Employee Leasing

Disadvantages of Employee Leasing

While employee leasing may be an attractive option for many business owners, it does have a few disadvantages, too. Here's what you need to know before you settle on an employee leasing arrangement in your business.

Employee leasing is often touted as the be-all and end-all solution for the hassles of small business employment.

No doubt about it, employee leasing provides some big benefits for small businesses. Increased focus, better HR services, and lower risks… it's all part of the transition to a leased employee arrangement.

But at the same time there are some clear disadvantages associated with employee leasing. Although these disadvantages may not be deal killers, they will affect the way you approach employee management. At a minimum, employee leasing will take some getting used to, especially if you're accustomed to a more autonomous employment arrangement.

Many (if not all) of the disadvantages associated with employee leasing revolve around the fact that your employees technically aren't your employees. Instead of being hired directly by your company, they are hired by the leasing provider. This distinction is more than symbolic – it has actual consequences that need to be considered before you jump on the employee leasing bandwagon.

  • Loss of control. Since your workers are employed by the leasing provider, your company will lose control over certain employment functions. To be clear, you are still the ultimate authority in your workplace and you continue to control how your employees function on the job. But in areas like hiring and firing, you'll have less authority. If a leased employee isn't working out they may not be fired, but simply transferred to a different client's worksite.
  • Lack of communication. Employee leasing providers add another level of bureaucracy to the employment experience. When employees have questions about payroll, benefits, or any other HR related function, they will communicate directly with the leasing provider. That's not a problem unless their problem is related to an issue that affects both you and the leasing company. For example, if there is a dispute about the number of hours that have been worked or job performance, communication can become a challenge because you're dealing with a three-party communication model.
  • Commitment issues. If you're an employer who is accustomed to developing a long-term relationship with your workers or if you feel that it's important to make long-term investments in your employees, employee leasing may not be for you. Many employee leasing arrangements do result in long-term work assignment. However, others are more temporary in nature, making it difficult for you to conduct meaningful employee development initiatives.

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities


Business Glossary


Conversation Board

What's your take on the disadvantages of employee leasing? We welcome your questions, comments and advice.

Leave a Reply

Questions, Comments, Tips, and Advice

Email will not be posted or shared
Code Image - Please contact webmaster if you have problems seeing this image code

Problem Viewing Image? Load New Code