Definition of a Leased Employee

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Leasing employees can save a company money.
Leasing employees can save a company money. (Image: nyul/iStock/Getty Images)

Some companies leave the management of their workforce to outside companies. The workers are actually employed by a third-party leasing company but do their work for the company that contracts with the leasing company. In addition to relieving companies of the administrative responsibilities of managing a workforce, leasing employees also can save a company money by reducing the cost of benefits and insurance, to name just two areas.

Professional Employer Organizations

Leased employees are technically employed by the professional employer organization that contracts with the client company where the employees report to work. The PEO handles payroll, tax forms and benefits -- all the administrative functions that normally would fall under a human resources department. The contracting company retains supervision over the workers.

Leased Employees Vs. Temporary Workers

Leased employees and temporary workers are both technically employed by an outside firm that oversees the administrative functions for the contracting company. However, temporary employees are by definition only assigned to a specific firm for a specific period of time. Leased employees, on the other hand, perform their jobs at a particular company for an open-ended period of time and do not move around to different companies or different work assignments.

Advantages of Using Leased Workers

By contracting with a PEO, a company can save a lot of money in cost areas such as benefits. This is because the PEO usually contracts with several companies and can negotiate better rates with insurance companies and pass a large portion of the savings on to their client companies. Using PEOs can be a more efficient and cost-saving way to handle HR in general.

Common-Law Employees

Because the contracting companies retain supervisory control over their workers, the Internal Revenue Service considers leased employees as the common-law employees of the company contracting with the PEO. This means the contracting company still has the legal responsibility for complying with such aspects of workforce management as safety regulations and antidiscrimination laws.

Considerations

Companies that contract with a PEO to provide leased employee services should consult with an attorney to determine the exact extent to which they will be liable for the employees. Companies should also be clear with the PEO and within their own management about how to handle contingent workers, also known as independent consultants, who are not considered to be employees of either the PEO or the contracting company.

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