EMPLOYEE LEASING PROGRAMS

Employee leasing programs are arrangements in which businesses lease their employees through an outside contractor that attends to the various personnel-related activities commonly associated with human resources management.  Employee leasing programs have become particularly popular among small- and mid-sized companies, who view leasing as: a viable option for increasing the benefits that their workforce receives, and 2) an effective strategy for getting rid of burdensome and time-consuming paperwork.

An employee leasing company, also known as a professional employer organization (PEO) “leases” the employees of the business that’s hired it.  That means the PEO serves as a co-employer, taking control of the personnel administration and paperwork that drive small business owners to distraction. Most PEOs offer a wide range of services and benefits packages, including payroll administration, medical benefits, workers’ compensation and unemployment insurance, retirement plans, and compliance assistance with labor laws.  In return, the PEO charge administrative fees of roughly 2 percent to 8 percent of total payroll.

Advantages of Employee Leasing 

Supporters of employee programs point to a variety of advantages associated with such arrangements:

1. Since leasing firms handle more than one company payroll, they can wield their greater buying power to get discounts on group health insurance, life insurance, and dental insurance that smaller companies simply would not be able to get. The small company is thus able to provide its workers with better benefits, which in turn help it to keep valuable current employees and attract promising new employees.
2. Leasing companies can handle chores associated workers’ compensation and unemployment insurance
3. Leasing companies can also provide legal assistance to their clients in various aspects of personnel law.  There is some self-interest involved here, since in the event of a lawsuit, both the leasing company and its client could be targeted as co-employers.

Disadvantages of Employee Leasing

Employee leasing programs obviously have many well-documented advantages, as evidenced by the ever-growing popularity of the practice. But however appealing leasing may be, it isn’t without risks. Essentially, you are delegating a vital area of your business to outsiders. The employee leasing industry has seen spectacular flameouts, owing to everything from bad risks and poor management to outright fraud. When a PEO goes under, its clients often discover that their payroll cash and insurance coverage vanish with it.

Many business observers blame the presence of unscrupulous leasing companies in the industry on the lack of regulation that exists in many states. Though the Federal Government of Nigeria has a policy of regulating this sub-sector through the Ministry of Labour’s adopted convention 181 of 1997 on private employment agencies and activated section 23-25 of the Labour Act, such monitoring and regulations have not been effective over the years and this has led to the sour tales prospective employees often face. 

For instance, the Ministry reportedly put a system of licensing and certification of labour contractors and private employment agencies in place in 2007 to help in identification, regulation and streamlining of the labour recruitment business. Section 25 (5) of the Labour Act empowers the Minister of Labour to suspend or withdraw license granted if the licensee is convicted of any offence under the Labour Act or any other law or has conducted himself as in the opinion of the minister to be no longer a fit and proper person to undertake recruitment operation. 

Finding A Good Professional Employer Organization

Business owners looking into the possibility of establishing an employee-leasing environment in their workplace, then, should make sure they select a solid leasing company. To help ensure that they secure one, they should consider the following:

1. Service: Businesses need to ensure that the PEO under consideration can meet the business’s human resources administrative needs, including reasonable program customization desires.
2. Financial strength: This is a vital aspect of any PEO, for an organization that is standing on a faulty financial footing could conceivably leave its clients with crippling debt load if it ultimately folds as a result of incompetent or criminal management.

References: Ask for a good-sized list of PEO clients, and then take the time to follow up. A lengthy list of clients helps ensure that you won’t get only references who are well schooled in the “right” answers and it also offers a look at a PEO’s customer base; businesses should be prepared for some scrutinization as well.

Fee Structure: Business owners and managers should examine the fee structure closely to make sure that it is appropriate for all services. Companies looking to secure the services of a PEO should avoid companies that offer excessive expenditure rates, but they should also beware of those that offer “bargain basement” terms.  Be on the lookout for companies that either don’t charge fees or charge rates significantly lower than the national average. This is a warning sign that the leasing company’s intention may be to get in the market, make a quick buck from the client’s cash flow, and then get out. 

Personal Comfort: A good working relationship is an important component in making any PEO arrangement work. Business owners and managers then need to make certain that they get along with the PEO representatives with whom they will interact.

Contractual Details: Contracts should spell out every detail of the arrangement that is being made. After all, human resources management is a complex area that is rife with complicated rules and regulations in the realm of payroll, benefits, etc. Moreover, human resources management has seen increased lawsuit activity in recent time, a trend that has led some PEOs to ask for varying levels of input in the reams of hiring and firing of workers in their clients’ workforce.

Even when a leasing firm only supplies help with paper work and benefits, some firms demand the hire-and -fire prerogative to ensure they won’t be in legal trouble because you’ve discriminated against a job candidate or employee.  Business consultants also encourage their clients to insist on a contract that includes a termination clause. This clause should allow the business to terminate the agreement with the leasing company with 30 to 60 days’ notice (90 days is the absolute maximum that should be accepted). The more specific your contract about the leasing firm’s responsibilities, the better. It should be clear, for example, that your client will be liable for any mistakes made in the activities it carries out. If it errs in calculating your taxes, for example, it should be responsible for any fines of penalties.

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