Definition of a Leased Employee

nyul/iStock/Getty Images

Just as you can lease a car or house instead of buying it, you can lease employees instead of hiring them yourself. They can even work for you long-term and still be leased workers. Businesses that lease employees to other businesses are typically called Professional Employment Organizations (PEOs). Leasing employees has many advantages, including saving you the time and hassles of hiring, as well as saving you money.

TL;DR (Too Long; Didn't Read)

A leased employee is not hired on as permanent staff, but is leased to you by a professional employment organization which handles all the employee's paperwork, benefits, salary, bonuses, tax documents and so on, in return for a fee.

Ending Hassles Through Labor Leasing

Using a PEO to staff your company eliminates the human resource (HR) hassles of reading through stacks of resumes, conducting interviews, negotiating salaries and bonuses, and all the paperwork involved with taxes, insurance and other benefits. The PEO handles all of that for your leased employees because they are actually employed by the PEO. You direct your leased workers in policies and procedures specific to your business and how you want them to do their jobs.

You also bypass the hassle of dealing with many employee issues. If you have a problem with a leased worker, you contact the leasing company; if the leased worker decides she doesn't like the job, she turns to her employer, the leasing company. They come up with the solutions, possibly counseling her or providing extra training or removing her from the job. You never have to fire a leased employee, either; if he just isn't a good fit, you contact the leasing company and they will supply a different worker.

Saving Time With Leased Workers

Labor leasing saves you the time you'd spend looking for the right employees, interviewing, handling all the paperwork and keeping up on tax and employee laws. That's time you can put into running your business and directing your employees.

Labor leasing also reduces the learning curve that comes with new employees. Although you'll need to train them on how your company does some things, leased employees are well trained in their job skills and have experience. So they can usually get up to speed more quickly than others you might hire on your own. That's valuable time that they don't need to spend learning, and can spend their time getting actual work done instead.

For example, if you need an inside sales rep with experience selling wholesale clothing, you might have to sort through hundreds of resumes to find that specific experience. But if you instead call a labor leasing company and explain the skills you're looking for, they know exactly how to input that information into their database and find several candidates with those skills.

Saving Money With Leased Employees

Time is money, as the saying goes, and it's certainly true for small businesses. So when you save time by leasing employees, you're saving money as well. Leasing employees can save you money directly, too, because PEOs can often get you lower rates on benefits such as health care and insurance. Since they have so many employees, they get lower rates than you probably could as a small business. Even if they mark their cost up somewhat, you can still save.

Another way PEOs can save you money is by not having to pay bonuses to your leased employees, nor profit-sharing nor any other money. The PEO quotes you one price, upfront, for all your leased employees. You pay that amount, and that's your price for the contract year. No merit raises or raises with promotions or bonuses or commissions — you pay just one price for all of your leased employees.

Understanding Negatives of Leasing Staff

Leasing employees has its downside, too. Leased workers may not feel company loyalty the way hired employees do. Sometimes leased employees feel left out and, in fact, are left out by the employees who are hired. There can be the impression that leased employees won't be with the company long, so they're treated more like temps than someone on staff.

There can also be a disconnect in communications because both you and the leased worker turn to the leasing company with issues rather than trying to work them out. Knowing about problems that could occur will help you be prepared for them and be proactive in establishing good working relationships between your leased employees, hired staff and company leaders.

References

Resources

About the Author

Barbara Bean-Mellinger is a freelance writer who lives in the Washington, D.C. area. She has written on business topics for afkinsider.com, smallbusiness.chron.com, Harbor Style Magazine, the Charlotte Sun and more. Barbara holds a B.S. from the University of Pittsburgh and has won numerous awards in B2B and B2C marketing.

Photo Credits

  • nyul/iStock/Getty Images