8 Employee Leasing Pros and Cons

Outsourcing certain functions can be highly beneficial to businesses of all sizes. For the small business especially, however, the ability to lease employees based on specific needs can be a budget saver. By being able to contract out for certain services only when they are needed, there is no longer the cost of recruiting and maintaining experienced staff internally. If you’re considering the employee leasing pros and cons, then here are some key points to think about.

The Pros of Employee Leasing

1. It limits the liabilities a business faces for certain tasks.
There are some tasks that a business routinely completes that contain a high level of liability. This includes workers compensation, HR management, benefits administration, payroll, and paying taxes. By using employee leasing, these liabilities are transferred to the organization that is performing the services and limits employer responsibilities for the business in those areas.

2. It provides a business with an instant framework.
Trying to build an HR department from scratch can be a nightmare. It can also be virtually impossible to do from a budgetary standpoint for some startups. By taking advantage of the benefits of employee leasing, it becomes possible to install an instant framework for services so that everything needed is in place already. This allows a business to come to the market more quickly.

3. There is a flat and predictable rate for services.
Employee leasing provides help in every field and industry that is available today for a flat rate. Businesses will know how much it costs to including this framework into their business, giving them more predictability of cost when forming their budget on a yearly basis. One contracted rate allows a business to have access to whatever need they have and they can have confidence that those needs will be fulfilled.

4. Better benefits can be obtained for employees.
When employee leasing is offered as a service, the leasing agency typically has access to a better pool of benefit resources that can be offered to a local employee base. This can then be used as a recruiting tool to bring in more experienced people and be able to retain them, even if salaries aren’t always as competitive within the industry for a startup.

The Cons of Employee Leasing

1. It can create a lot of confusion for the employee base.
When a paycheck is coming from an organization that is different than the employer, then it can create confusion within the employee base as to how they’ll get paid. Certain rules are put into place by the leasing agency as well which employees naturally assume come from their employer. If those rules are seen in a negative way, that can create a lot of employee pushback that puts the small business into an uncomfortable middle ground.

2. The employer only sets the standards for employee hiring.
The employee leasing agency is typically responsible for the hiring of new employees. The hiring process is based on standards that the employer sets, but the provider may have stricter policies in place than the employer would if they were solely responsible. The limited levels of freedom to operate can create and the overall lack of control over who comes into the workplace can be enough to have some businesses avoid this type of relationship.

3. Benefit histories are based on the employee leasing contract.
For an employer who wants to eventually be 100% independent, the benefits supplied by the leasing agency aren’t as beneficial as having supplied benefits independently. History reports can be supplied by the contracted agency, but these don’t hold the same weight as maintaining one’s own benefits or insurance.

4. Some employee leasing contracts are not beneficial whatsoever.
Every industry is going to have a few bad apples within it. This means it is very important for a business to perform their due diligence before agreeing to any relationship. Some agencies do a poor job and over time, this could mean an entire replacement of HR framework for a small business may become necessary. Those costs in the transfer and the potential loss of reputation can be difficult to overcome.

These employee leasing pros and cons generally point to a positive outcome. It is a fast and easy way to provide employees with a superior level of service. As long as the disadvantages can be controlled or avoided, this type of relationship can provide a business with a fast way to build up their profile.

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