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Employee leasing is similar to the process of hiring temporary workers, but

the key difference is permanency. A company wishing to pursue employee
leasing will first contact a professional employment organization (PEO) to
discuss its particular employment needs. The PEO or other employment
leasing company might set up an interview process for recruiting new staff,
or might take responsibility for existing workers. The company can still
participate in the hiring process, but any hired personnel will officially work
for the employee leasing company.

For many employees, the switch from their original company to an

employee leasing company is actually a better deal financially. Since a
typical PEO handles a large number of employees from numerous
companies, future health insurance and other benefits can be negotiated in
bulk. A worker at a small electronics company can enjoy the same level of
benefits as a worker in a massive automotive plant. Wages and
performance reviews are under the auspices of the employee leasing
organization, not the original companie

Employers often pursue employee leasing options in order to eliminate the

need for accountants and human resource managers. The employee
leasing agency charges a fee in addition to the employees' wages, much
like temporary employment agencies. This fee is often less than the cost of
hiring human resource experts and payroll accountants. Because workers
are not considered employees of the company in a legal sense, personal
injuries and workers' compensation claims become the responsibility of the
employee leasing agency.
Employee leasing is not a perfect solution for some companies, however.
Since workers are not completely under the control of management,
communications may become strained. Conflicts may have to be arbitrated
by representatives of the employee leasing agency. Termination of non-
productive workers may not be as simple as handing out pink slips. Certain
union contracts actually prohibit the use of employee leasing agencies or
PEOs in order to prevent companies from outsourcing their human
resource departments.

Leased Employees
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Employee leasing is a contractual arrangement in which the leasing
company, also known as a professional employer organization (PEO), is
the official employer. Employment responsibilities are typically shared
between the leasing company and the business owner (you, in this case).
You retain essential management control over the work performed by the
employees. The leasing company, meanwhile, assumes responsibility for
work such as reporting wages and employment taxes. Your main
responsibility is writing a check to the leasing company to cover the payroll,
taxes, benefits and administrative fees. The PEO does the rest.
Employee leasing lets you add workers without adding administrative
complexity. Employee leasing firms manage compliance with state and
federal regulations, payroll, unemployment insurance, W-2 forms claims
processing, and other paperwork. Some also offer pension and employee
assistance programs.
By combining the employees of several companies into one large pool,
PEOs can also offer business owners better rates on health-care and
workers' compensation coverage. The net effect can be significant savings
of your time and money.
If you've decided to look into employee leasing and are considering
working with a PEO, how can you decide if that PEO is right for your
business? TheNational Association of Professional Employer Organizations
(NAPEO)makes the following recommendations:
R Look for services that fit your human resources needs. Is the company
flexible enough to work with you?

R Check for banking and credit references and evidence that the company's
payroll taxes and insurance premiums are up to date. Ask to see a
certificate of insurance.

R Ask for client and professional references, and call them.

R Investigate the company's administrative competence. What experience

does it have?

R Understand how employees' benefits are funded. Do they fit your

workers' needs? Find out who the third-party administrator or carrier is,
and whether it is licensed if your state requires this.

R Make sure the leasing company is licensed or registered if required by

your state.

R Review the agreement carefully and try to get a provision that permits
you to cancel with short notice--say, 30 days.

Employee leasing programs are arrangements in which businesses lease

their employees through an outside contractor that attends to the various
personnel-related activities commonly associated with human resources
management. Employee leasing programs have become particularly
popular among small-and mid-sized companies, who view leasing as:1) a
viable option for increasing the benefits that their work force receives, and
2) an effective strategy for getting rid of burdensome and time-consuming
paperwork. Writing inÑ
Jay Finegan offered a succinct summary of the
employee leasing process: "An employee-leasing company, also known as a
professional employer organization (PEO), 'leases' the employees of the
business that's hired it. That means the PEO serves as a co-employer,
taking control of the personnel administration and paperwork that drive
small business owners to distraction. Most PEOs offer a wide range of
services and benefits packages, including payroll administration, medical
benefits, workers' compensation and unemployment insurance, retirement
plans, and compliance assistance with labor laws. In return, the PEO
charges an administrative fee of roughly 2 percent to 8 percent of total
payroll."
Employee leasing surged in popularity in the 1980s, when observers
tracked annual increases of anywhere from 20 to 40 percent in the total
number of employees involved in the programs. This pace showed no sign
of slowing during the 1990s. Indeed, the National Association of
Professional Employer Organizations (NAPEO) reported in 1995 that the
industry was growing at an annual rate of 30 percent, and in
1997Ñ
reported that according to one analysis, the industry could involve
$185 billion in revenues and more than 9 million employees by the year
2005.

