Co-Employment

What is co-employment?

Co-employment is a legal relationship where two entities share employer responsibilities for the same employee. In this arrangement, both organizations have certain rights and obligations toward the worker, though each typically handles different aspects of the employment relationship.

Co-employment vs. Employer of Record

Co-employment (PEO model):

• Client company must have local entity
• Both PEO and client are legal employers
• Shared liability and responsibilities
• Both listed on employment documents
• Joint control over employment decisions
• Common in United States with PEOs

Employer of Record (EOR model):

• Client does NOT need local entity
• EOR is sole legal employer
• EOR assumes employment liabilities
• Client directs day-to-day work only
• Clear separation of responsibilities
• Enables international expansion without entities

Why understanding the distinction matters

Many people confuse EOR with co-employment, but they are fundamentally different:

For compliance:

• Co-employment requires client to have local presence
• EOR eliminates need for client entity
• Legal responsibilities differ significantly
• Regulatory obligations vary

For liability:

• Co-employment means shared liability
• EOR means EOR assumes employment liability (client retains work product liability)
• Risk allocation is different

For international expansion:

• EOR enables hiring without establishing companies
• Co-employment/PEO requires existing local entity
• EOR is the solution for true international expansion

When co-employment relationships occur

Professional Employer Organizations (PEOs):

• Most common co-employment arrangement
• Popular in United States
• Client and PEO share employment responsibilities
• Both are employers of record

Staffing agencies (some models):

• Temporary staffing arrangements
• Agency and client may share certain responsibilities
• Varies by jurisdiction and contract

Parent-subsidiary relationships:

• Secondments between related companies
• Dual reporting relationships
• Shared management responsibilities

Joint ventures:

• Employees working for multiple entities
• Shared employment arrangements
• Complex liability considerations

Risks of co-employment

Liability concerns:

• Shared liability for employment violations
• Both entities potentially liable for discrimination claims
• Wage and hour violations affect both
• Termination disputes can involve both parties

Compliance complexity:

• Must navigate regulations for both entities
• Dual reporting requirements possible
• Coordination challenges
• Potential for inconsistent treatment

Control issues:

• Unclear decision-making authority
• Conflicts over employment decisions
• Management challenges
• Employee confusion about who they work for

Tax implications:

• Complex tax withholding responsibilities
• Potential for permanent establishment
• Transfer pricing considerations
• Dual tax reporting

Legal considerations:

• Contract clarity essential
• Defined responsibilities for each party
• Liability allocation agreements
• Indemnification provisions

Co-employment in APAC context

Limited prevalence:

• PEO/co-employment model less common in most APAC countries
• Most international hiring uses EOR model (sole employer)
• Staffing agencies operate differently than Western PEOs
• Some countries prohibit or restrict co-employment

Regulatory frameworks:

• Most APAC countries don't have specific PEO legislation
• Employment laws generally contemplate single employer
• Agencies regulated as labor hire/employment services
• Triangular employment relationships scrutinized

Cultural considerations:

• Clear employer identity important in many APAC cultures
• Employee loyalty typically to one organization
• Ambiguous employment relationships can cause confusion
• Preference for straightforward employment structures

Country-specific notes:

Singapore:

• No PEO framework; EOR model used
• Clear employer identification required
• Employment agencies regulated separately

Australia:

• Labour hire licensing regimes
• Host employer obligations exist
• Different from US PEO model
• Clear legal employer designation required

Hong Kong:

• Employment agency regulation
• Single employer concept
• EOR model for international hiring

Japan:

• Dispatched worker regulations
• Restrictions on triangular employment
• EOR model preferred for foreign companies

India:

• Contract labor regulations
• Principal employer and contractor concepts
• Compliance complexity
• EOR solutions navigating regulatory framework

How to avoid unintended co-employment

Clear contractual relationships:

• Define who is the legal employer
• Specify responsibilities of each party
• Avoid ambiguous language
• Include choice of law and jurisdiction

Maintain control boundaries:

• Client directs work, not employment terms
• EOR handles all employment administration
• Clear separation of day-to-day vs. employment management
• No client involvement in hiring/termination decisions (EOR decides)

Proper documentation:

• Employment contracts name single employer (EOR)
• Org charts show reporting structure
• Communications clarify relationships
• No joint employer representations

Avoid joint representations:

• Don't use "co-employment" language
• Client doesn't appear as employer on documents
• Separate branding and communications
• Clear about who employees work for

Professional advice:

• Legal review of arrangements
• Understand local employment law
• Structure to avoid co-employment characterization
• Regular compliance reviews

AYP's approach: Clear EOR model

AYP operates as a pure Employer of Record, NOT a co-employment arrangement:

Single legal employer:

• AYP is the sole legal employer
• No co-employment relationship with clients
• Clear liability allocation
• Clients don't need local entities

Defined responsibilities:

• AYP: All employment obligations, compliance, payroll, benefits, HR admin
• Client: Day-to-day work direction, performance management, assignments
• Clear boundaries maintained
• No ambiguity in relationship

Compliance focused:

• Structure designed to avoid co-employment risks
• Compliant with local regulations
• Proper employment contracts
• Professional legal framework

Client benefits:

• No entity establishment needed
• Clear risk allocation
• Simplified international hiring
• Professional employer expertise
• Single point of accountability

Why this matters for clients: The clear EOR model (vs. co-employment) means clients can expand internationally without the complexity, liability, and regulatory burden of co-employment arrangements.