ComplianceLegalFinanceTax & AccountingDecember 26, 2020

Using leased employees in your business

Leasing workers from an agency may be the staffing solution that's the best fit for you and your business. A big benefit of leased employees is that the administrative work such as taking care of the payroll responsibilities and keeping records is handled by the employment agency.

When your business has staffing needs, hiring employees or temporary workers may be the first thing that comes to mind. However, leasing employees may be an option and a particularly attractive one if you have at least a dozen employees, and you don't have the time or expertise to be a human resource manager. Sound interesting? Read on for an explanation of what is involved in leasing an employee and the various pros and cons to this method of filling your staffing needs.

Leasing employees generally refers to a situation where a third-party business "employs" your staff — including doing payroll withholding, administering benefits, etc. — and you pay them a fee plus expenses to do it. In some cases the leasing agency simply takes over your existing staff of permanent employees, and there's little change in the actual makeup of your staff.

Because the leasing companies aggregate the employees of many companies in negotiating for benefits such as health insurance, pensions, you can sometimes provide more benefits at a much lower cost.

Also, the leasing company can achieve economies of scale in hiring, doing the payroll, and keeping records on all these workers, so their fees for performing these services might be lower than what you'd pay to do it yourself.

Steps to successful employee leasing

If you are considering leasing employees, make sure you take these steps along the way to be certain that leasing is the right option for you:

  • Set goals. Figure out what your organization wants to accomplish through employee leasing. Write down these goals in order of importance.
  • Seek legal counsel. Legal advice is crucial for determining the implications of the leasing arrangement on your legal liability. You need to know how much control you must give up to attain a certain degree of protection from liability and decide whether you are willing to give up this control before entering the leasing arrangement.
  • Establish qualifications. Discuss your needs and obtain proposals from several leasing firms. It's also good practice to examine the background of each leasing firm and talk to the current and former clients of each firm about their experiences with the leasing arrangement.
  • Determine charges and services. Get bids from several companies. Each leasing firm's proposal should outline the specific services to be provided, the time frame for these services, and all deposits, charges, and methods of payment. Start-up costs and commitments should also be detailed. You need to know how much time the account representative will spend on site to become familiar with operations and if there will be a special charge for this. In addition, find out whether new job descriptions will be necessary and who will prepare them. Finally, find out the details of the leasing firm's employee benefits package. All of these items should be embodied in the contract that you sign with the leasing agency.
  • Specify the level of supervision. Examine the number of field supervisors available relative to the number of leased workers on the company payroll. This ratio can vary substantially from one leasing firm to another. Specify the frequency that the field supervisor will visit your site in the leasing agreement — and make sure it is clear who the employees call if they have a grievance.
  • Develop a rapport with the field supervisor, if there is one. This relationship is a sensitive one because of the "turf" issue. Be sure a rapport is established before a leasing agreement is signed. Have the leasing firm agree not to replace the field supervisor without your company's approval.
  • Specify insurance coverage. A wide variety of insurance is provided by leasing companies, including employee bonding, workers' compensation, general liability, professional liability, and fiduciary responsibility. The legal liabilities in this area are complex, however, so your company's insurance carriers should review this portion of the agreement.
  • Obtain professional verification. Insist that an accountant or tax professional verify that the leasing firm has done all the withholding and made the payments as required by law and all employee benefit contributions as specified in the agreement. Leasing firms that are members of the National Association of Professional Employer Organizations (NAPEO) are already required to do this under their bylaws.
  • Communicate with employees. Be sure the leasing firm has an employee communications component in its proposal — the idea that employees are terminated from your company can be unsettling even if they aren't really losing their jobs. One way to overcome this fear is to have employees meet with current employees of the leasing company who have successfully made the transition.
Nikki Nelson
Customer Service Manager
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