What is an Employee Leasing Company?
Employee Leasing Companies, often times referred to as Professional Employer Organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. Employee Leasing Company clients focus on their core competencies to maintain and grow their bottom line.

Who uses an Employee Leasing Company?
Any business can find value in an Employee Leasing relationship. Employee Leasing clients include many different types of businesses ranging from accounting firms to high-tech companies and small manufacturers. Many different types of professionals, including doctors, retailers, mechanics, engineers and plumbers, also benefit from these services.

How does an Employee Leasing arrangement work?
Once a client company contracts with an Employee Leasing Company, that company will then co-employ the client's work site employees. In the arrangement among an Employee Leasing Company, a work site employee and a client company, there exists a co-employment relationship in which both the Employee Leasing Company and client company have an employment relationship with the worker. The Employee Leasing Company and client company share and allocate responsibilities and liabilities. The Employee Leasing Company assumes much of the responsibility and liability for the business of employment, such as risk management, human resource management, and payroll and employee tax compliance. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The Employee Leasing Company and the client will share certain responsibilities for employment law compliance. As a co-employer, the Employee Leasing Company will often provide a complete human resource and benefit package for work site employees.

Are Employee Leasing Companies recognized as employers at the state and federal levels?
Yes. Employee Leasing Companies operate in all 50 states. Many states provide some form of specific licensing, registration, or regulation for Employee leasing Companies. These states statutorily recognize the Employee Leasing Company as the employer or co-employer of work site employees for many purposes, including workers' compensation and state unemployment insurance taxes. The IRS has accepted the right of an Employee Leasing Company to withhold and remit federal income and unemployment taxes for work site employees.  

Why would a business use an Employee Leasing Company?
Business owners want to focus their time and energy on the "business of their business" and not on the "business of employment." As businesses grow, most owners do not have the necessary human resource training; payroll and accounting skills, the knowledge of regulatory compliance, or the backgrounds in risk management, insurance and employee benefit programs to meet the demands of being an employer. Employee Leasing Companies give small-group markets access to many benefits and employment amenities they would not have otherwise.

Do the business owners lose control of their businesses?
No. The client retains ownership of the company and control over its operations. As co-employers, the Employee Leasing Company and client will contractually share or allocate employer responsibilities and liabilities. The Employee Leasing Company will generally only assume responsibilities and liabilities associated with a "general" employer for purposes of administration, payroll, taxes and benefits. The client will continue to have responsibility for work site safety and compliance. The Employee Leasing Company will be responsible for payroll and employment taxes, will maintain employee records and reserves a right to hire and fire. Because the Employee Leasing Company also may be responsible for workers' compensation, many also focus on and improve safety and compliance. In general terms, the Employee Leasing Company will focus on employment-related issues and the client will be responsible for the actual business operations.

Who is responsible for the employees' wages and employment taxes?
Employee Leasing Companies assume responsibility and liability for payment of wages and compliance with the rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. Employee Leasing Companies have long established their role as reporting income and handling withholding, FICA and FUTA. In 2002, the IRS issued guidance confirming the ability of Employee Leasing Companies to offer qualified retirement benefits.

Who is responsible for state unemployment taxes?
As the employer for employment tax and employee benefits, the Employee Leasing Company assumes responsibility and liability for payment of state unemployment taxes, and most states recognize the Employee Leasing Company as the responsible entity. In those states that require the Employee Leasing Company to report unemployment tax liability under its clients' account numbers, the Employee Leasing Company can still manage that responsibility.

Who is responsible for workers' compensation?
Many states recognize the Employee Leasing Company as the employer of work site employees for purposes of providing workers' compensation coverage.

How much do your employees really cost?
As an employer, administering employee, workers' compensation, and benefit programs can be costly. It is difficult to precisely calculate your non-productive administrative costs, however The U.S. Chamber of Commerce, The U.S. Department of Labor, and The U.S. Small Business Administration have compiled data that help determine your administrative costs.

• 1-9 employees equals an estimated 8-10% administrative costs.
• 10-49 employees equals an estimated 6-8% administrative costs.
• 50-199 employees equals an estimated 4-6% administrative costs.
• 200+ employees equals an estimated 2-4% administrative costs.

Who needs Work Comp?
In virtually every state except Texas, workers’ compensation insurance is mandatory. Employers are required to carry work comp insurance on their employees. Small employers who do not carry work comp on their employees (and may be paying small claims “out of pocket”) risk being personally liable for all medical bills from the accident in addition to significant governmental fines. For contractors, having proof of work comp insurance in place is usually required to be a subcontractor for a larger general contractor. Proof of work comp coverage is provided by a work comp certification that proves coverage is in place.

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