What is Employee Leasing? Definition, Concept and Examples

Do you know how beneficial Employee Leasing Model can be for your business?

It will not only alleviate the task of HR services, employers’ compliances, payroll administrations but also safeguard you from the repercussion of changes in the regulatory laws.

Definition of Employee Leasing

When a Professional Employer Organization or the Leasing Company employs workers for any other business and also manages their HR related functions, the process is known as Employee Leasing.

Why do businesses need Employee Leasing?

In order to have an organization work in a proper way, it is important to have a good workforce. But having workforces hired has its own advantages as well as disadvantages. The organizations surely enjoy some of the best advantages of hiring a workforce, but to combat the disadvantages, one of the finest ways to hire the employees on the lease.

The history of staff leasing of contracting staff has its roots somewhere in the 80s and since then it has expanded till the current times. Employee leasing is known to offer a huge tax benefit to the organizations. In addition, leasing company or PEO will also be responsible for managing taxes, payroll, administrative charges, benefits, etc. of the workforce.

Such benefits and the rising demand for leasing gave rise to the industry of PEO or Professional Employer Organization. Today some of the most reputed leasing companies are a part of PEO.

The concept of Employee Leasing

Employee leasing deals with the concept of having an efficient authority that cannot only hire workforce for you but also manages the HR functionalities. This way, you will be free from the administrative complexity of managing the workforce.

The leasing company can work on a number of areas such as payroll, keeping records and similarly many other works of administration.

There are also times when the lease employees may handle the responsibilities of the permanent staffs of the organization but without making any changes in the structure of the organization.

PEO will be Assisting you in

• Human Resource Management
• Risk Management
• Payroll and Taxes
• Time and Attendance
• Health Care Benefits
• Flex Benefits
• Ancillary Benefits
• Retirement Plans

Though there are a number of benefits that the organizations enjoy leasing the employees, there are also a few of the problems that can be caused. Hence, before proceeding ahead to lease the employees for an organization, it is highly advised to check out the various pros and cons of the concept.

Employee Leasing Example

Let us understand Employee Leasing with an example. In the image below, the man on the left side is the Direct Employer, while the one on the right side Employer of Record means Leasing Company or PEO-

Now, let us have a look upon the role of Direct Employer-

And the role of Leasing Company would be-

Advantages of Employee Leasing

There are a number of benefits of leasing employees because of which a number of organizations today are leasing them along with the permanent staffs.

1) There Are No Liabilities Towards Them

One of the most important benefits of employee leasing is that there is no such liabilities of the organization towards the leased employees. When you hire staff, there are a number of things that you need to take care of the employee such as the timely salary, leave calculations, employee benefits and many others.

In the case of a leased employee, you do not have to think about all such things as the service provider of the lease employees take care of all such things for the employees. You just need to keep a record of the employee working at your firm and the rest will be taken care of the service provider of the leased employees.

2) Instant Framework

Having a tea set up done can take a lot of time. It means hiring the right employees, set up a proper structure and running the activities in the right way. It is not always possible to get a set up done like this so early and hence entering the market with a professional look can get difficult.

In such a situation, you can get leased employees so that you can have an instant set of your department created and you do not have to wait much to enter the actual market. Slowly, later on, you can replace the leased employees with your own team of permanent employees for sure.

3) Fixed Costs For The Contracts

The hiring of the employees can take place anytime in between the year and you cannot be sure about the pricing that you need to spend on them. In such a situation again, getting a service from the employee leasing service provider can really help.

Such service providers are known to offer employees for almost all types of fields and departments. Once a contract is fixed at the beginning of the year, the prices get fixed and you do not have to worry about the fluctuation in the cost for the rest of the year. When you get relaxed from the employee costing part, you can focus on other many things too.

4) Enhanced Performance Of The Employees

The employees leased by an organization are offered support constantly by their service providers. This can be in terms of morale boost or any other benefits. Such support helps them and motivates them in performing in the best way. The organization does not have to invest any of its efforts and can avail a great performance from the employee.

In case any fault or lacking is found in the employee, the service providers can be contacted and they can help by taking care of the employees. It is the responsibility of the service provider to train the employees in a proper way so that they can perform in a desirable way at the organization where they have been leased.

5) Focusing On Other Important Areas

When the organization members are free from taking up the hassles of the employee paper works, they get more time in investing in other things such as better planning so that the organization can grow ahead. All the other things about the employees such as paperwork and other stuff are taken care of by the service provider of the leased employees.

There are so many organizations that are actually capable of hiring permanent employees but still prefer to go for employee leasing for the simple reason that they want to stay away from the confusions and hassles of employee handling. They wish to invest that amount of time and effort in improving the reputation of the brand in the market. Hence, the staff handling task is left over to the employee lease service providers.

6) Legal Protection

When a permanent employee is hired, there are a number of legal documents that are signed and involved. You may also have to go for a background verification of the employee before letting the person join the organization.

This can be skipped very easily when you are going for the leasing of the employees. All these formalities are well taken care of by the employee lease service providers. You just have to make a contract with them, pay them and get the benefits of the employees performing different activities to help your organization grow.

7) A Good Savings Done

It has been noticed that while getting employees hired from such service providers, you can get them at a much lesser cost or salary package.

Even if you are somehow offering the employee a good salary, you do not have to pay them other financial benefits such as a bonus or many other things. Hence, there are a number of ways how you can save on money expenditure while you are leasing in the employees.

Disadvantages Of The Employee Leasing

Though the organizations enjoy a lot of such benefits, there are also a number of other disadvantages that the organizations may need to face employee leasing.

1) Lack Of Control

When the employee is under the payroll of the organization, the control is much higher on them and the organization can make decisions for them. But when the leased employees are under the payroll of the leading service provider, the control is not much on them.

The organization is not able to take control of such employees and hence they cannot take proper decisions about them. More or less, it can be said that these employees work as an independent workforce in the organization and does not feel much of responsibility towards the organization.

2) Communication Issues

There is always a lack of communication among the leased employees along with the organization. Whenever there is an issue such as taking a long holiday leave or about health issues, the employees discuss it with the leasing company and not directly with the organization.

There are a number of times when the information is not passed to the organization properly from the leasing company and this can create a communication gap leading to a number of troubles. This is not the case for the permanent employees of the company.

3) Impersonal

The leased employees often stay ignored from the various services that are provided to the permanent employees of the organization. It may happen that the organization is happy with the performance of the leased employee and wish to offer some extra benefits, but cannot because this is not there in the contract of lease.

Similarly, if the organization finds that the employee needs a bit of motivation through various means such as some extra benefits, still this cannot be done for the same reason. The service provider can be contacted in such a case but it is not sure whether the service provider can provide the employees with the same benefit that the organization wanted to offer the employee.

4) Dependency on the Leasing Company

One of the major disadvantages is that the dependency on leasing companies increases to a higher extent. This means if you want your employees to work on a week off day to complete an urgent project, if the leasing service provider is not supporting you to do that, you cannot do anything.

This can often lead to a loss and hence you may find that having your own team of employees would have been a much finer option.

Conclusion

Employee leasing can always be done either to have a proper department set up done or to get extra manpower alongside with your existing employees.

But before getting the employees leased, it is always better to know about the various advantages and disadvantages so that you can take the right decisions.

So, are you also planning to use the Employee Leasing model for your business? Share with us what kinds of services do you expect from your PEO in the comments below?