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Staff Leasing: Compliance and Legal Considerations 

May 3, 2023

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Streamlining the human resource management of your business can be done quickly by hiring the right staffing company to lease the perfect people for you. 

For example, a staff leasing agency that is 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. 

What else should you look for? 

A good staffing agency should be, most importantly, law-abiding and detail oriented. Remember that leasing is still hiring employees but through a third party. This means that all legislation regarding employment, taxes, and insurance are still applicable. The only difference is your staff leasing firm will take care of it instead of your human resources department. 

You wonder, how exactly do they “take care of it”? What are examples of laws and legal considerations that are taken into account when leasing your staff? Read on to find out. 

Legal Considerations for Staff Leasing 

Staffing agencies that are 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 employees.¹  

To avoid facing 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 staff leasing companies when providing the best temporary workers for you. 

Knowing and Complying with Labor Laws 

A general description of labor laws is rules and regulations that are set to protect and safeguard the overall well-being of an employee. 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. 

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 

Leased employees must follow the Fair Labor Standards Act which focuses on the compensation of the working people. 

All employees must be paid at least the minimum wage set by the government. They must not be given less compensation when compared to the regular in-house employees. 

If a person is subjected to following both the state and the 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 hours that exceed the prescribed 40 hours per workweek. 

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 is considered discrimination. Refusing to lease qualified employees with disabilities is also considered discrimination and may lead to a court case. 

Compliance with Tax Laws 

According to LinkedIn, tax laws are responsible for governing income reports, calculations, payment, and procedural requirements for properly paying your taxes. ² 

A good staff leasing firm must be aware of all jurisprudence regarding taxes that are applicable to your business and your leased employees. 

Similar to 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 the sake of both the employees and the employer. For the employees, incorrect payment of tax may lead to leaser take-home pay for them. Meanwhile, for employers, incorrect payment of tax can lead to legal issues and complications. 

Employee Classification 

Aside from paying taxes according to local and federal laws, leasing companies are also responsible for the proper classification of employees within their client’s 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. 

By definition, employees are people employed within a business who have set responsibilities, working hours, and specific commitments.³ 

On the other hand, contractual employees are those who have more freedom. Employers cannot dictate their working hours nor 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 meant for a contractual employee when the person is actually a regular employee may go against certain labor codes. 

Insurance Requirements 

There is a big need for insurance in the process of staff leasing since people are being sent to work in different fields and roles all throughout the country. 

Regardless of how safe or remote the job is, insurance is still necessary to safeguard the wellness of the employees as well as to protect the companies involved. 

With proper insurance programs and requirements, you will be able to mitigate the risks present in staff leasing. A few details regarding the insurance coverage needed are written below. 

Employee Insurance 

It is impossible to say that someone is safe 100 percent of the time. There are always chances of accidents occurring and undesirable things happening. 

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). 

ENSURE WORRY-FREE COMPLIANCE WHEN LEASING STAFF! 

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: 

  1. Cross, Dan. “Legal Issues With Use of Leased Workers.” Kauffman Entrepreneurs, 8 Feb. 2007. https://www.entrepreneurship.org/articles/2007/02/legal-issues-with-use-of-leased-workers 
  2. Di Paolo, Kathleen. “What is Tax Compliance and Why You Need to Know About it as a Small Business Owner.” LinkedIn, 25 Nov. 2021. https://www.linkedin.com/pulse/what-tax-compliance-why-you-need-know-small-business-owner-di-paolo?trk=articles_directory 
  3. Doherty, Joseph. “Two Legal Questions About Employee Classification.” American Society of Association Executives, December 2017. https://www.asaecenter.org/resources/articles/an_magazine/2017/november-december/two-legal-questions-about-employee-classification 

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