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How Employee Leasing Works

By: Bill Wortman


When you started up your business, it was probably not because you love running your own human resource department and wanted to deal with hiring and payroll issues. These days, many small companies are using leasing firms to handle many of their staffing issues.

Leasing is a useful concept with equipment, giving your business access to things that you need when you don’t necessarily have the cash to spend upfront. But employee leasing offers similar advantages in human resources, when you don’t have the capital to create full-time human resources and payroll departments to handle the many issues that come with hiring employees.
The way an employee leasing arrangement works is similar to a temp agency. Your business, called the subscribing company, transfers an employee to a leasing agency. The agency then leases the employees back to your company for a fee. You’ll end up paying a little more for your employees this way than you were before, but all the payroll and taxation issues will now be the responsibility of the leasing company rather than yours. You pay a lump sum to the agency, and they’ll take care of the rest, from wages to benefits to unemployment and workers compensation insurance.
Using employee leasing arrangements can simplify your administrative needs and save you money and time, but there are a few things you need to check on before you proceed with any particular leasing company.
  • Know whether the leasing agency functions as the sole employer of the workers, or if it is a joint employer with your company.
  • Get references. Check with bank references, multiple client references, and an independent audit. You need to confirm that the leasing agency will pay its payroll taxes, insurance premiums, and pension fund contributions, and is compliant with all regulations from the IRS and other state and federal government agencies.
  • Verify that a major insurance carrier is underwriting the firm’s health insurance policies, and that premiums and claims are paid in a timely manner.
  • Know the fees. Make sure they’re guaranteed for at least one year, and check with multiple options so that you know the rates are competitive for what you’re getting. But beyond just what the firm is charging you, make sure that employees who come from the leasing agency are also paid at an appropriate rate, so that you’re paying a fair rate and the people working at your company are being paid at a fair rate.
  • See whether the testing, training, and benefits programs at the leasing firm are strong enough to attract workers that are qualified to meet your company’s needs.
  • Inquire with the Better Business Bureau and the state labor department to find out whether any complaints have been filed against the leasing firm; this will give you a better picture of the company’s reputation.

There are plenty of benefits for your company with an employee leasing arrangement. If you’re careful about finding the right company to work with, your business can gain a big competitive edge by streamlining many of the things you have to do and letting you focus on your goal of gaining new customers.

Published: March 28, 2013

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Bill Wortman

As the Chief Business Consultant at BizCoachingOnDemand.com, Bill has over 40 years of business experience. He's held multiple executive-level positions and fulfilled the role of CFO at large, publicly-held (NYSE, NASDAQA, and AMEX) corporations. In addition, he's also been an owner of several successful private ventures in real estate and in the automotive industry.

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