Glossary · PEO basics
Co-employment
A contractual arrangement in which two entities — typically a PEO and its client — share legal and operational responsibilities for the same workforce.
Co-employment is the legal foundation of the PEO model. The client (often called the "worksite employer") retains day-to-day direction of work, hiring decisions, and termination authority. The PEO becomes the employer of record for tax and benefits purposes.
Co-employment is distinct from joint employment (a labor-law concept) and from employee leasing. The relationship is governed by a Client Service Agreement (CSA) that defines exactly which obligations sit with each party.
Related terms
- PEO (Professional Employer Organization)A PEO is a firm that co-employs a client's workforce to deliver payroll, benefits, HR, and compliance services under a shared-employment arrangement.
- CPEO (Certified PEO)A PEO certified by the IRS under the Small Business Efficiency Act, providing client businesses explicit federal employment-tax liability assurance.
- CSA (Client Service Agreement)The contract that defines the co-employment relationship between a PEO and its client, including allocation of obligations, fees, and termination rights.
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