What is Employee Leasing?
Employee leasing dates back to the industrial revolution. It is an employment model where the client company leases employees temporarily. Employee leasing offers employers human resources without handling HR duties.
How Does Employee Leasing Work?
Employee leasing dates back to the industrial revolution when factory owners needed to hire employees without incurring heavy investment. However, no agency regulated the employee leasing industry.
In 1960 there were only five firms that leased staff. In 2005, there were over 1700 firms that processed 35 million payroll checks in the USA, amounting to $16.8 billion.
As the name says, employee leasing transfers employees’ ownership from the owner to another entity – usually the client company.
By doing so, the client manages the employee without much interference from the employee leasing company. Employee leasing manages all the financial and HR operations.
The employer pays a single check to the staff leasing company to pay the employees. They also escape from the hassles of hiring and paying the benefits and payroll vendors.
Small businesses realize tremendous benefits when leasing employees. Mainly, they get out of being the employer. Along with cost savings, they deal with lesser HR administration, fewer employee problems, and acquire flagship benefits for their employees.
Why Would Employers Lease Rather Than Hire?
- Leasing decreases recruiting costs. With HR teams focussing on core issues such as organizational strategy, employee engagement, identifying news areas to locate talent pools, employers can make HR strategically more effective.
- Employee leasing eliminates managing payroll, taxes, and reporting requirements. It lifts the burden of managing W-2 forms, reporting to the Internal Revenue Service (IRS), payroll administration, payment of income taxes.
- Without employees, employers are no longer required to maintain unemployment insurance, thus reducing that expense. The same may be valid for workers’ compensation. In some instances, a co-employment situation offered by a PEO, will make the employer liable to some responsibility.)
- Employees may receive better benefits because the employee leasing organization can pool employees than a small business or a separate entity. This offers more negotiating power for benefits such as group insurance.
- Less recruiting, regulatory, and administrative expertise is required because you’ve contracted with a PEO offering employee leasingthat already has the expertise to handle all administrative tasks. Lleasing companies can also engage in talent management activities such as performance reviews.
- The company can still work closely with the staffing provider to meet its needs. You can determine how much involvement is best. This leads to better engagement with your PEO.
Leasing Employees vs. PEO Co-employment
Both PEOs and employee leasing companies provide essential HR services. However, they have several differences that each employer must understand before obtaining their services.
Benefits of Leased Employees
In the section below, we discuss five different benefits of employee leasing.
Fulfill seasonal and immediate demand
One of the resourceful benefits of employee leasing is to obtain staffing temporarily. Hiring a permanent employee may not be the best option when operating on temporary or ad-hoc projects.
For example, you might need a sales team to test a new market. You can lease new employees from the region for this venture. This allows you to disband the team if you do not find the right product-market fit.
Besides, using the staff leasing employment model removes the risks around terminating them. Thus, you need not worry about violating compliance.
Remove complex paperwork
Staff leasing companies remove all complex paperwork associated with hiring and termination. They can eliminate regulatory record-keeping and compliance requirements.
Business owners need not necessarily be cognizant of such matters. Their time is better spent focusing on business tasks.
Better Employee Benefits
Another benefit of employee leasing is the benefits you can source for your employees.
Employee leasing companies have massive leverage in buying benefits owing to their large workforce. They can group-by insurance that small businesses can offer to employees without partnering with benefits vendors.
Attract high-quality talent
The sole work of a staff leasing company is to hire the best employees with skills that are attractive to its clients.
Many companies in talent-surplus markets like India are fighting a talent war. They have begun using perks such as mobile phones, luxury cars, and lucrative variable pay to retain talent.
Using a staff leasing company can help you offer such benefits to retain talent on your roster. As a client, you end up sourcing the best talent for your business.
Moreover, the speed at which employee leasing companies could fulfill this demand simply outpaces the rate you could hire such talent.
Employee leasing companies can also source people for manual labor.
Maximize employee retention
According to a SEMCO survey, employee leasing increases retention by four times. An employee leasing company completely removes the weight of HR activities from the employer.
By doing so, companies can better engage employees with in-office training and engagement programs.
What Are the Risks of Staff Leasing?
Not everything is roses under a staff leasing company. Employers have to be watchful of the risks of staff leasing, such as:
- Lack of employee motivation
When a company leases employees, the staff may suffer lower employee loyalty and motivational levels.
As they wouldn’t have permanent ties with the client company, they wouldn’t go the distance in associating with its missions and values.
This results in lesser dedication and motivation.
- Lack of employee engagement
Leased employees often suffer the stigma that they aren’t permanent but seasonal workers. Your employees may isolate them leased employees, which may increase the lack of interpersonal relationships.
- Lesser control
Since the leasing company has full ownership of the leased staff, the client company lacks control over them. Thus, these employees may tend to perform work according to their convenience.
The client company would lack control in hiring and firing and thus wouldn’t be able to leverage them while managing leased employees.
- Communication problems
The employee leasing model would require stellar communication and a seamless relationship between the client and the employee leasing company.
If any cracks occur, this may result in poor performance from the leased employees.
Employee leasing adds a layer of bureaucracy to the overall employment process. For example, when employees pose questions concerning payroll, HR-related functions, benefits, they’d have to liaise with the leasing agency. The client company would lose sight of employee problems concerning these areas.
- Increased dependency on leasing companies
Another flipside of partnering with employee leasing companies is that increases dependency on leasing agencies.
In cases of fallout or a bitter termination, where the agency stops working for the company, the consequences can hurt the company.
In some cases, businesses may also get embroiled in local and legal disputes with the employee. Since the legal employer is the leasing company here, it may lead to further complications.
The Right Solution for Your Business
Employee leasing can be the best solution if:
- You need staff for a one-off project
- A low budget constrains you
- You are experimenting with new markets and need a temporary team to test the market.
- You are troubled by a talent crisis
- You need diversity in expertise
- You do not have strategies to hire, do background checks.
Employee leasing can be highly advantageous, but they come with certain risks. If you need specialist skills but are hindered by hiring and talent acquisition, ask a staff leasing company to help.
If you need a co-employer to whom you would like to offload specific HR duties like payroll, then opt for a PEO solution like Multiplier.
Multiplier’s global employment solution offers various HR solutions to handle your global HR woes. Our co-employment solution is less risky than solutions like employee leasing.
We eliminate the feelings of isolation and stigma that come from employee leasing. We only handle HR complexities while you get to hire, manage and fire your employees at your will. You transfer the legal onus on us while retaining the total leverage of your employees.