Managing a contingent workforce comes with a long list of challenges. One of the trickiest legal challenges in workforce management is co-employment. In this article, we look at what is co-employment and how does a Vendor Management System help shield you from co-employment risk.
Contingent Workforce - Co-Employment Risk
Contingent workers, whether temp staff, independent contractors (ICs), freelancers, or consultants, can bring agility, scalability, and specialized skills to your organization. But they also introduce one of the trickiest legal challenges in workforce management: co-employment.
If you’re not careful, co-employment can lead to expensive lawsuits, government audits, back taxes, and reputational damage. Fortunately, a modern Vendor Management System (VMS) can serve as your frontline defense against these risks.
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, the risk intensifies if the company starts treating them like regular employees, assigning fixed schedules, dictating how work is done, or making them appear indistinguishable from permanent staff.
When this line is blurred, courts and regulators, such as the federal tax authority or the Department of Labor, may determine that co-employment exists, which opens the door to a range of liabilities.
Why Is Co-Employment Risky?
Liability: If co-employment is determined, the company may be responsible for providing benefits such as health insurance, paid time off, or retirement plans.
Tax Withholding: Misclassifying a worker as a contractor when they’re effectively functioning as an employee could lead to back taxes, interest, and penalties.
Wage and Hour Claims: Co-employed workers may bring claims for unpaid overtime, minimum wage violations, or improper termination.
Discrimination and Harassment Claims: Co-employment status means your company could be held liable for workplace violations - even if the worker was placed by an agency.
Wrongful Termination and Worker Eligibility: 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 Avoid Co-Employment Risk
A robust VMS doesn’t just organize your contingent workforce - it actively protects you from missteps that lead to co-employment claims.
For example, let's look at how Conexis VMS helps our clients avoid co-employment issues:
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.
Final Thoughts
In the age of flexible work, co-employment risk is real - and costly. But it’s also entirely manageable. A well-implemented VMS doesn’t just make your contingent workforce more efficient. It creates structure, transparency, and compliance guardrails that help you scale with confidence.
Don’t leave your business vulnerable to co-employment surprises. Let Conexis be your compliance co-pilot.
Learn More about the Benefits of a Vendor Management System
Download our Free VMS Buyer's Guide here:
Take the Next Step with Conexis VMS
Conexis is an award-winning VMS tailored specifically for mid-market contingent workforce programs. Leveraging the latest technology, Conexis delivers the expertise, reliability and security of enterprise systems, while offering the flexibility, user friendliness and tailored service you require. Conexis delivers enterprise level software - without the enterprise level complexity and cost. Learn more about our Company and why organizations Choose Conexis VMS.
Contact Us
Whether you are looking to change your VMS solution, or just getting started, we are here to help. Contact Us for a Free No-Obligation Consultation to discuss your workforce challenges (and get immediate actionable insights). See how easy Conexis is to use by taking a quick 2 minute Self-Guided Tour, or Book a Personal Demo Today!
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Additional Information on the Benefits of a VMS:
What is a VMS? | VMS Benefits | Free VMS Education Center | Why Choose Conexis VMS
Cost Savings: How you can save 20% on your contingent workforce costs
Reducing Risk: 5 Ways to reduce contingent workforce risk with a VMS
Improving Compliance: 10 Ways a VMS helps improve contingent workforce compliance
Managing Shift-Workers: 5 Ways a VMS helps you manage shift-based workers
Improving Invoicing: 5 Ways a VMS streamlines and improves invoicing
Increasing Visibility: 5 ways a VMS gives you visibility into your contingent workforce program
Measuring Staffing Agency Performance: How a VMS improves staffing agency performance
Additional Information on the Managing Risk with a VMS:
- 5 Ways to Reduce Contingent Workforce Risk with a VMS
- 10 Ways a VMS helps reduce Contingent Workforce Compliance
- Identifying the Hidden Risks in Your Contingent Workforce Program
- How to Track Contingent Workforce Compliance Risk with a VMS
- How to Mitigate Contingent Workforce Compliance Risk
- Is your Staffing Agency putting your company at risk?
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