Employee Leasing: A Comprehensive Guide

What is Employee Leasing?

Employee leasing, also known as temporary staffing or staff leasing, is when a business partners with an employee leasing company to hire workers for specific needs, either short-term or per project. In this setup, the leasing company's employees work for the business, but the business does not directly employ them. 

It is a lease arrangement, and once the partnership ends, the services of the leased employees are terminated. This approach offers flexibility to the companies while allowing them to leverage workers' skills without a long-term employment commitment and the high cost of hiring a new employee.

How Does Employee Leasing Work?

Employee leasing is a business arrangement where a company delegates the management of its employees to another entity (the employee leasing company). It enables the client to focus on its core operations while the leasing company takes care of various HR and administrative tasks related to the employees.

The leasing company supplies workers to businesses but is responsible for their payroll and HR administration. It legally shifts the employer-employee relationship from the client to the employee leasing company. 

The employee leasing company then takes charge of various HR and administrative tasks. These responsibilities include critical functions such as processing payroll, managing employee benefits, ensuring strict compliance with employment laws, and meticulously maintaining employee records.

The client pays the leasing company a service fee to cover the cost of leveraged HR services, administrative support, and compliance management. The payment amount is a percentage of employee-related expenses or a fixed monthly amount. The client company determines the employee wages and includes them in the payment to the leasing company.

Why Employers Choose Leasing Over Hiring?

Employers prefer leasing over hiring for the following reasons:

1. Cost Efficiency

Employee leasing saves money by sparing businesses from the costs of hiring employees and needing large HR departments. The leasing company handles payroll, benefits, and other HR tasks, reducing the need for extensive in-house HR resources. This cost-effective approach allows you to allocate your budget more efficiently and invest in critical growth areas.

2. Expertise

Leasing companies have HR experts who are well-versed in complex employment regulations. They help you with all legal requirements, ensuring your business complies with laws and regulations. Moreover, with their help, you can avoid legal pitfalls and potential fines, thereby having a secure working environment.

3. Focus on Core Activities

Outsourcing payroll and HR responsibilities through leasing liberates your business to concentrate on its primary activities. With HR burdens lifted, you can direct your energy toward innovating, producing, and improving your products or services. This will eventually help you enhance your competitive edge.

4. Employee Benefits

When you opt for employee leasing, you are not responsible for directly paying for employee benefits and perks. Instead, you pay the staff leasing company for their services, and they handle all the complexities of providing benefits like health insurance and retirement plans. 

This setup makes managing benefits easier for you and contributes to employee satisfaction. Happier employees would be more engaged, and thus, the productivity of business increases. 

5. Scalability

Employee leasing enables swift workforce expansion without the administrative complexities of hiring. You can quickly scale up and down depending on changing demands by leasing (or relieving) additional employees from the provider. This will ensure flexibility and a streamlined response to market fluctuations.

Risks Involved in Employee Leasing

While employee leasing offers numerous benefits, there are also risks to consider:

1. Lack of Employee Motivation

Leased workers might feel disconnected from your company's goals and values because they're not permanent employees. This could lead to them not being as dedicated or motivated to do their best work.

2. Lesser Control

Since the leasing company oversees the leased staff, you might have less control over how they work. This might result in different work quality and not aligning with your company's plans.

3. Lack of Employee Engagement

Leased employees could be seen as short-term workers, which might make them feel left out of the main team. This could make it harder for them to build relationships and feel like they're part of the group.

4. Communication Problems

Good communication between your company and the leasing agency is crucial. If communication breaks down, the leased employees might perform poorly, affecting your business.

5. Bureaucracy and Problem-Solving

Employee leasing adds extra steps when solving problems. Employees who have questions about pay or benefits must go through the leasing agency, which can slow down solutions and create confusion.

6. Increased Dependency

Relying too much on leasing companies can make you dependent on them. If there's a problem or you end the arrangement, it could disrupt your business and cause trouble.

Leasing Employees vs. PEO Co-Employment

Before understanding the difference, you must know what PEO and co-employment mean. Co-employment is a setup where your company and a PEO (Professional Employer Organization) share employee responsibilities. 

In this arrangement, the PEO takes on administrative tasks while your company handles day-to-day work. The PEO becomes the official employer for tax purposes and takes care of tax reporting and payments after you hire someone. However, many PEOs also help ease administrative loads besides payroll services.

In the past, employee leasing definition and PEO were used interchangeably, and thus, they are easily mixed up. The key difference is what they provide.

Benefits of Leased Employees

Leased employees bring numerous benefits, including:

Fulfill Seasonal and Immediate Demands

Leased employees are a valuable resource to meet fluctuating demand. Whether it's a busy holiday season or a sudden increase in orders, these workers can step in quickly, preventing understaffing issues and ensuring smooth operations during peak times.

Provide the Expertise you Require Immediately.

Leased employees often bring specialized skills crucial for specific projects or tasks. You can quickly access their expertise without a lengthy hiring process, enhancing productivity and project success.

Related Read: Best Countries to Hire Remote Developers From

How to Find the Best Employee Leasing Service Provider?

Selecting the right employee leasing service provider is crucial. Therefore, you must do the following:

1. Assess Your Needs

Start by analyzing your company's requirements. Understand the number of employees you need, their specific skills, and the duration you need them. This will help you communicate your needs to service providers and ensure they can fulfill your staffing demands accurately.

2. Check Experience

Seek out a leasing provider with a strong track record in employee leasing. You must look for their history of successfully assisting other businesses with staffing needs. A provider with experience is more likely to understand the challenges of different industries and offer practical solutions.

3. Reviews and References

Research the provider's reputation by reading reviews from other companies using their services. Positive feedback indicates reliability and quality. Feel free to ask the provider for references you can contact directly to get more insight into their performance and professionalism.

4. Technology

Check if the provider uses the latest technology in their processes. A modern system can better simplify administrative tasks such as payroll, time tracking, and communication. Moreover, a technologically advanced provider can make the leasing process more efficient and less prone to errors.

5. Take a Trial

Many providers offer trial periods. You can use it to test their services before making a long-term commitment. During this trial, you can evaluate how well their staffing solutions match your needs and assess their responsiveness.

How Skuad Can Help?

Employee leasing is a strategic approach that can help you focus on your core business without the hassle of finding, hiring, and onboarding employees. It is an excellent way to accommodate additional projects or those with specialized skills that you require temporarily. 

However, leasing also comes with a risk of commitment issues, dependence on a third party, lack of motivation, and lack of interpersonal relationships with your existing employees. But, there is an easier way. 

Found talent you want to hire? 

With Skaud’s EOR platform, you can easily hire and onboard employees quickly in over 160 countries. Skuad ensures compliance with local employment laws without setting up local entities. From localized onboarding to cross-border payroll, Skuad simplifies the process, making global expansion a reality. Talk to our experts today! 

FAQs

Q1. What are the services offered by PEOs?

PEOs (Professional Employer Organizations) provide payroll, benefits administration, HR support, and compliance management services. 

Q2. What is the difference between outsourcing and employee leasing?

Outsourcing involves hiring external parties for specific tasks. Employee leasing is a form of outsourcing where a company gets staff from a leasing firm. In outsourcing, the staff isn't necessarily from a leasing company.

Q3. What is an example of employee leasing?

An example of employee leasing could be a retail chain leasing temporary sales associates from a staffing agency to handle increased customer demands during the holiday season.