What is Staff Leasing? Definition, Pros & Cons

In today’s dynamic business landscape, effective human resource management is pivotal, and staff leasing is an increasingly popular strategy. Staff leasing, also known as employee leasing, allows companies to outsource their workforce, blending flexibility and efficiency with the ability to stay competitive.

Consider, for example, a startup that needs to quickly scale its operations but lacks the necessary HR infrastructure or expertise. In such a scenario, a staff leasing company can provide the necessary workforce, allowing the startup to focus on its core business objectives. Similarly, established companies can also leverage staff leasing to manage workload spikes or to acquire niche skills temporarily.

What is Staff Leasing?

Staff leasing is a process of hiring an employee temporarily for an indefinite time with or without using any staffing agency. It is a contractual arrangement in which the leasing company, which is also known as a professional employer organization or PEO, is the one who recruits. Usually, the business owner and the leasing company share employment responsibilities.

However, the management control over the work of the employees is retained by the business owner. The leasing company takes up other responsibilities like employment taxes and wages. The business owner is responsible for writing a cheque to the leasing company, which covers taxes, payroll, benefits, and other fees.

The PEO takes care of the rest. The leasing works on both the parties’ coordination and mutual agreement, including the employees, to be leased. Therefore transparency in every aspect of the hiring process is essential for all three parties involved.

Why should the Employer’s Lease?

The following are a few of the reasons why an employer may lease the staff instead of hiring directly:

1. Recruitment costs are reduced drastically, which helps HR to focus on essential issues. Depending on the type of job, some PEOs have a ready-made pool of employees who may be available to work immediately. This will save time and make the process faster.
2. One of the critical aspects of managing taxes, payroll, reporting, etc. is removed in leasing employees. These things not only cost an organization but also take up a lot of resources and involve multiple people to do the job.
3. Employers are not required to have unemployment insurance if there are no employees. Therefore this will reduce the expense of the employers. Apart from unemployment insurance, there are many other expenses that full-time employees have to pay, including paid leaves, medical insurance, Sick leave, etc. All such expenses are avoided if the employer decides on staff leasing.
4. In many cases, employees may get benefits since the leasing company can pool multiple employers. This may result in higher negotiating power for many things like insurance.
5. The PEO handles all the tasks, and therefore you will not have to handle any administrative expertise. The leasing organization can help the company to conduct performance reviews as well.
6. Since the company requires top talent, it should work with the staffing provider so that there is no compromise on it.

What Are the Risks of Staff Leasing?

The following are some of the risks which are associated with staff leasing:

1. The employer has no control over the wages, so the leasing party should ensure no wage payment problems. This is because the employer does not handle business administration. Therefore, if anything happens with the wage or if any employee receives unsatisfactory wages, the blame goes on the employer even if he does not handle that part of the employee.
2. The organization usually does not have any control over the benefits that are offered to the employees. In some cases, the organization may want to extend the benefits that they provide to their permanent employees to the leased employees. However, they will not be able to do so because of the contractual obligations with the PEO.
3. There will be a copayment situation in some cases, and the employer will bear some liability and responsibility for the employees. This means that even if the PEO handles the admin work, the employer will still have an obligation to control some aspects and check for accuracy so that there are no problems with the admin aspects.
4. In some cases, staff leasing organizations get their employees from other countries. Offshore employees may not work well with every business. While offshore employees may be economical when it comes to working for businesses, they may not be relevant or practical for your kind of work every time.

Pros and Cons of Employee Leasing

Pros

• Cost-Effective: Staff leasing companies provide businesses with an affordable way to acquire and maintain a talented workforce. They handle administrative tasks, which allows companies to focus on their core operations.
• Simplified HR Management: An employee leasing company takes over the time-consuming HR tasks, which simplifies human resource management for the organization.
• Access to Better Benefits: Leasing employees can provide access to better benefits, as leasing companies can negotiate better rates due to their larger pool of workers. This can make a business more attractive to potential employees.
• Reduced Legal Liability: Since the leasing company technically employs the staff, they bear a considerable portion of the legal liability related to employment.

Cons

• Limited Control: Businesses may have limited control over the employees, their wages, and their benefits, as these are primarily managed by the leasing company. This could potentially lead to dissatisfaction among the leased staff.
• Co-Payment Situations: There can be situations where the employer is required to bear some of the costs, adding to the overall expenses of the business.
• Issues with Offshore Employees: If the staff leasing organization sources its employees from other countries, cultural and communication barriers may arise, which can affect the efficiency of operations.
• Potential for Lower Employee Loyalty: As leased employees are technically employed by the leasing company, they might not feel a strong sense of loyalty towards the organization they work for, which could impact their performance.

Employee Leasing Agency vs. PEO Services

Employee leasing and Professional Employer Organizations (PEOs) are both popular options for businesses that want to outsource their HR tasks, but they operate differently. Some of the differences between both are:

• In an Employee Leasing setup, the leasing agency employs the staff and leases them out to businesses. This arrangement is beneficial to small businesses that cannot afford competitive benefits for their employees. The leasing agency takes care of the human resources tasks.
• Professional Employer Organizations (PEOs), on the other hand, enter into a co-employment arrangement with the business. In this arrangement, the PEO and the business share responsibilities and liabilities. The PEO handles HR tasks and payroll, while the business maintains control over business operations and management of the employees

Employee Leasing vs. Co-Employment

Employee leasing and co-employment are different concepts. Employee leasing is a system where the leased employee works for an employer but is employed by another organization known as the leasing company. The employer pays the leasing agency to have access to their employees, usually on a contract basis.

On the other hand, in a co-employment arrangement both entities – PEO and employer – are employers of the same employee. In this setup, both entities share employment responsibilities and liabilities, providing businesses with a more comprehensive HR solution without having to take on additional costs or resources. This makes it an ideal option for businesses that need access to professional HR services but don’t have the capacity for them in-house.

When To Use Employee Leasing?

Employee leasing may be an incredibly viable option for companies in various situations. This could include startups, businesses expanding into new territories, or even established companies looking to streamline their operations. Here are some scenarios when Employee Leasing might be the best course of action:

• When a company is starting and needs to minimize operational costs.
• For businesses that want to avoid dealing with payroll taxes and other HR-related tasks.
• Companies seeking to improve employee satisfaction with better benefits.
• If a business needs to lease office space for their in-house employees.

Conclusion!

Staff leasing is a popular process in many industries and startups since it is a time-saving method to get employees. While it has various advantages like reduced costs, reduced liabilities, etc. it may also come with some other disadvantages.

FAQs

Are leased employees a perfect solution for my organization?

It’s essential to weigh the pros and cons. While lease employees can provide cost savings and ensure regulatory compliance, the impact on employee benefits should not be overlooked. Ultimately, the choice to use staff leasing should be an informed decision based on the unique needs and circumstances of the client company.

Who is responsible for paying salary in case of employee leasing?

When an employee is leased, the employer who is leasing them has control over the work they do. However, it is the leasing firm’s responsibility to report their wages and taxes. The employer directly pays the leasing firm to cover the wages, benefits, taxes, and administrative fees of the leased employee.

Are leased employees considered employees?

If you lease employees from an employee leasing company for your business, it’s important to note that these employees are not regarded as your own. Instead, they are still considered employees of the leasing company.

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