Texas Law Relating to Co-Employment in a PEO Context

Texas Labor Code, Chapter 91 regulates professional employer organizations (PEOs) in Texas and the co-employment relationships they potentially establish. It requires PEOs to be licensed, outlines the responsibilities of both the PEO and client, and covers areas like workers' compensation, payroll, and the sharing of employer rights and obligations. The chapter, also known as "Staff Leasing Services," aims to provide a framework for these arrangements, which differ from temporary staffing. In a co-employment scenario, there is typically a written agreement which allocates certain employer rights and responsibilities between the PEO and the client. Co-employment is not the same as a joint employment arrangement. Co-employment is a contractual relationship between a client company and a PEO, where responsibilities like payroll and benefits are shared, but the client retains control over daily management. Joint employment, on the other hand, is a broader legal concept where two or more employers share or co-determine an employee's essential terms and conditions of employment, such as wages, scheduling, and supervision, making both employers legally liable. While co-employment is a specific type of joint employer relationship as defined by law, it is not the same as a general joint employment arrangement because co-employment is a formal, contracted division of employer duties. 

For workers’ compensation purposes, both the PEO and client may be considered co-employers if the requirements of Texas law are met and there is a contractual co-employment relationship clearly outlined and specified which addresses workers’ compensation insurance. The specifics of who obtains coverage and how it is managed depend on the agreement and whether coverage is elected.  

Under Chapter 91, either the PEO or the client company can provide workers' compensation insurance, as long as they agree on the co-employer and workers’ compensation terms in writing and as determined by their agreement. The client company and the PEO can agree in their contract that the client will provide the workers' compensation coverage. The leasing company (or PEO) is often responsible for providing insurance for its leased employees unless the agreement specifies otherwise. An insurance certificate can potentially be proof of coverage for both the client and the leased employees.  

Again, the agreement must specify which party will be responsible for providing the workers’ compensation insurance for the leased employee. The written agreement between the PEO and the client company determines who provides coverage. The specific responsibilities for providing insurance are required to be outlined in the written employee leasing agreement between the two companies.  

Both the PEO and the client company can be considered employers for some responsibilities, but the specific role in providing workers’ compensation insurance depends on the contractual terms. Depending on the agreement, either the PEO or the client company can be considered the insured employer for purposes of workers’ compensation benefits.  

Texas Labor Code, Chapter 91 also regulates retirement and welfare benefit plans for covered employees, as well as self-funded health benefit plans. Section 91.041 and 91.0411. The requirements of a PEO contract are specified in Texas Labor Code Chapter 91.032.

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