leased employee definition

What Is a Leased Employee?

A company’s ability to hire full-time employees can vary depending on its size. Although many businesses employ contract, part-time, or full-time workers when necessary, administrative work is frequently outsourced to leased staff from a different company.

Do you want to find out more about a leased employee? Whether you want to hire leased employees on a day-to-day or short-term basis, this will help you decide if employing them will meet your needs and benefit your business. Read on to learn what leased employee means and how to use it to your benefit.

Leased Employee Definition

According to the IRS definition, a leased employee is a person who doesn’t work as a recipient of the services of the leased employee. It’s provided that this person has performed services for the recipient company substantially on a full-time basis for one or more years. Further, the services need to be rendered under a contract between the recipient company and any other party while being controlled or directed primarily by the recipient.

Employee leasing can therefore be defined as an agreement between a staffing firm and a client business whereby employees are supplied on a temporary or project-specific basis. While those workers are technically employed by the client company, the leasing agencies (or an employee leasing company) are required by this employment arrangement to handle HR administration and pay their salaries while reporting employment taxes and wages as well.

This doesn’t mean the business owner is free from employment responsibilities. In addition to paying the leasing firm to cover everything from workers’ compensation and benefits to administrative fees and payroll taxes, the business is supposed to take care of the management.

What Is the Difference Between Leased Employees and Contract Employees?

Remember that leased employees are NOT the same as contract employees. When discussing leased employees, we think of workers who are first employed by a PEO and then leased to another company. Contract employees, on the other hand, are workers hired directly by a company on a temporary or project basis through a contract. So, they are independent contractors who aren’t technically employees of the hiring company.

It should be noted that there’s a difference between employee leasing and co-employment. Employee leasing shouldn’t be confused with co-employment arrangements or professional employer organizations (PEOs), even though the term was originally used to designate these entities.

Planning to work with a PEO? You want to know what PEOs offer first. Professional employers act as the official employer in this contractual arrangement, managing different administrative functions. Government agencies regard the recipient companies and PEOs as co-employers for leased employees in some states.

Related: Employee leasing pros and cons

Things to Consider Before Hiring an Employee Leasing Company

How could you know whether a professional employer company is right for your business? Before agreeing with a PEO, consider these tips provided by the National Association of Professional Employer Organizations (NAPEO):

  • Check for credit and banking references, as well as evidence that the insurance premiums and payroll taxes are up to date. Request to see an insurance certificate.
  • Make sure their services are tailored to the needs of your human resources. Look for a flexible company.
  • Ask for both professional and client references before calling them.
  • To check what experience and qualifications the company possesses, investigate their administrative competence beforehand.
  • Try to identify the carrier or third-party administrator and find out how workers’ benefits are funded.
  • After reviewing the agreement several times, try to obtain a provision that will permit you to cancel within a short time.
  • Check if the employee leasing firm is registered or licensed before signing an agreement.

Leased Employees vs Independent Contractors

While leased employees managed by a professional employer organization are considered their official employees, independent contractors work apart from employers, as the name implies.
Generally speaking, independent contractors work for clients who pay them directly for the services they do. Unlike leased employees whose benefits, insurance, and taxes are handled by a PEO, the clients of independent contractors have little or no control over the completion of work. Their taxes are managed by the contractor.

A Leased Employee vs A Temporary Employee

In contrast to a leased employee who is formally employed by a PEO before being leased to another company, a temporary employee is directly hired by a company on a short-term basis. This is often done through a staffing agency.

Temporary employees are hired to fulfill a specific role for a limited duration. It’s worth mentioning that there is no formal arrangement of leasing through a PEO as with a leased employee.

What Are the Benefits of Leasing Employees?

Now that you know what a leased employee means, you also want to know how this arrangement can benefit your business. If you’re running a business with occasional requests and temporarily need assistance with certain projects or have no resources to recruit workers yourself, this will be advantageous to you.

Related: Professional Employer Organization Definition

Here are the benefits of leasing employees:

  • Minimizing liability of taxes, payroll, as well as the laws and regulations.
  • Finding industry experts with skills and expertise in highly specialized areas.
  • Filling open positions with qualified candidates in just a couple of days thanks to the huge network of available employees.
  • Reducing administrative burdens when it comes to job advertising, resume reviewing, interviewing, and running background checks.
  • Ability to retain talents (who meet or even exceed your expectations) by hiring them upon the completion of the temporary assignment.


Leave a Reply