Facts and Fallacies of Employee Leasing
| Publication year | 1987 |
| Pages | 621 |
1987, April, Pg. 621. Facts and Fallacies of Employee Leasing
According to John Naisbitt, author of Megatrends and Reinventing the Corporation,(fn1) ten million U.S. employees will be leased by 1990. Section 411 of the Internal Revenue Code ("Code") defines a "leased employee" as
The Internal Revenue Service specifically authorized this concept in 1982 with the passage of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA").(fn2)an individual who performs services for another person (the recipient) under an arrangement between the recipient and a third party (the leasing organization) who is otherwise treated as the individual's employer.
Today, long-term employee leasing has become an effective means of transferring the non-profitable tasks of personnel administration, while allowing the small business owner to retain a role in management. In addition, overall payroll expenses may be decreased by as much as 20 percent. This article discusses the mechanics and benefits of employee leasing. It also presents suggestions on how to choose a leasing firm, and addresses three common concerns of companies that are considering the use of such a firm.
The mechanics of employee leasing are simple. A company contracts with a leasing firm and then transfers all or some of its employees to that company. The employees are then leased back to the original employer. The leasing firm, as the legal employer, assumes the responsibility for employee-related administration. The business owner, now a client, is relieved of most administrative duties and makes only one payment per payroll period to the leasing firm to cover payroll. The leasing company performs all aspects of payroll administration and completes government reports, filings and inquiries. Most small companies with fewer than 100 employees spend an average of 8.43 percent of total payroll to administer and manage the payroll system. Leasing significantly reduces these costs.
In order to satisfy existing laws, the leasing company must be the employer of record, and the contract should make this clear. It also should spell out the responsibilities of the business owner.
Small- and medium-sized firms may be at a...
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