Employee leasing is when a staffing firm supplies workers on a project-specific or temporary basis for a business. Employee leasing is also called temporary staffing.

In an employee leasing arrangement, the employees work for the business while the staffing firm or leasing agency handles all human resources management associated with their employment, such as payroll and benefits administration.

Businesses often utilize employee leasing when they want to hire talent for a specific period based on the duration and needs of a particular project without hiring full-time employees. 

How does employee leasing work?

A client company seeking talent works with a staffing agency to supply workers for a specific project or function. The agency organizes a temporary arrangement between the company and the employee for a particular period of time.

The client company controls the employee's work, while the staffing firm employs and manages them. The staffing agency covers all employee leasing terms, including employment duration, compensation, and benefits. The leasing firm is also responsible for reporting the employee’s wages and taxes.

The leasing arrangement ends when the project or contract is complete, and the worker returns to the leasing firm.

Employee leasing vs. PEO

While employee leasing is the arrangement in which a staffing agency supplies businesses with workers, a professional employer organization (PEO) provides employee-related services, such as payroll and benefits. The PEO outsources the company’s HR duties.

With a PEO, the client company and the PEO share the employees' employment responsibilities, also called a co-employment relationship. The PEO assumes responsibility for administrative tasks such as compensation, payroll, benefits, and tax withholdings, while the client company controls hiring workers, terminating employees, and other day-to-day responsibilities.

Unlike employee leasing, the client company’s employees remain its employees when a contract with a PEO ends. 

Employee leasing vs. EOR

An employer of record (EOR) takes on all employer-related responsibilities on a company’s behalf. An EOR manages international staff, is the full legal employer of the company’s workforce, and maintains complete liability.

Companies partner with an EOR to hire and pay talent in countries where they don’t own an entity. An EOR handles all HR-related tasks, such as onboarding, payroll, taxes, benefits administration, and compliance with international labor laws. The company maintains control of the employees’ work and day-to-day operations. 

Benefits of employee leasing

Employee leasing offers businesses many benefits, including the following:

  • Short-term relationship. Employers may not have the budget or capacity to hire additional permanent full-time employees. Employee leasing allows companies a quick and cost-effective solution to work with talent for short-term projects or seasonable labor challenges. 
  • Minimal administration. Employee leasing enables companies to add additional workers without additional administrative tasks. The leasing firm manages all recruitment, hiring, payroll, benefits, taxes, and compliance responsibilities, reducing the company’s HR workload and freeing up time for other day-to-day operations and business development. 
  • Qualified candidates. An employee leasing agency with access to an extensive talent database may reach more candidates than a company could get independently. An agency can easily target and find workers with the specific skills or specialties a company needs. 
  • HR expertise. Leasing firms have experience employing hundreds of employees and have the expertise to write job descriptions, vet candidates, and match the best talent for the job. 
  • Lower costs. Employee leasing involves fixed costs so companies can better budget annual expenses and calculate workforce costs accordingly. Employee leasing is also less expensive than hiring permanent employees. 

Drawbacks of employee leasing

Despite the advantages employee leasing offers companies, there are also several drawbacks. These include:

  • Less control. Delegating HR functions to a third-party organization could result in less control over running the business. A company may lose aspects of its employee processes and systems when passing on key employee management to an outside firm that doesn’t know business operations and culture. 
  • HR overlap. If an employee leasing firm handles most of a company’s HR responsibilities, it may diminish the value and functions of the internal HR team.
  • Less engagement and loyalty. A third-party organization's management of a company’s team members may influence the company culture. Employees working for a company temporarily may not feel as engaged or loyal to the business, which can negatively impact team morale, productivity, and company culture. 

When to use employee leasing

Companies utilize employee leasing services for various reasons. A business might use employee leasing when they need to achieve the following:

  • Access specialized skills or expertise
  • Fill a short-term project
  • Add workers on a seasonal basis 
  • Work with talent without the long-term commitment of hiring a full-time employee

Employee leasing FAQ

The following information explores common questions regarding employee leasing. 

What is an employee leasing company?

An employee leasing company offers businesses staffing solutions by providing them with workers. The employee leasing company, staffing firm, or agency supplies workers to perform work based on the client company’s needs.

Which businesses benefit from employee leasing?

Many businesses can benefit from employee leasing, especially in industries and companies that do not want to waste money and time on administrative tasks. Some types of jobs that companies often utilize employee leasing include:

  • Consulting
  • Law
  • Healthcare
  • Finance
  • Retail
  • Real estate

Are leased employees eligible for benefits?

Leased employees are eligible for benefits through the leasing agency that employs them. The employee leasing firm manages all employee benefits, such as health insurance, retirement plans, and vacation.  

Are leased employees considered employees?

Leased employees are considered employees by the staffing firm that employs them. While a leased employee performs work and services for the client company, they are technically not the company's employee. Through the leasing arrangement with the client company, the staffing firm determines the leased employee’s employment terms and is the worker’s legal employer.

Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.

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