08/ 09/ 2005
by Glenn Townes
If you’re a small-business owner looking for a way to provide expensive benefits like health insurance and retirement savings and reduce mounds of paperwork, you may want to explore employee leasing. While the concept isn’t new, many small-business owners are re-examining it as a way to enhance their businesses.
Employee leasing is paying a leasing firm to put all of your employees, including yourself, on its corporate payroll, then leasing them back. In return for a fee, plus any additional expenses, the organization handles payroll, human resources functions, taxes and pays insurance premiums and unemployment insurance. Because a leasing firm usually handles the payroll for many companies, it can bid for more favorable group rates on health-care and retirement plans.
Some leasing firms offer other extended services to clients, including employee recruitment and training as well as employee retention programs. They may also run background and security checks on prospective employees and establish and create job descriptions that conform to laws and guidelines, such as the Americans With Disabilities Act. Some firms even offer counseling services and provide employees with telephone hot lines to report illicit activities.
Advocates of leasing say it helps small businesses improve their overall productivity and profits. Other advantages of employee leasing include:
- Making it easier for employers to stay in compliance with countless federal, state and local laws since a company that understands the impact of these regulations handles them.
- Helping entrepreneurs attract and retain high-quality employees by offering better retirement and health-care benefits.
- Reducing the management nightmares and costs of mandatory benefits, such as workers’ compensation and unemployment insurance. Good employee leasing companies understand how to negotiate and navigate the system, which can reduce expenditures.
If you’re a business owner and decide to utilize the services of an employee leasing firm, remember that there are countless firms across the country, and many promote their services on the Web. It takes careful reading and planning to sift through all of the hype and discern fact from fiction. Some things to remember include:
- Deceptive or poorly managed and financed leasing firms have been known to close up shop and disappear into the night without notice, taking an employer’s insurance premiums with them and leaving the business holding the bag. An employee who doesn’t get unemployment compensation can then sue the employer who used the unscrupulous firm.
- Employee leasing won’t allow you to evade responsibilities to uphold federal, state and local employment laws. The company’s leased workers still must be provided with a safe working environment under Occupational Safety and Health Administration regulations.
- Employee leasing may not be cost-effective for some small businesses. Firms generally charge a percentage of the employee’s salary each month, and the smaller the firm, the higher the commission. Some leasing firms won’t work with a company that doesn’t have at least 12 employees.
Choosing a Leasing Firm
Evaluate your businesses human resource needs and the goals you hope to achieve through employee leasing. Make a prioritized list and compare it to what the potential firm has to offer.
- Check a firm’s financial background to make sure it’s a solid organization.
- Make sure the company can show strong experience in administration.
- Ask for references from current and former clients.
- Get at least three competing bids.
- Check local laws to determine if registration or a license is necessary.
- Find out how the benefit and insurance plans are funded––if they’re fully insured or partially self-funded and who is the third-party administrator or carrier.
- Establish how many field supervisors you need for the number of leased workers on your payroll and how often they will visit your site.
Finally, while employee leasing may not be for every small-business owner, it’s worth considering when exploring innovations for your business. It’s crucial that you take an active role in verifying pertinent information. If the employee leasing company is remiss in paying the necessary payroll taxes and insurance premiums, you, as the true employer, will be held responsible.
