Employee leasing is a contractual agreement between a third-party organization and a specific staffing company, who provide employees on either a temporary or project-specific basis. These employees usually work for the employer company, but the leasing company handles all the HR administration related to their employment and pays their salaries. Many times these arrangements lead to an employment agreement between the leasing company and the employee, which cover matters such as worker compensation, medical benefits, notice requirements, and other employee-employer information. However, sometimes these leasing agreements lead to a conflict of interest between the leasing company and the companies employed by the employees. The U.S. Office of Fair Employment Practices (OFHP) outlines
what an employee leasing company must do to ensure that they do not have a conflict of interest with their employer’s employees.
One issue with employee leasing is the assignment of several administrative tasks. One such task is the responsibility for collecting payroll and benefits. Although it is the employer who pays these taxes, they will typically delegate this responsibility to an employee leasing company. This delegation often occurs when the employees are hired on full-time contracts. In addition, some agencies may require an employee leasing contract to cover these expenses at the time of hire. When this occurs, it can lead to confusion in the employee’s accounting.
Other administrative responsibilities that can transfer to the leasing organization include benefits
and entitlements issues. Some business owners prefer to handle these issues themselves, but these administrative duties can prove to be time-consuming and confusing for management and workers alike. It is also difficult to know which employees are covered under a leasing or employment agreement, especially if there are multiple assignments. Many agencies charge a fee for accessing these documents and general staff time to perform these functions.
Another issue with employee leasing relates to workers’ compensation and unemployment benefits. When an employee leasing company manages payroll and benefits, the company is outsourcing many of these responsibilities to the agency. The agency then sends workers’ comp claims to the leasing company for payment. Because this outsourcing relieves the burden of handling workers compensation and unemployment insurance claims, the worker leasing organization is able to pass these savings along to their clients. However, these savings can often be passed along to the workers as reduced compensation premiums.
The employee leasing industry has spawned several different businesses dedicated to providing these services to their clients. Some work solely as a vehicle for this business while others provide benefits and support on an on-site level. Both of these approaches provide a way for employers to save money, but both of these approaches can have their own pitfalls.
One issue with employee leasing programs is the lack of control over the payroll and benefits of employees. The lack of controls reduces payroll accuracy and decreases the ability of an employee leasing company to accurately bill their clients. While the majority of employee leasing programs outsource this responsibility to an outside service, some will not. This means that any time there are problems, the employee leasing company may be responsible for them. In addition, many of these companies may bill their clients for benefits which are not actually provided by the leasing company. For example, some will bill the employees for vacation time rather than providing this benefit.
Another con to employee leasing programs is that they do not offer a permanent solution to short-term staffing needs. Because these staffing needs tend to last only for a short period of time-such as a few weeks or a few months-it is difficult to find a long term solution that is cost effective. In short, employee leasing does not provide a way for employers to solve short term staffing needs. Instead, they often find that these short term staffing needs lead to a long term problem with few solutions. As a result, many companies find that these staffing issues lead to a temporary solution, such as hiring temp HR personnel to fill positions until a more permanent solution can be found.
Employee leasing also has significant drawbacks. Because companies do not carry out adequate background checks on temporary workers, many leasing companies are at risk of employing individuals with poor work ethic and criminal backgrounds. Furthermore, many of these companies do not provide benefits, which many people consider a necessity in any occupation. For these reasons, employee leasing is not a good choice for a large or growing business. However, if you are a small business with limited resources, this could be perfect for you.