal and classification risks. Here is all the information you need to know about how to hire co-employees using a co-employment agency or PEO, as well as 4 mistakes to avoid during the search process. 

What is co-employment? 

Co-employment is when a company agrees to use a global PEO or a similar third-party provider to help manage payroll and benefits for international employees. Companies that partner with a global PEO need to have an establish entity in the country where they have employees. So if a US-based company wants to partner with a global PEO to run payroll in Canada, they first need to establish an entity in Canada.

As an employer, you manage the everyday tasks associated with your co-employees, including day-to-day work activities and recruiting. A co-employment or PEO service, on the other hand, manages HR related tasks like payroll, taxes, workers compensation and benefits, and local labor law compliance. 

Both companies have compliance obligations as co-employers, which means the the parent company can be held legally responsible if any legal or compliance issues arise. To avoid this, consider partner with an EOR service like Via.

What does the business manage? 

The parent company or business manages the everyday functions of the employees, including 

• Hiring decisions

• Day-to-day operations and oversight

• Functions like marketing, development, design, sales, and other business units 

• Overall decisions related to the co-employee 

• Daily responsibilities and roles of the co-employee

• Performance reviews

Companies choose to partner with a PEO because they want in-country experts to manage local HR functions, including navigating payroll, taxes, new labor laws, and compliance.

What does the co-employer manage? 

The co-employer, usually the PEO service, manages the administrative side of operations. 

Co-employment services usually include: 

• Payroll processing

• Providing HR advice

• Administering benefits

• Limited access to employee data

• Registering and arranging employment taxes with the right institutions

• Administering insurance, unemployment claims, and severance packages

While co-employment services can be a useful tool for helping with workforce management, you will still need to hire local lawyers and accountants, as well as familiarize yourself with the labor and tax laws in the countries where you plan to hire.

4 mistakes to avoid when entering a co-employment relationship

Although using a PEO service offers many advantages (given you already have an entity established within the country), entering into a co-employment model still comes with its own risks. 

Here are 4 mistakes your business should avoid as you shop around for PEOs.  

Step 1: Properly classify full-time workers and independent contractors

When many companies hire abroad, they cut corners by onboarding workers as independent contracts, but this approach isn't scalable or compliant.

To avoid any legal ramifications and being audited, you will need to make sure that your co-employment service is properly abiding by all federal, local, and state employee classification laws. Not all countries view independent contractors the same. Mexico, for instance, has made it difficult to hire contractors.  

Businesses that properly classify their workers are much less likely to be sued by an employee for not receiving the appropriate compensation. You should also make sure that your co-employment service is keeping track of payments made to all full-time employees and independent contractors for tax purposes. 

Step 2: Work with a reputable co-employment or PEO service

If you plan to enter into a co-employment agreement, make sure you do as much research about the service as you can. A reputable company will help you navigate processes and procedures for hiring workers, assist your global expansion strategy, and alleviate your HR stress.

If you hire a PEO who seems to be doing the opposite, you could put your entire business at risk. As the employer, you will assume some or all of the responsibility if anything goes erroneously with the professional employer organization. 

Step 3: Avoid discrimination

All around in your business, you should ensure that your workplace and hiring practices are free of discrimination. Having a company culture that celebrates diversity and differences will help you avoid any future litigation from employees who felt unfairly treated. 

Likewise, your PEO partner needs to know the laws around discrimination, especially when they are paying and compensating employees. This is why knowing and researching the co-employment service you plan to hire is so important. 

Step 4: Maintain a safe space for all employees

Instead of just handing off all of the independent contractors over to the co-employment agency, make sure that employees feel comfortable telling you about potential issues so that you can identify any potential HR problems before they negatively impact your bottom line.

What is the difference between a PEO and an EOR? 

PEO and EOR are often used interchangeably, but they do have different meanings. 

What is a PEO? 

PEO partners help provide HR and global payroll services to a company that already has an established entity in the country where they plan to hire. For companies that already have an established physical presence in a new country, partnering with a PEO makes sense .

What is an EOR? 

If your business is still growing or you’re just looking to test a new labor market in a specific country, an employer-of-record can help you streamline the HR, hiring, and compliance process without needing to invest too much time or start-up capital when hiring co-employees. 

By partnering with an EOR, you can avoid all of the costs associated with setting up an entity, including register with local government institutions, opening a local bank account, and building a new HR team.

Why companies choose Via

Many companies want to expand and hire co-employees, but are unsure if they should use a PEO service or an EOR service like Via. If you partner with us, we make  hiring talent and building your global team seamless and fast. Via helps you manage local human resources (HR) processes for direct employment such as work visas & permits, employment contracts, benefits, payroll, background checks, worker compensation, compensation coverage, and insights into international hiring. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding abroad. As your employer-or-record/entity, Via assumes full responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team. 

With Via’s transparent pricing, you can pay full-time employees or contractors with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.