Growth and resource optimization are often the main points of small businesses. Their limited budgets and scarce human resources make it hard to allocate vital time and energy to strategic business priorities. It is much harder for an SMB to scale up and down depending on the variable resource needs, as it’s too costly for a business on a budget.
To achieve more effective operations, SMBs often resort to global employee leasing. This way, they manage to address their real-time staffing demands without engaging in lengthy and expensive recruitment procedures. Another path of resource optimization is working with a professional employer organization (PEO).
While leasing and partnering with a PEO share some similarities, they come with varied employment arrangements and offer a different set of benefits to a business. This article examines the employee leasing meaning and compares it with the PEO model to single out the main benefits you can reap from each of the two variants.
What Is Employee Leasing?
Let’s start with the concept of employee leasing. Widely referred to as temporary employment or employee outstaffing, the employee leasing solution is highly flexible in terms of adding the needed staff to your team for a strictly predetermined period. You may make arrangements with the employee leasing agency either for a specific period or the duration of your contract, thus terminating the staff as soon as you don’t need their help.
Employee leasing offers vital flexibility to small business owners, as they can add and remove staff in real time, depending on the firm’s staffing needs. While the leasing fees are often higher than those of the PEO provider, they are justifiable for short-term contractual staffing situations. Besides, the client assumes no responsibility for staff payroll, taxes, or benefits – it’s all on the part of the employee leasing company.
What Is a Professional Employer Organization (PEO)?
A PEO (or certified PEO) is a professional employer organization that offers a bit different partnership model to small businesses. It also hires your employees, but this model works as co-employment rather than exclusive employment. This way, you and the PEO you’re working with both function as the staff’s employers and bear a certain degree of legal responsibility for your employees.
The best thing about working with a PEO is that this company assumes responsibilities for a wide range of your HR and administrative functions. These may include wage remittance, issuance of workers’ compensation, as well as tax reporting, collecting, and depositing. A professional employer organization can also handle vital recruitment and employee screening activities while you preserve the final word in hiring new employees and oversee your business’s daily operations. The PEO partner can also make sure its client’s business activities are compliant with local, state, and federal regulations.
How Can Employee Leasing and PEO Help Small Businesses?
SMBs can reap a number of benefits from both staffing solutions. For instance, the benefits of employee leasing include the flexibility of this arrangement for the client. The staff’s only employer is the employee leasing company. Therefore, as soon as your contractual agreement ends, the staff leave your office (if they were engaged offline) or your remote work management platform (if you collaborated online), returning to their employing organization. Besides, you don’t have any HR, administrative tasks, and payroll for the leased staff, as your leasing provider officially employs them.
Working with a PEO is also a beneficial variant for your business. A professional employer organization can simplify the company’s compliant and frictionless entry to new labor markets by acting as a local legal entity with employment rights. Besides handling routine HR and administrative tasks, it can handle many non-critical activities to save you time for core business processes. At the same time, you preserve the employer status and don’t lose the hired staff even after terminating your partnership with the PEO.
Making the Right Choice: Employee Leasing vs. PEO
With all the benefits of employee leasing and PEO at your fingertips, how can you make the right choice? The main selection criteria and considerations are as follows.
Employee leasing is more suitable for short-term contracts and seasonal staffing needs. It may be much more expensive in the long run because of the high per-employee markup added to your payroll sum every month.
You may find it more beneficial to work with an employee leasing firm when you want to tap into the new labor market but have no authority to employ staff in that jurisdiction.
Budgeting also plays a role in choosing the right staffing model. While a PEO may be more expensive if it handles a wide spectrum of HR and administrative work for you, employee leasing is generally more expensive on a per-employee overhead basis.
If you want to preserve control over staff and retain employees even after ending the partnership, a PEO is your go-to option. A leasing provider will leave together with its staff, leaving you with the need to search for employees anew.
Use this checklist to understand which model suits you more and partner with the company that can address your staffing needs and alleviate your administrative burden effectively. You may also make an informed decision by using the following comparative table:
| Criterion | PEO | Employee leasing |
|---|---|---|
| Fee structure | From 2% to 10% of the payroll sum | 15-30% markup on every employee’s salary |
| Administrative expenditures | You share expenditures and responsibilities with a PEO | The leasing company is solely responsible for administrative costs and tasks |
| Employee control | You have full control over employees’ tasks and employment arrangements | The leasing company retains control over employees under the leasing contract |
| Team customization | You can hire any staff depending on your needs | The staffing capacity is limited to the leasing company’s available staff |