Eliminate Employee Leasing!

I'm sitting here at a lawyers convention in Sunset Beach, NC and booth traffic is pretty slow, so I had a chance to peruse a business magazine left in the booth, "Priority", put out by the Pitney Bowes corporation. There's an article in there about PEOs - Professional Employer Organizations. The article is called "Juggle No More" by Nate Hardcastle, and describes how beneficial PEOs are to small & medium sized businesses that are growing quickly. True enough, as these organizations relieve many employer burdens & liabilities, especially in the areas of compliance with federal & state HR laws, training, employment tax administration and filing, getting affordable, high quality benefits, and handling payroll to name just a few.

Then the author gets a little confused in explaining how this happens, by saying a PEO "effectively leases those employees back to the client." That is dead wrong.

Some background: Many PEOs use a business structure called co-employment to handle the areas above. In a co-employment model, a PEO comes becomes the legal employer of the client's staffers. That change is only technical, however, as the business operates as they normally do and maintain direction and control over their employees, just like before. The PEO is there as an expert in Human Resources, much like a CPA or lawyer works with a business. Additionally, the PEO becomes legally liable for adhering to laws governing payroll, insurance, and other human resources functions. Clearly, co-employment is a "Win-Win" for both parties involved.

Many people, including the author of this article, have confused "employee leasing" & co-employment. Co-employment, which is how most every PEO operates, is not employee leasing! Employee leasing was used by doctors and other professionals years ago, in order to get favorable tax considerations, and to maximize the contributions into their retirement plans. They did basically fire all their (non-doctor) employees, an employee leasing company hired them and leased them back to the doctor. The employee leasing company maintained ultimate direction and control of the employees, not the doctor. Those tax laws eventually changed, and employee leasing died off as a result.

In co-employment, there are still two employers and - make no mistake - the client company still maintains direction and control of their employees, just like before. A client service agreement (CSA) is created that delineates the responsibilities for the PEO and the client, under a co-employment arrangement. The PEO is there for expert advice and counsel, and to relieve the employer of the typical employer burdens mentioned above. There's little, if any, downside to the client company.

Co-employment through a PEO is a valuable business strategy, just as long as it's understood fully. PEOs have a mission to educate the business public about their business model and seek to eliminate terminology like employee leasing from the marketplace.