What is the Difference Between Employee Leasing and PEO Companies?

Feeling bogged down by HR tasks? You’re not alone. Small businesses often need help managing payroll, benefits, and other HR functions. Here’s where employee leasing and Professional Employer Organizations (PEOs) come in. Both offer solutions to free up your time but have key differences. Understanding these disparities will aid you select the better fit for your organization.

Let’s delve into the world of employee leasing and PEO companies, exploring how they can empower your business to thrive.

What is Employee Leasing?

Employee leasing, a temporary employment arrangement, is a service offered by staffing firms. It involves the staffing firm providing new workers or contractors to a client company, typically temporarily. Often, these leased employees are brought in to work on a specific project with a predetermined start and end date.

It’s important to distinguish between PEO leased employees and HR outsourcing, although they can sometimes be incorrectly used interchangeably.

About PEO Companies?

A Professional Employer Organization (PEO) acts as an external partner for businesses, taking over specific human resources functions. When a company decides to work with a PEO, its employees become co-employed by both the PEO and the business itself. This co-employment model essentially allows businesses to offload non-core HR tasks to PEO specialists, freeing up valuable time and resources.

PEO companies handle essential HR tasks such as payroll, managing employee benefits and workers’ compensation, ensuring tax compliance, and risk management. By outsourcing these tasks, businesses can focus on their core activities and strategic goals.

PEO vs. Employee Leasing

Let’s have a look at some of the core differences between PEO and employee leasing:

• Employer of Record vs. Co-employment

PEOs and employee leasing companies both help manage HR tasks, but the key difference is who the legal employer is. In a PEO co-employment model, both the PEO and your company share employer responsibilities and liabilities for your existing staff. With employee leasing, the leasing company becomes the employer for the leased workers, handling their HR administration but not sharing your legal obligations.

• HR Control and Management

PEO acts as a co-employer, sharing HR responsibilities with the client company. While the customers retain control over daily operations and decision-making, the PEO companies offer HR expertise and guidance. Employee leasing, on the other hand, gives the client company complete control over employee management but offloads administrative tasks to the leasing company.

• Legal and Compliance Obligations

While both PEOs and Employee Leasing companies handle HR tasks, PEOs share legal and compliance responsibilities with the client company, managing benefits and insurance and ensuring labor law adherence. In contrast, PEO Employee Leasing companies act as the employer of record, assuming full responsibility for payroll taxes, unemployment insurance, and compliance.

• Flexibility and Scalability

PEOs and Employee Leasing both provide flexibility to adjust workforce size, but PEOs often offer greater scalability due to their resources and infrastructure to handle growth or downsizing. Additionally, PEOs provide employees with a broader range of benefits, training, and development programs.

How Can Partnering with a PEO Mitigate Employee Leasing?

Here’s how partnering with PEO companies mitigates employee leasing:

• Employee Engagement

PEOs can boost employee engagement and satisfaction by offering a comprehensive benefits package (healthcare, retirement, wellness) and HR expertise to help companies develop strong communication and engagement strategies with their workforce.

• Control and Communication

PEOs ensure smooth operations by creating open communication channels with the client company, acting as a bridge between them and the peo leased employees. Regular check-ins and feedback mechanisms allow for prompt resolution of any concerns that may arise.

• Compliance and Legal Responsibilities

Professional Employer Organizations (PEOs) share the burden of legal compliance with client companies, handling payroll taxes, benefits administration, and keeping up-to-date on employment regulations to minimize risks and ensure adherence.

• Cultural Fit and Team Dynamics

PEOs bridge the gap between leased employees and company culture by creating onboarding programs and team-building activities that encourage open communication and a sense of belonging, fostering a more integrated and dynamic team environment.

• Retaining Talent

By providing competitive benefits, training opportunities, and career development programs, PEOs not only improve job satisfaction and retention for leased employees but also empower client companies to develop effective talent management strategies that attract and retain top performers.

Conclusion

In conclusion, while both PEOs and employee leasing companies streamline HR tasks, PEOs offer a more comprehensive solution. PEOs share employer responsibilities, reduce administrative burdens, and provide accessibility to a wider range of benefits for your existing workforce.

This fosters a more engaged and stable team, allowing you to focus on core business aims. Consider your company’s needs – for temporary staffing, employee leasing might suffice. However, a PEO is likely better for long-term HR optimization and a more robust employee experience.

If you need any assistance regarding PEO companies, contact us at PEOConnection.com We provide the best PEO, HR Outsourcing, and payroll services to help your business thrive.

This post originally appeared on PEO Connection on June 21, 2024, and we republished it with permission from the author.

Peo Connection streamlines HR, cuts costs, ensures compliance.