Employee leasing is a contractual arrangement in which the leasing company, also known as a professional employer organization (PEO), is the official employer. Employment responsibilities are typically shared between the leasing company and the business owner (you, in this case). You retain essential management control over the work performed by the employees. The leasing company, meanwhile, assumes responsibility for work such as reporting wages and employment taxes. Your main responsibility is writing a check to the leasing company to cover the payroll, taxes, benefits and administrative fees. The PEO does the rest.
Employee leasing lets you add workers without adding administrative complexity. Employee leasing firms manage compliance with state and federal regulations, payroll, unemployment insurance, W-2 forms claims processing, and other paperwork. Some also offer pension and employee assistance programs.
By combining the employees of several companies into one large pool, PEOs can also offer business owners better rates on health-care and workers' compensation coverage. The net effect can be significant savings of your time and money.
If you've decided to look into employee leasing and are considering working with a PEO, how can you decide if that PEO is right for your business? The National Association of Professional Employer Organizations (NAPEO)makes the following recommendations:
- Look for services that fit your human resources needs. Is the company flexible enough to work with you?
- Check for banking and credit references and evidence that the company's payroll taxes and insurance premiums are up to date. Ask to see a certificate of insurance.
- Ask for client and professional references, and call them.
- Investigate the company's administrative competence. What experience does it have?
- Understand how employees' benefits are funded. Do they fit your workers' needs? Find out who the third-party administrator or carrier is, and whether it is licensed if your state requires this.
- Make sure the leasing company is licensed or registered if required by your state.
- Review the agreement carefully and try to get a provision that permits you to cancel with short notice--say, 30 days.
See also "Professional Employer Organizations."