The term employee leasing started in the 1960’s when companies began entering into co-employer relationships with employee leasing companies to fulfill the various needs in their industries. Oil and gas companies used leased employees to describe their contract workforce. Temporary employees working for staffing agencies were also cataloged under the umbrella of employee leasing because they were not a permanent worker within the company. Construction companies used the co-ownership companies to secure better workers’ comp rates and help their bottom line
Trouble began in the industry when wealthy doctors and business owners used employee leasing companies to outsource everyone in the company except themselves. Thus making it look as if they were the sole person working for their company and allowed them to build up personal pension funds. The government became involved when business owners began adding themselves to better benefit plans while leaving their employees on cheaper alternatives. Legal issues arose and owners claimed the workers belonged entirely to the employee leasing firm and were no longer their responsibility. The government denied this claim stating the owners were in fact, responsible because the employee leasing company had not actually supervised employees, but had only provided payroll services making them the administrative owner and not a decision maker.
As a result of the stigma resulting from some high profile bankruptcies in the 1980’s, the industry adopted the name Professional Employer Organization to distance itself from the kind of companies that were essentially selling thinly disguised tax loopholes. The National Association of Professional Employer Organizations was formed and the name PEO was born.
PEOs and their clients enter into a co-employer agreement. The PEO firm becomes the administrative employer or co-employer of the client company’s employees and thus can assume the administrative responsibilities and some liabilities associated with carrying employees. But as the worksite employer, the client company maintains control, supervising their employees’ daily activities and directing their work. Now, the term employee leasing has shifted to the more appropriate term, professional employee organization (PEO) and human resources outsourcing, to more accurately describe the array of services now offered.
One reason to rebrand the term employee leasing was that modern PEO companies wanted to be seen as a true HR partner who cares about the businesses they help. PEOs strive to provide HR services that allow business owners to shed non-revenue generating administrative tasks, such as HR and payroll, for revenue generating growth functions such as sales and marketing. Another reason was so that employees were not seen as objects to be leased like automobiles, but instead viewed as integral to the companies overall profitability and growth The term employee leasing simply no longer fit this new model. Also, the term employee leasing doesn’t fully convey the range of services that a PEO company provides.
Today, a good PEO will provide various HR functions, such as:
Growing companies see value in utilizing a PEO copmany because they are able to provide HR benefits to employees that would otherwise prove more costly. PEOs use economies of scale to obtain the best group benefit rates, which can result in higher employee retention and a happier, more productive workforce.
Whether your company is a large Oil and Gas company in Houston, Texas or a smaller Non-profit in Austin, there are ways that your company can benefit from the use of PEO outsourcing services. PEO companies are well prepared to support the outsourced HR needs of your growing business as well as reduce the existing costs for companies that might also be trying to save on costs.
With all the new PEO services available, the term employee leasing has become and will remain a term from the past.
If providing workers’ compensation, healthcare, unemployment costs and other HR needs is becoming increasingly difficult for your company, a PEO may be the answer for you.
The cost of HR and benefits is increasing every year, and companies can find it favorable to use a co-employer approach because it allows them to provide better benefits at a price they can afford. With the ever-changing state and federal regulations being passed, companies are finding that they don’t have the resources to keep up with those changes. Hiring a PEO that is an expert in dealing with these changes and is designed to help keep your business compliant is increasingly attractive to business owners.