The Pitfalls of Employee Leasing
Hiring employees can be a timely and costly process. Job openings can lure hundreds of applicants, depending on the business and the pay scale. Sifting through the applications can be tedious and making a sound hiring decision can be difficult --- and costly, if the hire doesn't pan out. While employee-leasing firms boast the ability to alleviate many of the concerns with hiring employees, there are several risks and potential pitfalls involved.
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Joint Liability Issues
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In an employee-leasing agreement, a leasing firm (a "professional employer organization" or PEO) provides employees to a company. This means the leasing firm generally is responsible for the hiring and recruitment aspects of the employee and that the employees technically work for the leasing company. However, the company may be still be liable for downfalls of the PEO. According to Vantaggio HR, Limited, a human resources company, if the PEO has shoddy hiring practices that violate labor laws (such as civil rights laws), the company may still be on the hook for claims and liability. Additionally, the company is still required to comply with other aspects of employment law, such as the requirement to carry workers compensation insurance.
Lack of Loyalty and Control
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Employee leasing is often a short-term fix. Companies that seek loyal workers or long-term commitments may find employee-leasing programs particularly faulty. Further, employee-leasing programs may take some of the control over the hiring process away from the company, according to the Gaebler website, an Internet resource for entrepreneurs. Since the employee technically works for the leasing firm, the firm may have conditions on when an employee can be fired or which employees are suitable for that particular company.
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Payroll and Cost Considerations
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Payroll and cost considerations are related to the joint liability concern. According to Vantaggio HR, a business may be liable for payroll taxes and withholding taxes, even in an employee-leasing situation, if the PEO fails to properly handle those obligations. Further, companies must remember that PEOs are in business to make money. The costs associated with an employee-leasing program may actually be more expensive than the business of undertaking the hiring duties.
Weighing the Pros and Cons
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As with any business decisions, choosing whether an employee-leasing program is right for your business depends on the unique needs and considerations of your company. Businesses have had success with employee-leasing programs. It is important to keep in mind both the pros and cons when making the decision. Also, companies may have more than one PEO to choose from. A company may need to shop around before making a decision.
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