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The correct understanding is that as client involvement increases, so does the risk of co-employment liability. Co-employment refers to a situation where both the staffing agency and the client employer are seen as joint employers of the temporary workers. This can occur when the client exerts significant control over the work environment, job duties, and the manner in which work is performed.

When clients are heavily involved in the day-to-day management of staff provided by a staffing agency, it can blur the lines of employment. For instance, if a client dictates how, when, and where a worker should perform their tasks, they may be seen as a co-employer. This shared control can lead to increased scrutiny from regulatory agencies, potential lawsuits, and liability for employment-related issues, such as wrongful termination claims or workplace discrimination.

The other options suggest that increased client involvement either reduces the risk of co-employment liability or has no impact, which misrepresents the fundamental principle of co-employment. It is essential to understand that the dynamics between staffing agencies and client companies can create complexities in employer responsibilities, making client involvement a critical factor in assessing co-employment risks.