Employee Leasing Pitfalls

Employee leasing pitfalls are a potentially serious consideration, and one you should evaluate before you settle on an employee leasing solution. Employee leasing isn't for everyone, and in some cases, the costs outweigh the benefits.

Leasing employees removes control from your hands.
One of the biggest downsides of employee leasing is that it removes control of the employees from your hands. With an employee leasing solution, the staffing company is responsible for disciplining the employee, administrative duties such as setting hours and granting time off, and day-to-day operations like time clock reporting and even individual tasks.

When you use an employee leasing company, you turn over control of all of these vital functions, potentially landing yourself in a situation where you can't discipline an employee. In this situation, you might not be able to deal effectively with tardiness, time card violations or other potential issues.

Employee leasing can expose you to lawsuits.
Worker's compensation laws exist to protect the employer as much as the employee. Under worker's compensation laws, employees are limited as to damages they can claim for accidents and injuries. However, if you're dealing with a leased employee, worker's compensation laws may not govern your relationship.

If the individual is technically employed by a third party, you may not be protected by worker's compensation laws. A leased employee could theoretically sue you for any amount, regardless of relevant worker's compensation laws. As that employee is not your employee, worker's compensation laws generally don't apply.

Contracts can complicate employee leasing solutions.
Every employee leasing solution comes with a contract. However, the wrong contact can unnecessarily complicate your employee leasing situation. For example, if your leasing company negotiates a contract with union employees, and you're using union employees in your day-to-day business, you may be bound by the terms of that contract even though you had no part in negotiating it.

The IRS is looking more closely at employee leasing solutions.
In the past, employee leasing solutions have been a part of adjusting benefits upward for existing executive employees. Companies that didn't employ low-level employees directly could offer more substantial benefits to executive-level employees. However, the IRS is currently taking a much closer look at employee leasing relationships to ensure tax fraud and evasion isn't a factor. Simply utilizing employee leasing solutions could expose you to IRS scrutiny.

Look out for potential discrimination and civil-rights violations.
Just because you're not the employer directly doesn't mean you're not at risk for discrimination or civil-rights violations. Utilizing an employee leasing solution doesn't remove you from these types of situations; it simply ties your hands. You can even be liable for things you don't do. If the employee leasing company screens employees for criteria that aren't a part of your job, for example, potential employees could sue for discrimination based on the fact that the criteria have nothing to do with the job. Even though you're not conducting the screening, you could still be liable along with the employee leasing company.