July 27, 2014  
 
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Employee Leasing

 

PEO Versus Employee Leasing

What's the difference between employee leasing and using a Professional Employer Organization (PEO)? The two terms are often used interchangeably, but in fact PEOs and employee leasing describe two different employment arrangements.

These days, business owners have a lot of options when it comes to hiring the staff resources they need to operate their companies.
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It used to be that the only way to find good help was to hire them directly and handle all of the related HR functions yourself. But as the small business world became more focused on efficiency, several other employment options appeared on the scene.

Temporary staffing, employee leasing, and professional employer organizations (PEOs) are all employment solutions that are designed to make it easier for small business owners to focus on core competencies. These words are often used interchangeably even though there are distinct differences in how they play out in real employment situations.

The difference between PEOs and employee leasing seems to be the source of the most confusion. Business leaders and even HR professionals frequently use these terms to describe the same employment scenario. Although they are similar, it's important for small business owners to understand the scope and limits of each term.

PEOs

PEOs participate in what is called a "co-employment" relationship with small and medium-sized business employers. Unlike temporary staffing providers, PEOs do not recruit, train, or provide staff to their clients. Instead, the way it most often works is that PEOs hire their clients' existing workforce and then assume responsibility for HR management functions like benefits, payroll, workers comp, and more. The small business maintains a long-term investment and commitment to the employees, but uses the PEO as a means of outsourcing the burden of HR. If the agreement between the business and the PEO is terminated, workers continue as the client's direct employees.

Employee Leasing

Employee leasing is similar to a PEO hiring arrangement in that staff assets are employed by a third-party rather than by the company itself. The difference is that a leased employee may ultimately move on to other projects with different employers. The long-term investment the company makes in their employees through a PEO (e.g. health insurance, retirement savings plans, and other critical employee benefits) is often lacking an employee leasing relationship. When the relationship between the employment provider and the company ends, it's assumed that the employees will go with the leasing provider.

Related Articles

Want to learn more about this topic? If so, you will enjoy these articles:

Professional Employer Organization Pros and Cons
Advantages of Employee Leasing
Disadvantages of Employee Leasing


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