Employee Leasing Explained
Benefits of leasing an employee
Leased workers may be an appealing option if you’re looking for contract work but aren’t quite ready to hire and manage employees on your own for a number of reasons, including:
Prioritize your business
The PEO handles all payroll, taxes, benefits, and insurance, so there is significantly less administrative work than would otherwise be required when hiring an employee full-time. As a result, you’ll have more time to concentrate on your company’s operations and your employee’s work. The PEO handles the administrative side, but the leased employee still only works for your company and reports to you.
Provide flexibility
Your investment in the employee is significantly higher because full-time employment typically involves additional paperwork. An employee is hired under a contract when they are leased, and that contract may be extended as necessary.
Minimize liability
Payroll and taxes, along with the numerous laws and regulations that go along with them, can put a business at risk for liability. That risk can be decreased by outsourcing those duties to businesses that are experts in handling this work.
What is a leased employee?
On behalf of a company or organization that provides professional staffing services, a leased employee works for a different company. Typically, leased workers are hired by leasing companies or professional employer organizations (PEOs), who then coordinate all human resources-related tasks for the position, including payroll, benefits, and any other necessary paperwork. The leased employee works for the business that hired them through the PEO while the PEO manages the employee’s administrative tasks.
Despite only working for the recipient company, leased workers are legally employed by both the professional employment organization and the recipient company. Depending on the state, the recipient business and PEO could both be referred to as “co-employers” for the leased employee.
Most of the time, leased workers are hired on a regular, full-time basis, which means they might be eligible for PEO benefits like retirement plans, paid time off, and health insurance.
Compensation and benefits of a leased employee
It’s critical to comprehend what the professional employer organization is doing for you and how your leased employees will be paid, even though they are in charge of a leased employee’s pay and benefits.
There are a few essential tasks that most PEOs will typically handle:
Although some PEOs offer additional perks and services, these are the three to keep in mind. The PEO receives payment from the recipient company in exchange for leasing the employee.
Leased employee vs. independent contractor
At first glance, there are some key similarities between leased employees and independent contractors. Both are technically independent contractors, but there are some distinctions that are advantageous to be aware of.
As their name implies, independent contractors work for themselves and not for a particular employer. Usually, independent contractors offer their services to clients who pay them directly. The way the work is done is not under the direction or control of the client, and the independent contractor is responsible for their own taxes.
Leased employees are officially employed by a professional employment organization. This indicates that the leased employees don’t have to worry about their taxes, insurance, or benefits because the PEO handles those things.
Tax reporting as a leased employee
Typically, full-time employees have a relatively straightforward tax process. Employees receive the paperwork and documentation required to file taxes from their employers.
A leased employees taxes might be a little different. Even if the recipient business, or common law employer (CLE), outsources payroll, they may nonetheless be liable for tax payments and return filing. Usually, this depends on the particular business involved and the laws of the state. The IRS may also certify some PEOs to perform all tax-related duties.
It’s important to check with your local and state regulations to assess your company’s particular circumstances because the PEO or CLE may be the default employer depending on the state.
How to hire a leased employee
Here are the steps you can take if you’re interested in working with a PEO to lease employees:
1. Assess your company
To hire a leased employee, you must first identify the best PEO for your company’s requirements. PEOs handle all recruiting efforts, so by the time you contact a PEO, the majority of the work you would need to do to find a qualified employee has already been done. All you have to do is decide what kind of worker you require.
Your needs will also depend on the size and location of your business. For instance, a mid-sized company’s hiring requirements will likely differ from those of a small company looking to hire one or two people. Likewise, prior to hiring a leased employee, you might need to comply with various insurance requirements depending on your region.
2. Ask for references
It’s critical to confirm that the PEO you work with is performing as expected because they will manage the majority, if not all, of the employee-related financials. Additionally, now is the time to get in touch with the PEOs’ clients to get more information to aid in your decision-making. You might discover that some PEOs are better suited to you and your company’s needs than others, depending on the PEOs’ clientele.
3. Start with a trial
The majority of PEO agreements will give your company a 30- to 90-day grace period. You can decide if hiring a leased employee is the best course of action for you by beginning with a trial.
FAQ
Is a leased employee an employee?
An agreement between a company and a staffing agency in which the latter provides workers on a project-specific or temporary basis is known as employee leasing. These staff members are employed by the client company, but the leasing company pays their wages and manages all aspects of their employment-related HR administration.
What is the difference between a leased employee and a temporary employee?
According to the definition of the term “leased employee” in section 414(n)(2) of the Code, a leased employee is a person who is not an employee of the recipient. This specification was added by Pub.
How are the earnings of a leased employee reported?
The leased employee feels more like an employee and has a closer relationship with the employer, among other notable differences. Leased employees also receive more benefits than temporary employees do. Typically, a temporary employee doesn’t feel a strong connection to the client company.
