Peo And Employee Leasing Whats The Difference?

“It should be clear, for example, that your partner will be liable for any mistakes made in the activities it carries out. If it errs in calculating your taxes, for example, it should be responsible for any fines or penalties.” When the leasing company purchases workers compensation insurance for covered employees, it has an obvious incentive to provide loss control services to clients-leasing companies with high debit experience modifiers will be of no value to prospective clients. Further, large leasing companies are often involved in a workers compensation retro but sell the coverage on a “guaranteed cost” basis. Small businesses often cannot afford to hire a full-time accountant or human resources manager, so the owner or managing partner must spend a considerable amount of time performing administrative functions. The leasing company can relieve the client of all payroll-related tax filings, including state and federal unemployment taxes and FICA taxes, state and federal tax withholdings, 401K deductions, any other withholdings. Some leasing companies will require a deposit to secure payments made by the leasing company on the client’s behalf.

Choosing a Leasing Company The degree of success an employer realizes from an employee leasing arrangement will, to a large extent, be determined by the leasing company it chooses. In particular, employers should exercise care in ensuring that the leasing company is financially sound and can provide evidence that it makes tax and insurance payments on time.

As soon as the subsidiary’s loss experience caught up with it, the subsidiary would be dissolved and another established. Employee leasing is a contractual arrangement in which the leasing company, also known as a professional employer organization , is the official employer. Employment responsibilities are typically shared between the leasing company and the business owner . You retain essential management control over the work performed by the employees. The leasing company, meanwhile, assumes responsibility for work such as reporting wages and employment taxes.

Because safety needs differ by industry, it is important to choose a leasing company with a proven ability to control losses in the employer’s industry. Ask the leasing company to provide a list of clients in your industry, and contact those references. Most leasing companies have standard benefit “packages” that cover all employees leased from the company. Some employers may not need or be able to afford an extravagant benefits package. Others will incur employee dissatisfaction, resentment, and turnover if the package is too meager. To some extent, however, the employer can mitigate the impact by choosing a leasing firm that offers an acceptable benefits package. Large leasing companies may offer a limited number of plan options, such as an indemnity plan versus a health maintenance organization , and several “tiers” of benefits within each plan.

Professional employer organizations provide human resource services for their small business clients—paying wages and taxes and often assisting with compliance with myriad state and federal rules and regulations. In addition, many PEOs also provide workers with access to 401 plans, health, dental and life insurance, dependent care, and other benefits not typically provided by small businesses. In doing so, they enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation. PEO clients can thus focus on their core competencies to maintain and grow their bottom line. A permanent staffing method under which an employee leasing company (sometimes called a professional employer organization or a labor contractor) provides all or most of its client’s employees.

Industry organizations have attempted to clean up the industry by enforcing strict standards of conduct. For example, NAPEO requires its members to adhere to a strict code of ethics and professional operating standards. Audits certifying that taxes and insurance premium payments have been made on time must be filed quarterly. Members that self-insure any part of medical benefits to leased workers must adhere to minimum reserving practices and stop-loss insurance requirements, and they must purchase a bond. Employers should check into the financial condition of both the leasing company and the insurance companies it uses to provide benefits to employees. Clients should check with the leasing firm’s accountant to verify that withholdings have been made on time and with its insurance companies to verify the existence of coverage. If the leasing company utilizes a third-party administrator , a meeting should be held with the adjustors who will be handling the account to verify that the TPA carries errors and omissions coverage.

Considering Employee Leasing? What You Need To Know About Using A Peo

The biggest difference between the two is the ownership of the employees. With an employee leasing company , the employer has a shared relationship over their employees for the purposes of payroll processing, workers’ compensation insurance coverage, benefits administration, and HR services. Instead of being a leased or temporary worker, employees end up having two employers – the company who hired them AND the professional employer organization. The PEO becomes the company of record for HR, payroll, benefits, employment taxes, and other HR-related purposes.

