If a provider has offered you employee leasing, ask what they mean by it, because the answer changes who employs your people. The market does not agree on the meaning, which is why the same question returns two different answers. Fully managed HR is a third option and is neither of them, because the employment relationship does not move at all.
Employee leasing is used for two different arrangements. In the staffing sense, an agency supplies workers it employs to you on a temporary or project basis. In the older sense, it is what a professional employer organization arrangement used to be called, covering the permanent staff you already have. If the co-employment side is what brought you here, our guide to the difference between HRO, PEO and ASO sets those models out.
One note on the phrase. Searches for employee leasing also surface vehicle-leasing programs offered as an employee benefit, which is an unrelated use of the words.
Key Takeaways
- Employee leasing has two meanings in current use, temporary staffing and the older name for a PEO-type arrangement, and both are in common use.
- In the staffing sense the agency is the employer and the workers are not yours. In the PEO sense your existing staff stay in their jobs and are co-employed.
- A US Department of Labor study describes the older arrangement: an employer’s own staff are hired by a leasing company and leased back to it on a long-term basis.
- Fully managed HR is neither: the HR work moves to an outside team and your company remains the sole employer of record.
The Short Version
Ask who signs the employment contract and whose tax identification number the wages are reported under. That one question separates all three models, and no amount of brochure language changes the answer.
| Leasing, staffing sense | Leasing, PEO sense | Fully managed HR | |
|---|---|---|---|
| Who the workers are | The agency's, supplied to you | Your existing staff | Your existing staff |
| Employer of record | The agency | The PEO, administratively (co-employment) | Your company, sole |
| What is scoped | Supply of workers plus their employment | Employment administration for your staff | The HR, payroll, benefits and HCM function, run for you |
| Typical duration | Temporary or project-based | Ongoing | Ongoing |
| Best when | You need people you do not have | You want pooled benefits and accept co-employment | You want the admin gone and the structure unchanged |
Assumptions: US domestic arrangements for a midsize employer. Scope varies by contract in all three cases, so treat the rows as descriptions of each model.
What Employee Leasing Means, and Why You Get Two Answers
The term carries two readings, and the sources disagree with each other.
Several define employee leasing as temporary or project staffing: Complete Payroll Solutions says a leased employee is “brought on for a set period of time or project”, ADP calls it an arrangement between a business and a staffing firm supplying workers on a project-specific or temporary basis, BambooHR treats leased and temporary as the same thing, Stratus says the leasing company supplies workers “typically on a temporary basis”, Indeed describes a leasing firm providing contract workers, and ExtensisHR calls it a temporary employment arrangement. Others take the older reading: IRMI, the risk-management reference, calls it “a permanent staffing method under which an employee leasing company (sometimes called a professional employer organization (PEO) or a labor contractor) provides all or most of its client’s employees”, Vision HR describes employee leasing as “also known as PEO (Professional Employer Organization) services”, and a US Department of Labor study describes the same long-term arrangement.
Vendors use one phrase for two different arrangements. Both readings are in current use, so the first job is to find out which one you are being offered.
Employee Leasing in the Staffing Sense
An agency employs the workers and supplies them to you, usually for a defined period or a specific project.
The agency recruits, pays wages, withholds payroll taxes, provides benefits and carries workers compensation. You direct the work day to day. When the assignment ends the worker returns to the agency or converts to your payroll. ExtensisHR, itself a PEO, describes employee leasing as “most often associated with staffing firms.”
The cost is that the people doing your work are not your people, which affects retention, culture and institutional knowledge. It is a poor fit when the role is permanent and central, because long-term leasing of a core function usually costs more than hiring and leaves you with none of the knowledge.
Employee Leasing in the PEO Sense
This is the older name for an arrangement covering the staff you already have.
Under this reading nobody supplies you with anyone. A US Department of Labor study describes the typical agreement: an employer “contracts with a leasing company and dismisses some or all of its employees,” who are then hired by the leasing company and leased back on a long-term basis. In today’s PEO arrangement your employees stay in their jobs and the PEO becomes the administrative employer of record for your staff, handling payroll, tax filing, benefits and part of compliance under a contract. ADP notes that the term was “once used to describe professional employer organizations (PEOs),” which is the confusion that persists today.
