Leased Employees

Employee Leasing Costs

Leasing agencies typically apply employee leasing charges in exchange for access to their workers. These charges vary between agencies and range from a flat fee to a percentage of the leased workforce’s payroll.

Companies are willing to pay because leasing saves them other non-payroll expenses such as recruiting, hiring, and onboarding workers themselves.

Employee Leasing Company vs. Professional Employer Organization

Employee leasing companies are sometimes confused with professional employer organizations (PEOs), but the two approach talent management differently.

With a leasing company, workers are assigned to a client business for a temporary period or specific project, but they're still employees of the leasing company. In other words, the leasing company retains complete control of and legal responsibility for a worker’s employment status, HR matters, compensation, etc. When the employee lease agreement ends, employees return to the leasing agency.

Conversely, a PEO co-employs workers with a client business by sharing legal responsibilities and providing administrative support. The client retains legal control over staffing decisions and employment statuses while the PEO manages operational matters, such as payroll processing, insurance claims, human resources issues, etc. If the legal agreement between the client and PEO ends, all employees hired during that time remain with the client.

Simply put, an employee leasing company hires workers and shares them with the client, while a PEO helps the client hire workers for itself.

Employee Leasing vs. Joint Employment

Employee leasing companies and PEOs are similar in trying to help clients focus on business matters by alleviating workforce and talent management burdens. To that end, neither gets involved in the day-to-day assignments or work-related tasks a leased or co-employed worker performs.

Joint employers, however, are equally involved in employment and core business matters. They both have the legal responsibilities of an EOR and the work-related authority of a client organization.

In other words, a leased employee has a legal employer and a separate work employer, while a joint employee has two employers.

Employee Leasing Pros and Cons

Employee leasing services offer clients several advantages, such as more efficient talent management and a greater focus on core business performance. This tactic, however, can also present clients with challenges, like ineligibility for certain tax incentives.

Leased Employee Advantages

• Precise Budgeting: Leased employees are usually a fixed cost because client organizations don’t have to worry about unforeseen employment expenses (e.g., unemployment claims or fluctuating insurance costs). This, in turn, allows clients to estimate and budget their finances with greater precision.
• Minimal Employment Burdens: Employee leasing companies take on various administrative and legal tasks, such as tax filing and benefits administration. This alleviates the associated burdens on clients and reduces their payroll and HR compliance liabilities.
• Efficient Talent Management: Leasing companies often have extensive networks of qualified workers to match clients with the right talent quickly. This flexibility allows clients to make staff adjustments based on current needs. And if a leased employee proves to be a good fit, the client can hire them permanently.
• Business Focus: Client businesses can devote more time and resources to core operations by outsourcing administrative tasks and recruitment efforts. Their leadership and management staff can focus on strategic initiatives rather than ongoing employment needs.

Leased Employee Challenges

• Tax Incentives: Clients using leased employees may lose access to tax credits that could offset other operating costs. Certain tax incentives, like the Work Opportunity Tax Credit (WOTC), require direct employment, which excludes leased workers.
• Engagement and Culture: Leased employees may lack a sense of loyalty to the client due to their non-direct and temporary position status. This lack of commitment can create a disconnect between a leased employee and the client’s internal culture, making it more challenging to foster engagement, boost morale, and maximize productivity.
• Exposure Risk: Because leased employees return to the leasing agency after the employee lease agreement ends, there’s a risk of leased employees eventually being assigned to a former client’s competitor. This can potentially jeopardize the former client’s trade secrets or proprietary processes.
• Dependency: If a client ends its relationship with the leasing company, it faces the challenge of quickly finding new employees. This transition can disrupt operations, leaving the company short-staffed or forced to take on time-consuming hiring processes. Clients wanting to avoid these issues could become dependent on the leasing agency for longer than they’d like.