Streamlining your business’s human resource management can be done quickly by hiring the right staffing company to lease the perfect people. Staff leasing, also known as employee leasing or professional employer organization (PEO) co-employment, involves partnering with a staffing agency or PEO that acts as the legal employer of record for leased employees.
The client company that partners with a PEO supervises and directs the leased employees’ work. They handle all employment-related responsibilities, including payroll, taxes, benefits administration, and other human resources tasks. This significantly frees up the company’s time and resources and provides access to a wider talent pool.
Legal Considerations When Choosing a PEO Partner
Staffing agencies responsible for leasing employees provide many advantages to their clients, but they can also cause problems if they do not do their job properly. Sometimes, legal issues arise when using leased staff.¹
To avoid the consequences of possible problems, your staffing firm must be aware of both local and state ordinances you need to comply with. This also means knowing certain details about your organization, such as location and national origin.
Below are the general considerations of quality PEO services when providing the best temporary workers for you.
1. Expertise in Your Field
A staff leasing agency worthy of your attention must have expertise and experience within your industry. The wider their experience is, the deeper their understanding of your needs and requirements for good staffing. Their expertise also ensures an extensive network and valuable insights to offer.
2. Knowing and Complying with Labor Laws
Labor laws are rules and regulations set up to protect and safeguard an employee’s overall well-being. They ensure the safety and security of the people within their workplaces. Compliance with employment regulations requires companies to remain updated and knowledgeable about the changes in the legal landscape. Not knowing something is not an acceptable reason for any business to skip a rule or two.
Under the National Labor Relations Act (NLRA) and other laws, both the leasing firm and the hiring company may be held jointly liable for certain employment practices.² This means you could be responsible for violations committed by the leasing firm, even if you weren’t directly involved.
The consequences of non-compliance include monetary penalties, lawsuits, cessation of operation, and other cases that can hurt your brand and reputation. This is why it’s important to only partner with leasing companies who are aware of the regulations that need to be followed. The following are examples of labor laws being considered during leasing:
Rights of Employees for Proper Compensation
The employee leasing company must follow the Fair Labor Standards Act, which focuses on worker compensation. All employees must be paid at least the minimum wage set by the government, and they must not be given less compensation than regular in-house employees.
If a person is subjected to following both the state and national minimum wage laws, he or she must be given the higher wage option. This specific right of employees also includes being properly paid for any overtime that exceeds the prescribed 40 hours per workweek.
Starting July 1, 2024, the U.S. Department will revise and increase salary thresholds for executive, administrative, professional, outside Sales, and computer Employees using the same methodology from the 2019 final rule and current data.³
Rights of Employees to be Protected from Discrimination
The Civil Rights Act of 1964 makes it illegal for anyone to be discriminated against inside the workplace, regardless of whether the discrimination is against race, religion, origin, sex, or gender.
Discrimination refers to various circumstances. For example, providing more compensation for regular employees than leased ones are considered discrimination. Refusing to lease qualified employees with disabilities is also considered discrimination and may lead to a court case.
3. Compliance with Tax Laws
A good employee leasing firm must be aware of all jurisprudence regarding taxes that apply to your business and your leased staff. According to LinkedIn, tax laws are responsible for governing income reports, calculations, payment, and procedural requirements for properly paying your taxes.⁴
Like labor laws, being ignorant will not give you a free pass against tax violations. Instead, it will only lead to further complications and penalties. In worst-case scenarios, it could also lead to property seizure or criminal charges.
With such heavy consequences, it is important for staff leasing companies to fully comply with tax laws like the following:
Employment Taxes
When leasing employees, the third-party personnel manage the human resource aspect of the hiring. This aspect includes the employees’ tax payments based on their compensation.
The leasing firm must ensure that the calculations are correct for both the employees and the employer. For the employees, incorrect tax payments may lead to lower take-home pay. Meanwhile, for employers, incorrect tax payments can lead to legal issues and complications.
Employee Classification
In addition to paying taxes according to local and federal laws, leasing companies are also responsible for the proper classification of employees within their clients’ businesses.
Employee classification is vital when paying proper taxes. It has been noted that numerous companies face litigation due to the misclassification of their people. Some leasing companies define employees as individual contractors.
Employees are people employed within a business who have set responsibilities, working hours, and specific commitments.⁵ Conversely, contractual employees have more freedom. Employers cannot dictate their working hours, who they work with, or how.
In comparison, the taxes for contractual employees are lower than for employees. This is why the misclassification of an employee’s role in the business can be seen as tax fraud. Paying tax prices for a contractual employee when the person is a regular employee may go against certain labor codes.
4. Knowing Insurance Requirements
There is a big need for insurance in the staff leasing process since people are being sent to work in different fields and roles throughout the country.
Regardless of how safe or remote the job is, insurance is still necessary to safeguard the wellness of the employees and protect the companies involved.
With proper insurance programs and requirements, you can mitigate the risks present in staff leasing. Below are a few details regarding the insurance coverage needed.
Employee Insurance
It is impossible to say that everyone is safe 100 percent of the time. There are always chances of accidents and undesirable events.
To ensure the safety and security of your employees, there must be an insurance plan set that focuses on their lives and health. For example, if an employee gets into an accident at work and breaks his left foot, insurance plans can help him receive proper treatment. It can also help you avoid legal action since an injury at work goes against the work safety rules of the Occupational Safety and Health Act of 1970 (OSHA).
RASO360 CHECKS ALL THE BOXES AND MORE
With Raso360, you can source the right people without any worry. Our understanding and compliance with local and nationwide laws serve as our edge in bringing the best people to help you succeed. Build hassle-free connections and grow your company with our help. Contact us now to learn more.
References:
- Cross, Dan. “Legal Issues With Use of Leased Workers.” Kauffman Entrepreneurs, 8 Feb. 2007. www.entrepreneurship.org/articles/2007/02/legal-issues-with-use-of-leased-workers.
- “Joint Employer Status Under the National Labor Relations Act” Federal Register, 26 Feb. 2020, www.federalregister.gov/documents/2020/02/26/2020-03373/joint-employer-status-under-the-national-labor-relations-act.
- “Frequently Asked Questions – Final Rule: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees” The U.S Department of Labor, Accessed 29 June 2024, www.dol.gov/agencies/whd/overtime/rulemaking/faqs.
- Di Paolo, Kathleen. “What is Tax Compliance and Why You Need to Know About it as Small Business Owners.” LinkedIn, 25 Nov. 2021. www.linkedin.com/pulse/what-tax-compliance-why-you-need-know-small-business-owner-di-paolo?trk=articles_directory.
- Doherty, Joseph. “Two Legal Questions About Employee Classification.” American Society of Association Executives, December 2017. www.asaecenter.org/resources/articles/an_magazine/2017/november-december/two-legal-questions-about-employee-classification.
