PEOs operate in all 50 states, and many states provide some form of specific licensing, registration or regulation. These states statutorily recognize these companies as the employer or co-employer of worksite employees for many purposes, including workers’ compensation and state unemployment insurance taxes. The IRS has accepted the right of a PEO to withhold and remit federal income and unemployment taxes for worksite employees. Essentially, PEO co-employment allows businesses to outsource some of their HR, payroll, benefits, employment laws, worker’s comp, and more for their full-time workforce. This removes much of the administrative burden from the business and allows them to focus on their core competencies without worrying too much about the administrative aspects of recruiting, hiring and managing HR tasks for employees.
Employee Leasing vs. PEO Services
In general terms, the PEO will focus on employment-related issues, and the client will be responsible for the actual business operations. However, the1986 Tax Reform Act eliminated this advantage for most employers. The new requirement stated that if leased employees constitute more than 20 percent of an employer’s total workforce, they must be counted as employees for purposes of meeting ERISA’s qualification requirements.
Whether you’re facing seasonal fluctuations, market shifts, or project-specific demands, Reliasourcing provides the agility to scale your workforce seamlessly. This adaptability allows you to respond swiftly to changing conditions, ensuring that you maintain optimal operational efficiency and customer satisfaction. If you already have a preference for who you want to use for your health insurance and benefit offerings, you may not be able to use them. Although this may seem like a disadvantage, it could end up being a massive benefit. PEOs have access to a wide range of different providers that may be able to provide you with more benefits than your preferred benefit carrier. Although there are many great benefits that come with working with a professional employer organization, there are a few disadvantages you should be aware of.
What are the differences between Employee Leasing and Professional Employer Organizations?
- This means that this company leases employees to another business which helps.
- Leased employees are just that — employees — and the HR responsibilities are managed by the PEO.
- It is a contractual arrangement in which the employee leasing company, also known as a professional employer organization , is the official employer.
- Explore how a comp time policy can help you manage overtime, improve flexibility, and comply with labor laws.
- PEOs can help your business grow by assuming some of the risks and complex tasks of the human resources department.
It is imperative to weigh your immediate needs against long-term objectives. It streamlines operations, ensures compliance, and offers strategic guidance for future growth. Count on us for reliable and prompt solutions, designed to meet the demands of your business, from PEO and EOR services to comprehensive HR management. We are here to make your HR journey smoother, more efficient, and more responsive to your business goals. Fast forward to present day and the word “employee leasing” is not really used in the market place.
In this post, we’ll explain what each service does, what its pros and cons are, and how they differ from each other and from other HR service providers. There’s many other back-office tasks these agencies can help with depending on what the client needs as well. In fact, there are over 5,000 in the US and it can be a good idea to contact multiple PEOs to understand their rates, markups, which services they offer, and the availability of their leased employees. They can also help with other HR-related heavy lifting, from creating an employee handbook and mediating employee conflicts to managing employee benefits administration if a business offers perks. If your business is leasing employees from an employee leasing company, these employees are not considered your employees.
Resources
- But even though they can perform similar tasks and work for the same period of time, there are several key differences between leased employees and independent contractors to be aware of.
- Although many still view these two staffing arrangements as the same – they are in fact quite different.
- Depending on your situation, employee leasing companies can provide your business with short-term or per-project staffing solutions.
- A staffing company hires employees to work for your business on a temporary basis.
You can also ask for a substitute to fill in for a worker who is sick and will not be back for a while. In this arrangement, you won’t establish an employer-employee relationship with these workers; they will solely serve to meet your short-term or seasonal requirements. Employee leasing — also known as professional employer organization (PEO) services — is when a business borrows, or “leases,” an employee from a third-party company what is peo employee leasing company (usually a staffing agency).
Insight to PEO vs Employee leasing for your specific needs
You can also gain a clearer perspective on various PEO options by checking out our PEO comparison pages. Sure, it’s not rocket science- but payroll is tedious work and you can’t afford mistakes. Explore how a comp time policy can help you manage overtime, improve flexibility, and comply with labor laws. Get more guidance in our in-depth article on the difference between employees and independent contractors. ADP TotalSource helps us accomplish our goals by freeing up our team to do what is best for our customers and our company, and by providing the confidence that our HR needs are being met every day.
Important considerations before leasing staff
The added risks and administrative costs for the services provided is why staffing companies are most commonly used as a temporary solution. Workers who work for companies or businesses through a temporary agency or other employee-leasing firm are usually considered to be employees of both the temporary agency/leasing firm and the business. The application of employment laws normally depends on whether the employer using the leased employees is considered to be a “joint employer” with the leasing agency. A worker who seeks employment through a temporary agency is the most common type of leased employee. A temporary agency is a company that contracts with businesses to provide workers on a contingent basis. These temporary agencies handle all payroll, tax, and other human resources functions for the workers.
As mentioned earlier, PEOs take care of administering HR benefits and other types of benefits. Most companies assume that they have to take on the task of managing all aspects of their business in order to scale successfully, but that is far from the truth. These companies are beneficial tools that provide you with the services you need to stay compliant while you scale and focus on your bottom line. With PEOs, the employees are still yours and the fees are way less than leasing and staffing companies. Historically, the term “employee leasing” was used to describe what has evolved into the PEO industry.
Workers’ Compensation
This predictable pricing model simplifies budgeting, allowing businesses to plan and allocate resources effectively. It is particularly beneficial for companies with fluctuating HR needs as it provides stability in cost management. This means both the client company and the PEO share responsibilities and expertise.
The term “employee leasing” means different things to different people and has been, and continues to be, used in many diverse contexts. In the event a PEO relationship is terminated, the co-employees will cease to work for the leasing organization but will continue as employees of the client. In conclusion, while both PEOs and employee leasing companies streamline HR tasks, PEOs offer a more comprehensive solution. PEOs share employer responsibilities, reduce administrative burdens, and provide accessibility to a wider range of benefits for your existing workforce. This fosters a more engaged and stable team, allowing you to focus on core business aims. Consider your company’s needs – for temporary staffing, employee leasing might suffice.
The leasing firm takes over all payroll, tax, and other human resources functions for the workers. PEOs supply services and benefits to a business client and its existing workforce. PEOs enter into a co-employment arrangement typically involving all of the client’s existing worksite employees and sponsor benefit plans for the workers and provide human resources services to the client. In most cases, the PEO provides access to health insurance, retirement savings plans, and other critical employee benefits for the worksite employees of the business client.
The Employee Leasing arrangement suits businesses aiming to maintain control over their workforce while needing a helping hand with temporary hires. On the flip side, PEOs offer a comprehensive solution, streamlining HR processes and delivering extra benefits to employees. A PEO can offer a small to mid size company the back office and benefits platforms of a Fortune 500 company. Now employers can provide best in class health benefits, 401k platforms, payroll systems, HRIS, time and attendance and competitive workers’ compensation. The PEO assumes responsibility and liability for payment of state unemployment taxes, and most states recognize these service providers as the responsible entity. In those states that require the professional employer organization to report unemployment tax liability under its clients’ account numbers, the PEO still manages this responsibility.
