Define Employee Leasing

Leased employees can receive benefits from both the client company and the PEO.

Employee leasing is a methodology in which the client company takes employees from the contractor company on a lease. The contractor companies are referred to as "professional employer organizations," or "PEOs." The PEO, on behalf of the client company, hires employees on its payroll and leases them to the client company. The PEO manages all staffing and HR functions of the employees.

Function

The PEO oversees all HR functions, such as payroll administration, filing taxes and insurance, and monitoring attendance. The client company looks after the administration of the employees while they're working on the client company's premises.

For its services, the PEO keeps a portion of the employee's salary. The PEO files taxes and pays insurance premiums for the employee; whatever remains thereafter is the PEO's share for hiring and leasing the employee.

Benefits

By using employee leasing, all three interested parties benefit. The client company completely does away with handling HR functions such as payroll processing, negotiating insurance premiums and filing taxes, allowing it to concentrate solely on its trade and commerce. The PEO earns a percentage for every hour that its employee works for the client company. The more hours an employee works, the more the PEO's share is. The employee also receives enhanced benefits from both the client company and the PEO and is protected by federal laws.

Limitations

From the client company's viewpoint, it's still obligated by law to look after its leased employees. Leased employees can't be discriminated against on the basis of age, gender, race, disability or even because they're not full-time employees of the organization. The working conditions for leased employees must be safe and hospitable.

Leased employees are at a disadvantage in that they can be fired at any time. The project that they were working on might end, or there could be budgetary constraints that could cause them to lose their jobs.They may remain as employees of the PEO, but they'll be without an income until the next client company comes along.

Considerations

The client company should carefully weigh the pros and cons before hiring leased employees, especially in regard to the costs and legalities involving the PEO and the leased employees. Costs that would be incurred by placing the employees directly on the client company's payrolls should be contrasted with the payments that would need to be made to the PEO. This assessment will help the client company decide whether it's worth it to engage the services of a PEO or to simply hire employees on its own payroll.

History

Organizations in the United States have been tapping into this model since the 1970s. A consultant by the name of Martin Selter initiated and propagated this model in California by leasing employees for a doctor's office.

References

• IRMI: The Employee Leasing Decision