In addition to employee leasing company, commonly used labels include labor contractor and professional employer organization . A second benefit derived from employee leasing arrangements during the 1980s was actually an abuse of the workers compensation insurance system. Employers with poor loss experience could escape the consequences of poor risk management and safety practices by manipulating the experience rating plan rules. “Mod renting” was a common practice whereby an employer with a high debit experience modifier would transfer its employees to a leasing company with a modifier of 1.0. When the losses began to work their way into the leasing company’s modifier, either the client would find another leasing company with a favorable modifier or the leasing company would restructure its ownership, thereby requalifying for a mod of 1.0. Some firms went so far as to establish a subsidiary leasing company whose only client was the parent.

Upon termination of the staffing or leasing company arrangement, the worker has no continuing employment relationship with the client. The PEO client/business owner retains ownership of the company and control over its operations. As co-employers, the PEO and client will contractually share or allocate employer responsibilities and liabilities per a client service agreement . The PEO will generally only assume responsibilities associated with a “general” employer for purposes of administration of benefits and remittance of payroll and payroll taxes. The client will continue to have responsibility for worksite safety and compliance. The PEO will be responsible for remittance of payroll and employment taxes, may maintain employee records and may retain a limited or general right to hire and fire, as delineated in the CSA. Because the PEO also may be responsible for providing access to workers’ compensation coverage, many PEOs also focus on and provide assistance with safety and compliance.

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. A PEO’s main benefit to an employer is to relieve the tasks and stress of dealing with employee administrative issues – such as payroll, employee benefits, human resources and workers’ compensation. Using an employee leasing company is a cost-effective way to outsource excessive administrative duties so that the owners and employees can focus on the profitable functions of the business.

The potential benefits associated with this type of arrangement include reduced administrative costs, access to risk management services like safety and loss control, and higher-quality, more cost-effective employee benefits. Employee Leasing Company — an organization whose business it is to furnish workers to another entity on a long-term basis. Organizations in this industry are referred to by a number of descriptive names.

What About Staffing Companies?

Criteria to utilize when choosing a leasing company include the following. Many leasing companies provide extensive safety and personnel loss control services to their clients. The client usually retains responsibility for on-site supervision, but leasing companies often retain the right to inspect the workplace to ensure the client is maintaining a safe work environment. While this may seem like a relinquishment of control on the part of the client, this type of risk management expertise may significantly reduce the client’s workers compensation costs. Because they pool the employees of a large number of clients, leasing companies have the advantage of group purchasing power for employee benefits. Because risk is spread over a larger group, and because most insurers offer discounts on coverages generating a certain amount of premium, small employers can usually reduce their total cost of employee benefits.

The specific responsibilities of each party should be spelled out explicitly in the contract. Responsibility for recruiting, hiring, training, disciplining, promoting, conducting performance reviews, and firing varies. Some leasing companies retain the sole responsibility for some or all of these functions primarily for liability reasons and to preserve their status as an employer or coemployer of the leased employees. Because few employers would concede full control over such decisions as hiring/firing, promotions, and pay scales, the practical application of this provision is that the leasing company carries out these tasks in consideration of the client’s wishes. Once an employee is assigned by a staffing agency to work for you, their workers’ compensation insurance, taxes and wages are paid by the staffing company. However, there is a premium to pay for this kind of short-term service.

The specifics can vary, but any business looking to lighten the load of work stands to benefit. PEOs give small-group markets access to many benefits and employment amenities they would not have otherwise. The leasing industry’s reputation was damaged by highly publicized frauds against employers and insurers.

Your main responsibility is writing a check to the leasing company to cover the payroll, taxes, benefits and administrative fees. Employment services outsourcing began about fifty years ago and was initially provided by employee leasing firms. An employer would contract with a leasing company, terminate its employees, and then lease back the workers from the leasing firm. This arrangement enabled employers to cut costs and transfer many employment-related risks to the leasing company. When the leasing company is providing workers compensation insurance on leased employees, it should back that up with a sound safety program. At the very least it shows a disregard for the client’s net costs ; at worst, it may be a sign that the company is engaging in workers compensation insurance premium fraud.

Habits Of Productive, Happy And Energetic People

Alternatively, employers may be able to offer a higher quality benefit package for roughly the same amount of money. An improvement in the quality of benefits will help the firm attract and retain better employees and improve employee morale.