The drawback is structural: your employment arrangement now depends on a vendor relationship, and unwinding it is a project. It is a poor fit when you want the administrative relief without changing who is on record as the employer.
Are Leased Employees Your Employees?
For most practical purposes in the staffing sense, no. For benefit-plan purposes, the answer is more specific than that and it is set by statute, whatever the contract says.
Day to day, a leased worker in the staffing sense is employed by the agency, paid by the agency and carried on the agency’s tax filings. You direct the work and that is the extent of it.
For retirement and other benefit plans, section 414(n) of the Internal Revenue Code treats a “leased employee” as an employee of the client business in some circumstances. Take this point to employment counsel with your own facts; an article is the wrong place to decide it. Misclassifying who is covered by a plan is expensive to correct after the fact.
Where Fully Managed HR Is Different from Both
The HR work moves to an outside team and the employment relationship does not move anywhere.
Nobody supplies you with workers, and nobody becomes a joint employer. Your company stays the sole employer of record, your people stay yours, your benefit plans stay with your own carriers, and an outside team takes over the work of running HR, payroll, benefits administration and the HCM platform. Corban OneSource runs this model, described on the PEO alternative page.
The practical consequence is that there is nothing to unwind. If the relationship ends, your employment structure is exactly where it was, because it never changed.
Which One Are You Actually Being Sold?
You can find out by asking the provider directly, without a lawyer.
First, who signs the employment contract with the worker? If the answer is the provider, you are looking at leasing in the staffing sense. If it is you, you are not.
Second, whose tax identification number are the wages reported under? If it is yours alone, the employment relationship has not moved and you are looking at an administrative arrangement. If it is the provider’s, or shared, you are in leasing or co-employment territory. Our comparison of PEO and ASO covers how that plays out across the administrative models.
Keep Your Employees Yours with Corban OneSource
If you want the HR work handled without leasing your staff or entering co-employment, a fully managed model does that. At Corban OneSource, we run HR, payroll, benefits administration and the HCM platform for midsize companies while your company remains the sole employer of record.
You keep your own FEIN, control over your company culture and your own benefits packages. Our pricing is predictable, per employee per month, and does not penalize you for growing your payroll. Corban reports savings of up to 32% against running these functions with an internal team, on its own site. We act as a seamless extension of your internal team. Schedule a consultation to work through which model fits your situation.
FAQ
It has two current meanings. In the staffing sense, an agency employs workers and supplies them to a client business for a defined period. In the older sense, it is the term once used for a professional employer organization arrangement, in which a company’s existing permanent staff are co-employed. Check which one a provider means before comparing quotes.
Yes, both arrangements are lawful and widely used in the United States, and both are regulated. Staffing arrangements sit under employment and tax rules governing who the employer is, and PEO arrangements have their own regulatory framework including a voluntary federal certification program. The legal questions that matter are about which obligations sit with whom.
In the staffing sense they are usually the same thing, and several major HR glossaries treat the terms interchangeably. The distinction some sources draw is duration: leasing often describes longer-term arrangements, while temporary suggests short assignments. The employment structure is identical either way, since the agency is the employer in both.
Of the agency, yes. Of your company, generally not for employment purposes, though you direct their daily work. Benefit-plan eligibility is a separate question with its own statutory test, and a long-serving leased worker can count toward a client employer’s plan in some circumstances. Check it with counsel before you assume either way.
In current usage, a PEO co-employs your existing staff while a staffing-sense leasing firm supplies workers it employs. The confusion exists because PEO arrangements were historically called employee leasing, and some reference sources still define the term that way. Ask whether the workers are yours already, because that single fact separates the two.
Yes. Under a fully managed arrangement an outside team performs HR, payroll and benefits administration while your company remains the sole employer of record. Nobody is supplied to you and nobody becomes a joint employer, so there is no employment structure to unwind if the arrangement ends.
Related Reading
Disclaimer
This article describes how employee leasing, co-employment and fully managed HR are structured. It is not legal or tax advice.
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