What Is Employee Leasing? Definition and Key Benefits
If you run a small business, you have probably been short-staffed in some situations. You may have wanted an extra hand in these cases or short-term help from another company. Sometimes you may need to hire personnel for projects that are not permanent. If you are looking for a viable solution, you should consider employee leasing.
Keep reading to find out more about the employee leasing arrangement. You will familiarize yourself with the main differences between this type of arrangement and professional employer organization (PEO). You will also see the main disadvantages and benefits of employee leasing, learn who leased employees are, and more.
What Is Employee Leasing?
It is an agreement between a staffing firm and a business whereby employees are supplied on either a temporary or project-specific basis. While the workers hired through this arrangement are employed by the client or firm to work for their business, the employee leasing company is supposed to pay their salaries besides handling the employment-related administrative tasks.
In other words, employee leasing can be defined as an arrangement wherein a leasing agency provides the necessary employees to business owners to work for them temporarily for a shorter or longer time. That’s why it is often called temporary staffing; it’s a lease arrangement.
As the name implies, businesses lease (not employ) the workers to work for them after reaching an employee leasing agreement. They can be engaged in different day-to-day operations throughout this arrangement. What happens after that period? The leased employees stop to work for a business that has leased them.
Employee Leasing vs PEO: What’s the Difference?
What is the key difference between employee leasing and PEO? Looking for a simple answer? The key difference between them is staffing.
In contrast to PEO co-employment, temporary workers are provided by a leasing agency or company when it comes to employment leasing. On the other hand, professional employer organizations (PEOs) assist in handling HR administration while businesses manage and supply their workforce. So, this type of arrangement doesn’t involve staffing.
The ’employee leasing’ term is sometimes used for an agreement where the workers are permanently employed by leasing companies, and afterward, they are contracted out to successive firms on a project basis. Although this could occur with a PEO as well, there would be only one client when the employee’s agreement starts and ends.
Whether you want to work with a PEO or an employee leasing company, be sure to have a clear idea of what services they offer before agreeing.
In addition to hiring leased employees, a leasing company is also responsible for the organization of functions related to human resources. Aside from that, leasing companies typically provide help with legal compliance to make sure everything complies with state and federal regulations.
A PEO is responsible for administrative HR tasks. Their typical services include:
- Administering employment taxes as well as employee benefits
- Dealing with payroll taxes
- Taking care of unemployment insurance and worker’s compensation
- Addressing compliance and HR-related regulatory issues
- Handling tax administration and other important paperwork
Besides these services, some PEOs also provide expanded HR services like performance management, employee training, and recruitment.
What Are the Key Benefits of Employee Leasing?
Employee leasing can be beneficial for startups and small businesses because it allows them to access a pool of skilled workers without having to commit to the overhead costs associated with hiring full-time employees. Additionally, it can help streamline administrative tasks such as payroll and benefits management, allowing businesses to focus on their core competencies.
Here are the key benefits of employee leasing:
- Cost savings
- Access to specialized expertise
- Administrative support
- Reduced legal liabilities
- Improved employee benefits
- Increased flexibility
- Time savings
Are there disadvantages of employee leasing? While employee leasing is advantageous for most startups and small businesses, there are also some disadvantages of this type of arrangement. They come down to limited control and contractual obligations. However, the benefits outperform the potential drawbacks of employee leasing arrangements in most cases.
What Is a Leased Employee?
A leased employee is a person who performs work for a company or business. However, this worker is employed by a staffing organization or firm.
Maybe you have heard of a leased employee for 401k. What does it stand for? It refers to an employee who is contracted through a third-party leasing company but is eligible to participate in the 401k plan offered by the employer.
Is a Leased Employee the Same as a Contract Employee?
A leased employee and a contract employee are commonly confused with one another. They are not the same, though. So, what’s the difference?
As stated above, a leased employee is an individual who is employed by a leasing company and then assigned to work for another company. A contract employee is directly hired by a business owner or company to perform a specific job or project under a contractual agreement.
Temporary Employee vs Leased Employee: What’s the Difference?
A temporary employee is someone who is hired for a limited time to complete a specific task or fill in for a regular employee who is absent. Unlike a leased employee, this individual isn’t hired by a staffing agency and then “leased” to a business/company. That makes a difference between these two employee agreements.