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What is Employee Leasing?

What is Employee Leasing?

During workforce expansion, a number of employers are comfortable with the technical side of the hiring process; however, the human resource effort can be overwhelming and this is where employee leasing comes in.
Gaynor Borade
Employee leasing is, de facto, a relationship between a professional staffing organization, an on-site employee, and a client company. It involves a co-employment relationship, where the staffing agency and the client company share 'employer' responsibilities and liabilities, via a contract. The human resources (HR) is expected to take care of record keeping, payroll accounting, etc. It is also responsible for specifying employee dos and don'ts, and the benefits which are applicable to the newly hired workers. A popular solution to the rigmarole involved is the practice of employee leasing. It is the process of hiring permanent or temporary workers from a professional staffing organization.


This organization defines the employment needs of the company, sets up the interview process for recruiting new staff, and takes responsibility for the staff support. This eliminates the need for the company to extensively participate in the hiring process.

This is good for the employee as well since the staffing organization negotiates better health insurance and other benefits. In this way, irrespective of the size of the company, they enjoy standard benefits. Also, the remuneration and performance reviews or assessments, are taken care of by the staffing organization and not the company. The services of the staffing agency come for a fee which is often less than the cost of hiring human resource experts.


However, employee leasing is not the perfect solution for some companies. These workers are not completely controlled by the management and hence, communication could be a problem. The conflicts, if any, have to be sorted out by the representatives of the agency. Also, the termination of such workers, especially if they are not productive, is not simple.

Sharing of Liabilities

In the whole process, the staffing firm takes on the responsibility and liability involved in the business of employment. This includes risk management, human resources, compliance with the labor law, and payroll and profession taxes. On the other hand, the client company handles the product development and production, marketing and sales, etc. There is also an understanding between the staffing agency and the employee which covers the benefit plans and administration, responsibility and liability for payment of wages, and compliance with all rules and regulations governing the payment of federal and state taxes.

The employer pays employment tax and employee benefits, and the staffing organization assumes responsibility and liability for payment of state unemployment tax. In many countries, the staffing agency is recognized as the 'employer', whereas in others they are looked upon and dealt with as the 'employer of on-site employees'. This is because the agency provides workers' compensation coverage as part of the deal. The agency-like approach of this organization makes it easier for the employee and the client company to successfully achieve their individual goals and coexist.

This practice is now very common the world over. The workers enroll with the staffing organization to be able to benefit from the coverage offered in bulk, while companies seek their services to meet their manpower requirements.