What is Employee Leasing?

Smaller companies looking to expand their workforce may be comfortable with the technical side of the hiring process, but not the human resource side. Business owners often find themselves overwhelmed by all the payroll accounting, record keeping and benefits which accompany newly hired employees. One popular solution to this problem is the practice of employee leasing.
Employee leasing is similar to the process of hiring temporary workers, but the key difference is permanency. A company wishing to pursue employee leasing will first contact a professional employment organization (PEO) to discuss its particular employment needs. The PEO or other employment leasing company might set up an interview process for recruiting new staff, or might take responsibility for existing workers. The company can still participate in the hiring process, but any hired personnel will officially work for the employee leasing company.

For many employees, the switch from their original company to an employee leasing company is actually a better deal financially. Since a typical PEO handles a large number of employees from numerous companies, future health insurance and other benefits can be negotiated in bulk. A worker at a small electronics company can enjoy the same level of benefits as a worker in a massive automotive plant. Wages and performance reviews are under the auspices of the employee leasing organization, not the original companies.

Employers often pursue employee leasing options in order to eliminate the need for accountants and human resource managers. The employee leasing agency charges a fee in addition to the employees' wages, much like temporary employment agencies. This fee is often less than the cost of hiring human resource experts and payroll accountants. Because workers are not considered employees of the company in a legal sense, personal injuries and workers' compensation claims become the responsibility of the employee leasing agency.

Employee leasing is not a perfect solution for some companies, however. Since workers are not completely under the control of management, communications may become strained. Conflicts may have to be arbitrated by representatives of the employee leasing agency. Termination of non-productive workers may not be as simple as handing out pink slips. Certain union contracts actually prohibit the use of employee leasing agencies or PEOs in order to prevent companies from outsourcing their human resource departments.