Belle Wong is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She spends her spare moments testing out the latest productivity apps and plotting her latest novel. Connect with Belle on LinkedIn or Twitter.
Belle Wong, J.D. ContributorBelle Wong is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She spends her spare moments testing out the latest productivity apps and plotting her latest novel. Connect with Belle on LinkedIn or Twitter.
Written By Belle Wong, J.D. ContributorBelle Wong is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She spends her spare moments testing out the latest productivity apps and plotting her latest novel. Connect with Belle on LinkedIn or Twitter.
Belle Wong, J.D. ContributorBelle Wong is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She spends her spare moments testing out the latest productivity apps and plotting her latest novel. Connect with Belle on LinkedIn or Twitter.
Contributor Kelly Main Staff ReviewerKelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.
Kelly Main Staff ReviewerKelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.
Kelly Main Staff ReviewerKelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.
Kelly Main Staff ReviewerKelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist c.
Updated: May 28, 2024, 2:48pm
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As a small business, you’ve probably had to deal with situations where you’re short-staffed and could really use an extra hand (or three) for the short term. Or maybe you need to staff an upcoming nonpermanent project. If so, employee leasing could provide a viable solution. Follow along to learn more about what is employee leasing, how it differs from professional employer organizations (PEOs), co-employment and joint employment.
Employee leasing is an arrangement where an employee leasing company supplies the workers a business needs, often on a short-term basis or for a longer term on a per-project basis. It’s sometimes referred to as temporary staffing.
When you enter into an employee leasing arrangement, the employee leasing company’s employees work for you but you do not employ them—as the term “leasing” indicates, it’s a lease arrangement.
Once your arrangement with the employee leasing company ends, the leased employees do not continue working for you, because you were never their employer.
Employee leasing is often confused with the services offered by PEOs, and you might sometimes hear the two terms used interchangeably. However, employee leasing and PEO services are not the same thing.
According to the National Association of Professional Employer Organizations (NAPEO), the confusion exists because, historically, it was common to use employee leasing terms to describe the services provided by early PEOs. PEOs have since evolved, however, and there are now many differences between employee leasing companies and PEOs.
What’s the main difference between the two? While an employee leasing company supplies businesses with workers, a PEO does not. Instead, a PEO provides employee-related services, such as payroll and benefits. And unlike employee leasing, when your contract with a PEO ends, your employees remain your employees.
When a business enters into a contractual arrangement with a PEO, it’s basically outsourcing its administrative HR tasks.
For example, a PEO’s services typically include:
Some PEOs offer expanded HR services as well, such as employee training, recruitment and performance management.
While a PEO will take over the administrative HR functions for your business, you continue to retain control over all other parts of your business. This means you’ll still be in charge of hiring and termination decisions, and other employee management issues such as salary, raises and bonuses.
Unlike an arrangement with an employee leasing company, when you enter into a contractual relationship with a PEO, the PEO is able to take on regulatory and compliance tasks such as employment taxes because it becomes the employer of record for your employees.
You do not stop being your employees’ employer either, however. Instead, your employees have two employers. This type of arrangement is called co-employment, and it’s what enables the PEO to take over your administrative HR tasks so you can devote your time to the rest of your business.
Employee leasing shouldn’t be confused with co-employment, as they are very different. As mentioned previously, leased employees under an employee leasing arrangement are employees of the employee leasing company. Once the arrangement ends, these employees remain the leasing company’s employees.
When you enter into a contract with a PEO, you’re entering into a co-employment arrangement. Although the PEO becomes a co-employer of your employees during the term of the arrangement, once the contract ends, they do not retain this co-employer status. You, however, continue to be your employees’ employer.
With employee leasing, then, the employee leasing company provides you with workers for the term of your contract with it, but with co-employment, the PEO provides you with HR-related services rather than employees.
Employee leasing also shouldn’t be confused with joint employment. Joint employment is unlike employee leasing because, under a joint employment arrangement, the employees have two employers.
Up to this point, joint employment might sound like co-employment. But this is where the similarities end.
Under joint employment, both employers share control over their employees. This means, for example, either of the joint employers can hire or terminate an employee, set starting salaries and grant wage increases. Contrast this with co-employment, where only one employer—the PEO’s client—has control over the employees.
Why would a small business opt for an employee leasing solution? There are a number of benefits to partnering with an employee leasing company, including:
It can still be confusing to know when your business should opt to lease employees, and when it would be more beneficial to work with a PEO. Here’s how to determine what solution is the best choice for your particular situation:
Do you have short-term or per-project employee needs? Employee leasing firms are in the business of providing workers. So, if you’re in need of additional staff to help out for a short period of time or on a seasonable basis, or you need to staff a project that has an end date, working with an employee leasing agency might be the better solution.
Do you want to outsource your HR and payroll-related tasks? PEOs, on the other hand, are in the business of offering HR administration services. So, if what you really want is to have someone looking after your payroll, benefits, employment tasks and other employee-related functions so you can focus on the rest of your business, a PEO is likely the solution you’re looking for.
Short-term or project-based staffing issues don’t have to remain a challenge for your small business. Employee leasing is worth exploring: In many situations, it can provide business owners with a cost-effective solution to their staffing needs.
If your business is leasing employees from an employee leasing company, these employees are not considered your employees. They remain the employees of the employee leasing company.
An employee leasing company offers businesses short-term or per-project staffing solutions by providing their clients with workers who can work on-site at the client’s office or place of business.
Depending on your situation, employee leasing companies can provide your business with short-term or per-project staffing solutions.
An employee leasing company supplies companies with workers. A PEO does not supply businesses with workers — it becomes an employer of record, offering employee-related services such as payroll and benefits.
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ContributorBelle Wong is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She spends her spare moments testing out the latest productivity apps and plotting her latest novel. Connect with Belle on LinkedIn or Twitter.
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