Avoid Co-Employment Risks with a Vendor Management System

Managing a contingent workforce brings agility, scalability, and expertise - but it also introduces complex legal risks. One of the most significant is co-employment. In this article, we’ll explore what co-employment is, why it’s risky, and how a Vendor Management System (VMS) can be your first line of defense.

What is Co-Employment?

Co-employment occurs when two or more companies share control over a worker and are jointly considered employers for legal and tax purposes. In the context of contingent labor, this often happens when a staffing agency provides a worker to a company, and both have a say in the worker’s schedule, duties, or employment terms.

With independent contractors and freelancers, co-employment risk increases if the company begins treating them like full-time employees - assigning fixed hours, directing how work should be done, or integrating them into daily operations. If this boundary is blurred, courts and regulatory bodies like federal tax authorities or the Department of Labor may determine that co-employment exists.

Why Co-Employment is a Legal Risk for Employers

The consequences of co-employment can be serious. If you’re not careful, co-employment can lead to expensive lawsuits, government audits, back taxes, and reputational damage.

Liability for Benefits: If co-employment is determined, the company may be responsible for providing benefits such as health insurance, paid time off, or retirement plans.
Tax Penalties: Misclassifying a worker as a contractor when they’re effectively functioning as an employee could lead to back taxes, interest, and penalties.
Wage Claims: Co-employed workers may bring claims for unpaid overtime, minimum wage violations, or improper termination.
Harassment and Discrimination Liability: Co-employment status means your company could be held liable for workplace violations - even if the worker was placed by an agency.
Wrongful Termination or Immigration Issues: If your company exerts too much control over hiring, firing, or day-to-day supervision, it may become entangled in legal disputes over terminations or immigration violations.

How a VMS Helps you Avoid Co-Employment Risk

A Vendor Management System (VMS) like Conexis provides structure and visibility, reducing the likelihood of missteps that lead to co-employment claims when managing your workforce. Here’s how:

Assignment Duration Monitoring

One of the simplest red flags for co-employment is how long a worker stays on assignment. Conexis enables the automated monitoring of tenure policies, tracks assignment start and end dates, flags overextensions, and prompts HR or procurement to reevaluate long-term needs. By managing tenure proactively, companies avoid creating the perception that temps are being treated like permanent employees.

Independent Contractor Compliance and Verification

Conexis supports IC vetting by integrating classification tools and workflows to verify that an IC meets legal criteria (based on IRS or Department of Labor tests). It can house documents proving IC status, such as business licenses, contracts, and insurance, and flag any missing or expired items.

Worker Classification and Audit Trails

All contingent worker engagements should be fully documented. Conexis maintains an audit trail of contracts, classification justification & decisions, work scopes, and vendor responsibilities, providing legal protection in the event of a claim.

Workforce Compliance Monitoring

Conexis automates compliance checks for background screenings, credential verification, onboarding documents, and contract deliverables. Whether you need to confirm that a contractor is legally allowed to work or that a healthcare temp has up-to-date certifications, your VMS ensures nothing slips through the cracks.

Non-Compliance Notifications

Automated alerts are your early warning system. Whether it’s a contract expiring, a missing insurance certificate, or an IC working outside their defined scope, Conexis flags these risks in real time—giving you the chance to fix issues before they escalate into legal liabilities.

Protect Your Business with Conexis VMS

In today’s flexible labor environment, co-employment risk is a reality - but it doesn’t have to become a liability. Conexis VMS provides enterprise-grade tools to monitor, manage, and protect your contingent workforce while staying compliant.

Ready to Reduce Your Co-Employment Exposure?

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Discover the Power of Conexis VMS

Conexis is an award-winning Vendor Management System built for companies with mid-market contingent workforce programs that want the power of enterprise software without the complexity.

Leveraging the latest technology, Conexis delivers the expertise, reliability and security of enterprise systems, while offering the flexibility, user friendliness and tailored, personal service you require. Learn more about our Company and why organizations Choose Conexis VMS.