Alternatives to Hiring Employees

Tips on Small Business Workforce Challenges

Hiring temporary employees can be a smart way to add extra capacity to your business without locking into long-term costs.

How do you cope with unexpected personnel shortages?

Many entrepreneurs face this question. Causes may include seasonal peaking, inventory, special projects, employees on sick leave, or an unexpected increase in business.

Entrepreneurs must also cope with the rising costs of employee benefits, as well as all the payroll record keeping required by local, state, and federal government.

When you are short on staff, your business suffers. This article discusses alternatives to hiring employees -- ideas that can help you meet your staffing challenges.

Options include temporary help services, employee leasing, professional employer organizations, and service contracting.

Temporary Help Services

Most businesses need extra help sometimes, and temporary shortages are especially difficult for smaller businesses. A temporary personnel service hires employees and assigns them to companies requesting help. The service is responsible for payroll, bookkeeping, tax deductions, workers' compensation, fringe benefits, and all other employee costs. Most national temporary personnel companies also offer performance guarantees and fidelity bonding at no added cost.

Workers supplied by a temporary service firm are quickly available. Usually they can start the day after a request is made, and sometimes the same day. Although the rate paid to a temporary service firm is higher than that paid to a permanent employee, the costs of recruiting, record-keeping, training, overtime, and idle periods are much less.

Evaluate temporary personnel services using these factors:

  • Reliability: Is the service well established, with a history of success and financial stability?
  • Recruiting: The firm with an aggressive recruiting program is more likely to have the most skilled and reliable employees.
  • Testing and evaluation: How does it test and evaluate personnel?
  • Training programs: Does the company train personnel in modern office methods, word processing, records management, and other important skills?
  • Quality control: Does the company check the quality of work of its temporary employees?

A temporary service will ask for information about the department the employee will be working in, duration of the assignment, working hours, dress code, smoking rules, and other important information. If possible, send samples of the work. Be sure to give the exact location of your business, transportation available, parking information, and the name and title of the person to whom the temporary employee will report.

Temporary help services are not appropriate for all needs. Businesses needing a temporary worker for six months or longer should hire a full-time employee. For jobs that require extensive supervision, it may be cheaper to pay overtime to a regular employee than to use a temporary worker.

Employee Leasing

Employee leasing is sometimes confusing because it may refer to activities similar to employing temporary personnel or it may be similar to the co-employment arrangement of professional employer organizations (see below). If you are depending upon the leasing company to provide personnel, (including identifying, skill sorting, hiring and assigning them to your business) and these workers would return to the leasing company for reassignment should your need for them end, then the service is basically the same as temporary services. If, on the other hand, you are depending upon another company to supply the management of human resources, employee benefits, payroll and workers' compensation for all of your work force, then this is a co-employment or professional employer organization arrangement as described below.

Professional Employer Organizations (PEOs) or Co-employment

In a professional employer organization arrangement, the PEO will co-employ your existing work force and will become a legal employer responsible for payroll, record-keeping, benefits and services, and participation in hiring, evaluation and firing. In the PEO arrangement, employer responsibilities are shared or allocated, with the PEO focusing on the management of human resources, employee benefits, payroll, workers' compensation and related employment-related issues, while you focus on the core operations of your business.


  • Savings of time that was formerly spent on employment-related paperwork and meetings with various outside agents (health insurance agent, payroll company and others).
  • Improved access to employee benefits.
  • Help with employment law compliance issues, personnel policies and employee handbooks.
  • Records that are uniform and easily audited.
  • Claims management for workers' compensation and unemployment.
  • Professional advice on human resource issues.


  • Employer retains responsibility for productivity and conduct.
  • Certain labor union contracts or state laws might keep certain employers from using co-employment arrangements.
  • Co-employers require the value of one full payroll in an escrow or trust account in addition to regular payroll costs.
  • Additional federal protections may be available to workers as part of the PEO's large labor force that is co-employed by multiple small businesses. This can impose new requirements and costs on the small business.

Service Contracting

Because of the infrequency of the need or the specialized nature of the work, many business needs are better met by contracting for the service rather than hiring permanent employees.

Services often contracted include:

  • Security
  • Janitorial
  • Waste management
  • Equipment/mechanical maintenance
  • Merchandise delivery
  • Payroll accounting
  • Printing
  • Data processing
  • Messenger
  • Grounds upkeep
  • Interior decorating
  • Building upkeep (remodeling, roofing, painting)
  • Specialized services (installation, servicing and cleaning of appliances, carpeting, and furniture)

In these situations you enter a contract with a business to perform specific services, during a specific period or at a specific time, for a specific price. The terms of the contract cite responsibility for providing any materials or equipment necessary to perform the service and other requirements for successful completion. It is the contracting firm's responsibility to provide staff, pay them, and supervise them.

When contracting for services, it is wise to require:

  • References from other companies that have used the contractor and will comment on the quality of contract performance.
  • Certificates of insurance demonstrating that the contractor has adequate liability and other coverage for its employees.
  • Copies of required licenses for performance of certain services.
  • Appropriate warranty or guarantee on the quality of the work.
  • Clear payment schedule including possible retainage (holding back of a portion of payments) pending satisfactory completion of a project.

Proposals for services usually are presented and detailed on standard forms designed by the contractor. It is wise to have your legal counsel review the terms of the documents before you sign them, to avoid any misunderstanding of your obligations. Such a review also may suggest amendments benefiting you that are also acceptable to the contractor.

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  • posted on 9/22/2008
    Another word of caution about PEO's. In many PEO arrangements the employer can lose the benefit of building workers compenation insurance credit. Be sure to ask questions regarding workers comp before entering into an employee leasing arrangement.

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