Pros And Cons Of Leasing Employees

You can rent a car, a hotel room, or a tuxedo. But your employees? It turns out they can be “rented,” too.

With health insurance premiums and other costs continuing to escalate at alarming rates, some owners of small businesses are opting to lease employees from “professional employer organizations” (PEOs). With a PEO, you’re still in charge of the workers on the job, but the leasing organization assumes responsibility for human resource (HR) functions, payroll obligations, and fringe benefits. It’s the ultimate form of outsourcing.

Is leasing employees a good move for your business? On the positive side, it lets you concentrate on running the company. You still call all of the shots for the leased employees, but you’re relieved of handling chores for which you may have minimal experience or expertise. In contrast, a PEO has staffers who’ve been trained to manage everything from payroll disbursements to conflict resolution.

In addition, you can choose to outsource some or all of the responsibility for recruiting job candidates and selecting employees, a time-consuming process filed with potential legal pitfalls. Some businesses simply transfer the employment of existing workers to the PEO, but for new hires, you can be as much or as little involved as you like.

The biggest question is whether leasing employees will save you money. Generally, though your workers are paid by the PEO, you’re billed for their wages and benefits. But you may save on health insurance, retirement plans, and other perks. By pooling workers from many small businesses, a PEO may get better rates on benefits than a 10-person shop, for example, could negotiate on its own.

Of course, PEOs are in business to make money, and though fees vary, it’s not unusual for a PEO to bill $1,000 per employee annually above and beyond payroll costs. You’ll need to weigh that expense against benefit savings and the convenience of not doing HR work. You may want to shop around for benefit packages on your own, to make sure that savings through the PEO are sufficient to make up for its fees.

There are other potential issues. Though employees may technically work for the PEO, if you’re paying salary and benefits, even indirectly, you could still have legal responsibility for them. Ask an attorney who specializes in employment law about possible liabilities for your business.

You also need to be comfortable handing over HR duties. But if that’s fine with you—and if the numbers add up in your favor—leasing workers could be good for your business and for your employees, who may benefit from working with HR pros and continuing to receive health insurance and other perks that you might not otherwise be able to afford.

This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

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