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upporters of employee leasing programs point to a variety of advantages

associated with such arrangements:

R ince leasing firms handle more than one company payroll, they can
wield their greater buying power to get discounts on group health
insurance, life insurance, and dental insurance that smaller
companies simply would not be able to get. The small company is
thus able to provide its workers with better benefits, which in turn
help it to keep valuable current employees and attract promising new
employees.
R easing companies can handle chores associated with workers'
compensation and unemployment insurance. Indeed, studies
undertaken by various governmental and industry groups suggest
that small businesses with 1 to 25 employees can save as much as 40
percent on the cost of unemployment and workers' compensation
with a PEO, while businesses with up to 100 employees can register
savings of 25-35 percent.
R easing companies assume risk and responsibility for preparing a
client company's payroll and for paying payroll taxes, along with state
and federal reporting requirements.
R Employee leasing programs allow small business owners and
managers to spend their time doing what they do best, rather than
struggling in swamps of paperwork. "A good 35-40 percent of my
time, which could have been used more efficiently, was being used to
evaluate health policies and benefits packages for my staff," recalled
one executive inV


 

"Plus, my controller was
spending an enormous amount of time on payroll, taxes, and so
forth." Once the organization turned to an employee leasing program,
 however, the firm's leadership was able to devote much more of its
time and energy to more appropriate tasks.
R PEOs can often lend significant human resources expertise. "Because
of the numbers of employees they represent (hundreds, if not
thousands), [leasing companies] can hire in-house experts in areas of
human resources management that small companies rarely have,"
noted Bruce G. Posner inÑ
Other analysts confirm that many PEOs
offer a wealth of knowledge that can be utilized by client companies
for everything from rewriting job descriptions to helping with
recruiting. "The better PEOs are much more than dressed-up payroll
services," wrote ammi outar inV


 

"They
assume the role of your off-site human resource professional,
performing the sometimes perplexing, often complicated, and time-
consuming duties of that office."
R ëompanies still wield ultimate control over how their business is run.
easing companies take care of payroll and benefits administration
functions, but this does not give them a voice in their clients' other
business decisions. "Under a leasing arrangement, the employees still
report to the same bosses, who remain in charge of how the business
is managed," stated Posner.
R easing companies can also provide legal assistance to their clients in
various aspects of personnel law. There is some self-interest involved
here, since in the event of a lawsuit, both the leasing company and its
client could be targeted as co-employers.

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Employee leasing programs obviously have many well-documented

advantages, as evidenced by the ever-growing popularity of the practice.
But as Posner observed, "however appealing leasing may be, it isn't without
risks. Essentially « you're delegating a vital area of your business to
outsiders." And as Finegan noted, "the employee-leasing industry has seen
spectacular flameouts, owing to everything from bad risks and poor
management to outright fraud. When a PEO goes under, its clients often
discover that their payroll cash and insurance coverage vanish with it."

Many business observers blame the presence of unscrupulous leasing

companies in the industry on the lack of regulation that exists in many
states. Fortunately, associations such as the National Association of
Professional Employer Organizations (NAPEO) keep a close eye on the
industry. It accredits firms that meet its standards, and the organization
can be a valuable resource in determining whether an area PEO will
adequately fill your needs.

