What Is Employee Leasing Company?

Employee Leasing Company, also known as Professional Employer Organization (PEO), offers comprehensive HR solutions including payroll, benefits, and compliance.

An Employee Leasing Company, now commonly referred to as a Professional Employer Organization (PEO), provides comprehensive human resource (HR) services to small and medium-sized businesses. These services typically include payroll processing, benefits administration, regulatory compliance assistance, and other essential HR functions.

What is a Professional Employer Organization (PEO)?

A Professional Employer Organization (PEO) is a firm that enters into a joint-employment relationship with an employer by leasing employees to the employer. This enables the PEO to share and manage many employer responsibilities and liabilities. Businesses can outsource many of their HR tasks to the PEO, enabling them to concentrate on their core operations.

HR Solutions Provided

PEOs offer a suite of services:

• Payroll Administration: Handling all payroll-related functions including processing salaries, deducting taxes, and ensuring compliance with wage laws.
• Benefits Management: Administrating employee benefits like health insurance, retirement plans, and other perks.
• Compliance and Risk Management: Ensuring adherence to labor laws and regulations, thereby minimizing risk.
• Recruitment and Onboarding: Assisting in hiring and training new employees.
• Employee Relations: Managing disputes, handling complaints, and fostering a positive workplace environment.

Special Considerations

Cost-Benefit Analysis

When considering a PEO, companies should perform a cost-benefit analysis:

• Costs: Fees are often charged as a percentage of payroll or per employee, per month.
• Benefits: Access to affordable benefits, reduced administrative burden, and compliance expertise.

Legal and Compliance

PEOs must adhere to stringent legal standards and often hold certifications such as ESAC (Employer Services Assurance Corporation) accreditation. This ensures they meet financial, ethical, and operational standards.

Examples of PEOs

Several leading PEOs in the industry include:

• ADP TotalSource
• Insperity
• TriNet
• Justworks

Historical Context

The concept of employee leasing originated in the 1960s and 1970s as a means for smaller companies to provide employee benefits comparable to those offered by larger firms. The industry evolved significantly through the 1980s and 1990s, leading to the formation of the term PEO.

Applicability

PEOs are suitable for:

• Small and Medium-Sized Enterprises (SMEs): Businesses looking to offer competitive benefits without managing HR functions in-house.
• Startup Companies: Companies in early stages that need to focus on scaling operations.
• Professional Services Firms: Businesses that rely heavily on specialized skill sets and need seamless employee management.

Comparison to Other Models

PEO vs. Traditional HR

• PEO:
  • Shared liability
  • Outsourced HR functions
• Traditional HR Department:
  • Full liability on the company
  • In-house HR team handles all functions

PEO vs. Employee Leasing

• The term Employee Leasing is older and sometimes viewed negatively due to associations with lack of employee control.
• PEOs offer a more integrated and comprehensive service package.

Related Terms

• Co-Employment: The employment arrangement in which the PEO and the customer company share responsibilities.
• HR Outsourcing: Delegating some or all HR tasks to a third-party provider.
• Staff Augmentation: Adding temporary or permanent staff to meet business needs.

FAQs

What is the primary benefit of a PEO?

The primary benefit of a PEO is the ability to offer affordable and competitive employee benefits while reducing administrative and compliance burdens.

How does a PEO manage compliance?

PEOs stay updated with labor laws and regulations, helping businesses avoid legal pitfalls through expert advice and management.

Can any company use a PEO?

While most companies can benefit from a PEO, suitability depends on the specific needs and scale of the business.

References

• National Association of Professional Employer Organizations (NAPEO). (n.d.). What is a PEO? Retrieved from NAPEO
• Employer Services Assurance Corporation (ESAC). (n.d.). Overview. Retrieved from ESAC

Summary

Employee Leasing Companies, now more commonly known as Professional Employer Organizations (PEOs), are entities that provide comprehensive HR solutions to businesses. By entering into co-employment agreements, PEOs allow businesses to outsource complex HR functions such as payroll, benefits management, and compliance, enabling them to focus on their core operations. This model has proven beneficial for small to medium-sized enterprises, offering them the benefits of scale previously only accessible to larger firms.