Employee leasing programs are arrangements in which businesses lease their employees through an outside contractor that attends to the various personnel-related activities commonly associated with human resources management. Employee leasing programs have become particularly popular among small-and mid-sized companies, who view leasing as:1) a viable option for increasing the benefits that their work force receives, and 2) an effective strategy for getting rid of burdensome and time-consuming paperwork. Writing in Inc., Jay Finegan offered a succinct summary of the employee leasing process: "An employee-leasing company, also known as a professional employer organization (PEO), 'leases' the employees of the business that's hired it. That means the PEO serves as a co-employer, taking control of the personnel administration and paperwork that drive small business owners to distraction. Most PEOs offer a wide range of services and benefits packages, including payroll administration, medical benefits, workers' compensation and unemployment insurance, retirement plans, and compliance assistance with labor laws. In return, the PEO charges an administrative fee of roughly 2 percent to 8 percent of total payroll."

Employee leasing surged in popularity in the 1980s, when observers tracked annual increases of anywhere from 20 to 40 percent in the total number of employees involved in the programs. This pace showed no sign of slowing during the 1990s. Indeed, the National Association of Professional Employer Organizations (NAPEO) reported in 1995 that the industry was growing at an annual rate of 30 percent, and in 1997 Inc. reported that according to one analysis, the industry could involve $185 billion in revenues and more than 9 million employees by the year 2005.


Supporters of employee leasing programs point to a variety of advantages associated with such arrangements:


Employee leasing programs obviously have many well-documented advantages, as evidenced by the ever-growing popularity of the practice. But as Posner observed, "however appealing leasing may be, it isn't without risks. Essentially … you're delegating a vital area of your business to outsiders." And as Finegan noted, "the employee-leasing industry has seen spectacular flameouts, owing to everything from bad risks and poor management to outright fraud. When a PEO goes under, its clients often discover that their payroll cash and insurance coverage vanish with it."

Many business observers blame the presence of unscrupulous leasing companies in the industry on the lack of regulation that exists in many states. Fortunately, associations such as the National Association of Professional Employer Organizations (NAPEO) keep a close eye on the industry. It accredits firms that meet its standards, and the organization can be a valuable resource in determining whether an area PEO will adequately fill your needs.


Small business owners looking into the possibility of establishing an employee-leasing environment in their workplace, then, should make sure that they select a solid leasing company. To help ensure that they secure one, they should consider the following:


Buckley, Allen. "Employee Leasing Rules Present Problems." Tax Management Compensation Planning Journal. September 3, 1999.

Feldman, Stuart. "Companies Buy Into Employee Leasing Plans." Personnel. October 1990.

Finegan, Jay. "Look Before You Lease: Employee Leasing Can Be a Boon—Or a Nightmare." Inc. February 1997.

Goeldner, Kirk A. "Professional Employee Organizations—Opportunities and Considerations." CPCU Journal. Spring 1999.

"If You're Considering Employee Leasing, Heed the Latest Warnings." Profit-Building Strategies for Business Owners. November 1992.

Murthy, B., and Suzanne K. Murrmann. "Employee Leasing: An Alternative Staffing Strategy." Cornell Hotel and Restaurant Administration Quarterly. June 1993.

Posner, Bruce G. "The Joy of Leasing." Inc. May 1990.

Sherrid, Pamela. "More Time for Business: Owners can Avoid the Paper Work and Buy Benefits Cheaper, too." U.S. News and World Report. November 5, 1990.

Soutar, Sammi. "Leasing Your Staff." Association Management. October 1995.

Trunnelle, Judy., and Julie Sherry. "Employee Leasing Firms." The Business Journal. November 24, 2000.

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