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mall business owners looking into the possibility of establishing an

employee-leasing environment in their workplace, then, should make sure
that they select a solid leasing company. To help ensure that they secure
one, they should consider the following:

R ervices²small businesses need to make sure that the PEO under

consideration can meet the business's human resources
administration needs, including reasonable program customization
desires.
R Financial trength²This is a vital aspect of any PEO, for an
organization that is standing on faulty financial footing could
conceivably leave its clients with a crippling debt load if it ultimately
folds as a result of incompetent or criminal management. "Ask for
banking and credit references and proof that payroll taxes and
insurance premiums have been paid," wrote outar. "NAPEO-
accredited members must complete a quarterly audit. Make sure
PEOs under serious consideration have been certified for at least a
couple of years." Finegan agreed, commenting inÑ
that small
business owners should "demand to see audited financial statements
and have an accountant dissect them with you." mall businesses
should also check out the financial standing of the banks and
insurance companies with which the PEO works.
R Œeferences²Ask for a good-sized list of PEO clients, and then take
the time to follow up. "A lengthy list of clients helps ensure that you
won't get only references who are well schooled in the 'right' answers,
and it also offers a look at the PEO's customer base," noted Finegan.
ëonversely, small businesses should be prepared for some
scrutinization as well. As Pamela herrid pointed out in-
 
 


"a reputable leasing firm will respond to your
scrutiny by scrutinizing you. It should want to inspect your workplace
and look at your workers'-compensation experience and at the claims
history of your group health plan. It might not want as a client a
company with serious workplace hazards, for instance, since it could
be sued by an injured employee. The cost of its health premiums
could go up if your employees are often sick."
 R Fee tructure²mall business owners and managers should examine
the fee structure closely to make sure that it is appropriate for all
services. ëompanies looking to secure the services of a PEO should
avoid companies that offer excessively expensive rates, but they
should also beware of those that offer "bargain basement" terms. "Be
on the lookout for companies that either don't charge fees or charge
rates significantly lower than the national average," wrote outar.
"This is a warning sign that the leasing company's intention may be to
get in the market, make a quick buck from the client's cash flow, and
then get out."
R Personal ëomfort²Industry analysts note that a good working
relationship is an important component in making any PEO
arrangement work. mall business owners and managers, then, need
to make certain that they get along with the PEO representatives with
whom they will interact.
R ëontractual Details²ëontracts should spell out every detail of the
arrangement that is being made. After all, human resources
management is a complex area that is rife with complicated rules and
regulations in the realms of payroll, benefits, etc. Moreover, human
resources management has seen increased lawsuit activity in recent
years, a trend that has led some PEOs to ask for varying levels of
input in the realms of hiring and firing of workers in their clients'
workforce. "Even when a leasing firm only supplies help with paper
work and benefits, some firms demand the hire-and-fire prerogative
to ensure they won't be in legal trouble because you've discriminated
against a job candidate or an employee," explained herrid. mall
business consultants also encourage their clients to insist on a
contract that includes a termination clause. This clause should allow
the business to terminate the agreement with the leasing company
with 30 or 60 days' notice (90 days is the absolute maximum that
should be accepted). "The more specific your contract about the
leasing firm's responsibilities, the better," concluded herrid. "It
should be clear, for example, that your partner will be liable for any
mistakes made in the activities it carries out. If it errs in calculating
your taxes, for example, it should be responsible for any fines or
penalties."

Œead more:Employee easing Programs - benefits, disadvantages, cost,

Advantages of employee leasing, Disadvantages of employee leasing
programs, Finding a good professional employer
organizationhttp://www.referenceforbusiness.com/small/Di-
Eq/Employee-easing-Programs.html#ixzz1Eu5Kl1l0p

According to the Division of Unemployment Assistance (DUA), "Employee

Leasing Company" is defined as:
"an employing unit that contract with a client company to supply workers to
perform services for the client company, provided, that the term "employee
leasing company" does not include privateemployment agencies that
provide workers to employers on a temporary basis or entities such as
driver-leasing companies which lease employees to an employing unit to
perform a specific service."
<http://www.mintz.com/newsletter/2007/EBEC_1003_Adv_RegELCs/index.
htm>
The DUA defines "Client Company" as:
"an individual, association, partnership, corporation or other business
entity that agrees to lease or is leasing its employees through an employee
leasing company on a long term basis."
<http://www.mintz.com/newsletter/2007/EBEC_1003_Adv_RegELCs/index.
htm>
The difference between a staffing firm or PEO (professional employer
organization) and an employee leasing company is that, according
to eHow.com, "...temporary employees are by definition only assigned to a
specific firm for a specific period of time." and "Leased employees perform
their jobs at a particular company for an open-ended period of time and do
not move around to difference work assignments." <Definition of a Leased
Employee, by Chris Blank>