The overall employee-related costs will be much higher, including premiums that are added for using their staffing services. 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.

Other leased employees are employed by employee leasing firms (also called “professional employer organizations”) that supply companies with an entire work force of employees for extended amounts of time, rather than on day-to-day basis. 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. If a PEO relationship is terminated, the worksite employees’ co-employment arrangement with the PEO ceases, but they will continue as employees of the client. Once a client company contracts with a PEO, the PEO will then co-employ the client’s worksite employees.

It is a contractual arrangement in which the employee leasing company, also known as a professional employer organization , is the official employer. An employee leasing agreement allows for the responsibilities typically to be shared between the leasing company and the employer . By comparison, a leasing or staffing service supplies new workers, usually on a temporary or project-specific basis. These leased employees return to the staffing service for reassignment after completion of their work with the client company. Some define employee leasing as a temporary employment arrangement where one or more workers selected by the leasing or staffing entity is assigned to a customer frequently for a fixed period of time or for a specific project.

But they kinda sound the same and both do enable clients to responsibly, and cost-effectively, offload human resource management and other employment-related tasks such as employee administration, workplace safety, compliance, unemployment and workers comp. claims, risk management, benefits, payroll & payroll tax compliance, and more. In an employee leasing arrangement, an organization that leases all or part of its workforce on a long-term basis from a third party (typically an employee leasing company/professional employer organization ). The potential benefits for the client company associated with this type of arrangement include reduced administrative costs, access to risk management services like safety and loss control, and higher-quality, more cost-effective employee benefits. A professional employer organization provides its clients with a number of outsourced human resources functions. These include recruiting, payroll, tax compliance, workers’ compensation, health and life insurance, retirement planning, employee training, attendance and time-keeping. Not all PEOs offer every one of these services, but most provide the majority of them.

Contractual Details—Contracts should spell out every detail of the arrangement that is being made. After all, human resources management is a complex area that is rife with complicated rules and regulations in the realms of payroll, benefits, etc. Moreover, human resources management has seen increased lawsuit activity in recent years, a trend that has led some PEOs to ask for varying levels of input in the realms of hiring and firing of workers in their clients’ workforce. “Even when a leasing firm only supplies help with paper work and benefits, some firms demand the hire-and-fire prerogative to ensure they won’t be in legal trouble because you’ve discriminated against a job candidate or an employee,” explained Sherrid. Small business consultants also encourage their clients to insist on a contract that includes a termination clause. This clause should allow the business to terminate the agreement with the leasing company with 30 or 60 days’ notice . “The more specific your contract about the leasing firm’s responsibilities, the better,” concluded Sherrid.

• Professional employer organizations provide human resource services for their small business clients—paying wages and taxes and often assisting with compliance with myriad state and federal rules and regulations.
• In doing so, they enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation.
• PEO clients can thus focus on their core competencies to maintain and grow their bottom line.
• In addition, many PEOs also provide workers with access to 401 plans, health, dental and life insurance, dependent care, and other benefits not typically provided by small businesses.
• The potential benefits associated with this type of arrangement include reduced administrative costs, access to risk management services like safety and loss control, and higher-quality, more cost-effective employee benefits.

The PEO typically remits wages and withholdings of the worksite employees and reports, collects and deposits employment taxes with local, state and federal authorities. The PEO also issues the Form W-2 for the compensation paid by it under its EIN. The client company retains responsibility for and manages product development and production, business operations, marketing, sales, and service. The PEO and the client will share certain responsibilities, as determined in the CSA. As a co-employer, the PEO will often provide a complete human resource and benefit package for worksite employees. Leasing companies are professional human resources managers and as such should stay current on all employment related laws, such as those concerning discrimination and immigration. By retaining the right to make all hiring, promotion, and termination decisions, a good leasing company can keep a client from exposing itself to claims of wrongful termination and discrimination.

PEO, Professional Employer Organization is not an Employee Leasing Company. With PEOs, the employees are still yours and the fees are way less than leasing and staffing companies.