Pros & Cons of Employee Leasing
Businesses require a workforce to operate; if the operation becomes large enough, the owner may need to hire employees. Hiring employees comes with benefits and downsides, like much else in business.
Work is distributed away from the owner, but the owner must track and keep records of the employees and typically pay taxes on the wages paid to them. One solution businesses consider is hiring leased employees.
Certain business lease employees to other businesses. Consider the benefits and downsides before choosing this route.
Pro: Reduce Payroll Costs
According to the Department of Labor of the state of Vermont, employing leased workers may help reduce payroll costs in the aggregate. Specifically, the costs associated with hiring workers, such as payroll taxes, may be reduced since the burden is shared between company entities.
Note that hiring leased workers does not relieve your business from payroll taxes. A human resources company, you may still be responsible for payroll taxes. This is especially true if the leasing agency goes bankrupt (in which case you may be responsible for the entire tax amount).
Pro: Cut Down on Administrative Tasks
Connected to reducing payroll costs, leasing employees may help you save time by reducing the amount of time you would have to spend on administrative tasks such as keeping employee records and generating reports or paperwork on issues such as employee benefits.
Theses types of administrative tasks are usually handled by the leasing agency. This frees up time for your business to focus on generating sales and revenue.
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Con: Employees Might Be “Seasonal”
One disadvantage to employing leased employees is that you may not be employing a permanent asset to your workforce. Unlike the traditional hiring process, where you can handpick employees and develop an eye for finding reliable employees who will stick around, leased employees naturally feel “seasonal”; they won’t be there forever.
Further, depending on the leasing agency, you may get stuck with a batch of leased workers who are uncooperative and more of a hassle than an asset. If this is the case, you’ll have to find employees and you will be back to square one (having wasted time and money on the leased employees).
Con: Employee Responsibilities Shared Between Both Companies
In conjunction with the potential pitfall of owing payroll taxes and other costs if the leasing agency goes under, risks are involved in bearing responsibility for the employees. When you lease employees, both your business and the leasing agency share responsibility in complying with hiring practices and other liability issues.
If a leased employee assaults a customer, for example, the customer can still hold your business liable. Further, if the leasing agency engages in illegal employment practices, you might be liable for fines and costs along with the leasing agency.