What’s the Difference Between Employee Leasing and a PEO?

If you’re considering a Professional Employer Organization or PEO, you’ve probably heard the phrase employee leasing thrown around. Maybe you even felt that a PEO wasn’t right for you, because of a common misconception that a PEO and employee leasing are the same. We’re here to set the record straight, so you can figure out what’s going to be the best match for your business.

What’s Employee Leasing?

Generally, "employee leasing" is a business arrangement where a staffing agency provides its employees to another business, usually for an agreed amount of time or project duration.

Here’s how it typically works: the business manages the employees tasks and day-to-day responsibilities while the leased employee is working there. The staffing company takes care of the rest. The leased employee’s paychecks, benefits, taxes, and admin fees are all handled by the leasing company.

Who Benefits from Leasing Employees?

Small and growing businesses often benefit from employee leasing since it helps free up time and resources spent wading through benefits, payroll, and compliance, and recruiting on their own. Employee leasing also helps businesses that experience seasonal upswings by letting them quickly add more staff during the height of the season.Here’s how businesses can benefit from leasing employees:

• Find talent ASAP when that extra set of hands could really come in clutch

• Hire people with the skills and expertise you need when a particular project requires just the right touch

• Don’t stress about shuffling around admin paperwork for temporary or seasonal staff

What are the Challenges of Employee Leasing?

One of the major drawbacks is that hiring is out of your hands. It’s up to the leasing company to find talent from their pool to send your way, which means less control over who’s on your team. Another reservation you might have is the fear that leased employees might not feel as motivated or loyal since they aren’t hired directly by your company. And, if you decide to end your contract with the leasing company, that means the hassle of finding new employees elsewhere is yours.

Employee Leasing vs Co-Employment

Now, let’s switch it up and test your knowledge by playing a quick game of fact or fiction.

Fact or fiction: Joining a PEO always means entering an employee leasing arrangement.

And the answer is... fiction!

Employee leasing and working with a PEO are not the same thing. PEOs operate under a co-employment model, which is different from the typical employee leasing arrangements. During a co-employment arrangement, the PEO is listed as a co-employer. This enables PEO customers to maintain full control over hiring decisions and run their team as they see fit, while the PEO is able to help ease the burden of payroll, benefits, and HR administration.

Since the PEO is handling payments for all your employees, the PEO’s name will also be on their paychecks. Don’t worry, this doesn’t mean your employees are now the PEO's. Your employees remain your employees to manage, promote, hire, and so on, even after your partnership with the PEO ends.

Setting the Record Straight

So what's with all the confusion? This confusion happens because, in the past, leasing terminology was used to describe the PEO model. To add to that confusion, some states still use the outdated employee leasing language to refer to all PEOs, regardless of if the PEO even offers employee leasing.

Today, the term no longer accurately describes how all PEOs work, because the PEO model has changed. While some companies still offer employee leasing as part of their PEO solution, not all companies require it or even offer it within their PEO plan — for example, Justworks doesn’t.

The Benefits of a PEO

When businesses work with a PEO they enter a co-employment arrangement. During the co-employment arrangement, the PEO is listed as a co-employer that takes care of administrative functions like payroll, benefits, HR, and compliance. This frees up your schedule to focus your time and energy on hitting those business goals and making your big ideas a reality. Bonus: you’ll get access to big company benefits and perks at competitive prices.Still have questions? Read about co-employment in more detail.

Does a PEO Make Sense for You?

Working with a PEO like Justworks may be just what your business needs to take it to the next level. Partnering with a PEO can help employers like you spend less time stressing about administrative tasks like payroll and compliance and more time on trailblazing and developing the latest and greatest. In uncertain times like these, Justworks can help you figure out the complexities of compliance.

Looking for more great resources? Stay tuned —we’re coming in hot with lots more. Dive into advice from founders and business owners like you on how to keep growing your business.