What is an Employee Leasing Arrangement?
One entity, the leasing company, leases its employees to another entity, the client
company. The client company fired its employees so they can be hired by the leasing company, and
are leased back to the client company. The employees will perform the same jobs they were
performing prior to this arrangement.
The leasing company performs payroll preparation, record-keeping, and insurance coverage such as
workers compensation and group health benefits to the employees.
There are advantages to entering into this contractual relationship between the leasing company and
the client company:
- Hiring new applicants
- HR Administration-this is a time-consuming process and allows someone else to handle your HR
headaches so you can focus on what you do best.
- Payroll reporting
- Filing payroll tax reports
- Lower rates for health insurance and other benefits
- Terminating employees
Written contracts between the leasing company and the client company are necessary to establish the
relationship between the two parties and to establish which company will be responsible for
specific duties and responsibilities with regard to the leased employees.
The workers’ compensation insurance policy carried by the leasing company must include the following
- The Alternate Employer endorsement.
- A Waiver of Subrogation naming the client company.
- An Endorsement that gives the client company 30 days notice of cancellation or nonrenewal.
The client company must maintain a workers’ compensation policy. The client company must be
protected if they hire a worker who is not subject to the employee leasing arrangement. It is
imperative the leasing company maintain workers compensation coverage on the leased employees.
As with advantages, there are also some disadvantages:
- Less control over employees – as there may be lack of communication. The employer only defines
the hiring standards.
- Health Insurance changes since you are at the mercy of the professional employer organization’s (PEO) choices.
- Impersonal – hope that your PEO treats your employees as if they were its own.
- Adjustment period – it will take time for you and your employees to adjust to the
new method and processes.
A co-employment will exist. You will still be in charge of your employees in terms of wages, hours
and management. Your PEO will assume responsibility over benefits and compliance issues. You are
still in charge of your business, and how it is run.
Choose what is best for you and your company. A PEO can take many tasks out of your hands so you
can focus on running your business successfully.