What Is Employee Leasing?

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Employee leasing can offer advantages to small business owners. Instead of directly hiring workers, the client company hires the services of a professional employee leasing organization. Also known as a professional employer organization (PEO), the leasing agency oversees everything from recruitment to HR administration.

Employee Leasing Definition
Individuals officially employed by a leasing firm, but recruited and trained for a client company, are called leased employees. For employment tax purposes, the leasing agency is considered the employer for such workers. Workers officially hired by a professional leasing agency, which oversees all the administrative aspects of HR, who offer services to a client company, are called leased employees. Although leased employees offer services to the client company, they are formally employees of the third-party leasing agency. Leasing employees frees a company from administrative responsibilities associated with workforce management and enables saving in areas like employee insurance and benefits.

Employee Leasing Definition

Individuals officially employed by a leasing firm, but recruited and trained for a client company, are called leased employees. For employment tax purposes, the leasing agency is considered the employer for such workers.

Workers officially hired by a professional leasing agency, which oversees all the administrative aspects of HR, who offer services to a client company, are called leased employees.

Although leased employees offer services to the client company, they are formally employees of the third-party leasing agency.

Leasing employees frees a company from administrative responsibilities associated with workforce management and enables saving in areas like employee insurance and benefits.

With employee leasing, small businesses can save on payroll management, tax management, and other HR responsibilities. Using a leasing company can free up resources, allowing small business owners to focus on their strengths and increase efficiency.

Employee leasing agencies specializing in workforce management are often large organizations that enable small business clients to benefit from economies of scale. Because of their large-scale operations, these agencies can easily offer features such as online account access and automatic payroll deposit.

An employee leasing arrangement can free the client company from the risks associated with direct hires. The fact that the third-party leasing agency is the official employer of record and specializes in employee management considerably brings down HR risks for the client company.

Before entering into an employee leasing arrangement, make sure the organization has a good track record with other small business owners. Do they make all payroll tax deposits on time? Have you seen documentation of liability insurance? Check into the background of the leasing company. Do they have experience related to your business? Do they offer references for your review? Carefully review all contracts before entering into any agreements.

The Internal Revenue Service (IRS) website offers more information on leased employees and other associated terms. For more information on determining joint-employer status, please consult the Department of Labor (DOL) website.

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This article is updated from its original publication date of June 19, 2012.

This is not intended as legal advice; for more information, please click here.

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