Recruiting, Talent

What Is Staff Leasing?

Has your organization considered staff leasing? Also called employee leasing, staff leasing is when an employer pays an intermediary organization to hire its employees. The intermediary organization, often called a professional employer organization (PEO), then handles all aspects of finding new employees and managing payroll.staff

Why Would Employers Lease Rather Than Hire?

There are a number of reasons an employer may opt for staff leasing instead of hiring directly. Here are some of them:

  • Recruiting costs are decreased, allowing the HR team to focus on core issues and help with organizational strategy. Depending on the type of work involved, some PEOs have a pool of employees who may be available to start right away.
  • It removes the administrative aspect of managing payroll, taxes, and reporting requirements. In other words, the leasing organization handles things like W-2 forms, reporting to the Internal Revenue Service (IRS), payroll administration, payment of income taxes, etc.
  • Without employees, employers are no longer required to maintain unemployment insurance, thus reducing that expense. The same may be true for workers’ compensation. (Be sure to check local laws to ensure you stay in compliance. In some instances, this will constitute a co-employment situation, and the employer will still retain some liability and responsibility.)
  • Employees may actually receive better benefits because the employee leasing organization can pool together employees for several employers and might have more negotiating power for things like insurance.
  • Less recruiting, regulatory, and administrative expertise is required because you’ve contracted with a PEO that already has the expertise to handle all administrative tasks. The leasing organization can even assist with or conduct performance reviews.
  • The company can still work closely with the staffing provider to ensure its needs are met, so there’s no need to sacrifice on getting top talent. You can determine how much involvement is best in this part of the process and work with your PEO accordingly.

What Are the Risks of Staff Leasing?

Now that we’ve discussed why an employer may opt to utilize staff leasing, let’s look at some of the risks:

  • Because administration is out of the employer’s hands, there is less control and fewer means to ensure there are no errors in wage payment.
  • The organization may have little to no control over what benefits are offered, eliminating that level of recruiting.
  • In some instances, this will constitute a co-employment situation, and the employer will still retain some liability and responsibility toward employees. This means that even if the PEO is handling many aspects of the employment relationship and payroll/wages, the employer may still have an obligation to ensure some aspects are completed accurately and may not be free of legal obligations. Consult employment counsel with specific questions.
  • Some staff-leasing organizations get employees from other countries. This may or may not work for your business model, and some organizations are wary of offshoring their employees. (Obviously, this note is most relevant to remote work.)

What has your experience been? Has your organization utilized staff leasing for some or all your employee needs? What did you think of it?

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.