Leased Employees: Common Law Status?

Employee leasing is a popular concept where a leasing company or Professional Employer Organization (PEO) provides the paperwork, payroll, human resources, and benefits to the employees who work for their client's business. The leased employee is paid by the staffing firm but works for another company, the recipient company. The question of who is the common-law employer is crucial for retirement plan purposes and determining liability for payroll taxes. A leased employee can be considered a common-law employee of the recipient company if certain conditions are met, such as the duration of employment, the number of hours worked, and the level of control the recipient company has over the employee's work.

Characteristics of a leased employee being a common-law employee

Leased employees are employed by the leasing company, not the client company

Employee leasing is a popular concept, with many companies choosing to hire leased employees. A leased employee is someone who is paid by a staffing firm or leasing company but works for another company, known as the recipient or client company. The leasing company, or Professional Employer Organization (PEO), provides the paperwork, payroll, human resources, and benefits to the employees who work for one of their clients' businesses.

The primary issue with leased employees is determining who the actual employer is when the employee works for a company that is not responsible for their paycheck. This distinction is crucial for retirement plan purposes and tax withholding. The IRS and states consider a worker to be an employee unless proven otherwise, and the common-law employer is responsible for providing retirement plans and other benefits.

A leased employee can be classified as a permanent employee of the client organization if certain conditions are met. These typically include the duration of employment, the number of hours worked, the level of supervision and direction from the client company, and the determination of salaries or remuneration. If a leased employee meets these requirements, they may be considered a common-law employee of the client company.

However, it's important to note that the leasing company or PEO becomes the legal employer of the leased employee. This means that the leasing company handles employment-related legal issues and lawsuits, reducing potential legal liabilities for the client company. The PEO may also be responsible for tax functions, depending on local and state regulations. Therefore, while a leased employee may be considered a common-law employee of the recipient company under certain conditions, they are technically employed by the leasing company or PEO.

A leased employee may be considered a common-law employee of the recipient company if certain requirements are met

Employee leasing is a popular concept, with many companies choosing to outsource administrative work to leased employees from separate organisations. In this arrangement, a Professional Employer Organization (PEO) or leasing company manages payroll, taxes, benefits, insurance, and other human resources-related functions for employees who work for one of their client companies.

A leased employee is someone who is paid by a staffing firm or leasing company but works for and reports to another company, known as the recipient company. The recipient company is the client company that the PEO has matched with the leased employee. The recipient company directs and supervises the work of the leased employee.

The primary issue with employee leasing is determining who the actual employer is when the employee is working for a company that is not responsible for their paycheck. For retirement plan purposes, it is essential to identify the "common-law employer" of the employees. A common-law employee is someone hired by an employer, with the employer having the right to control and direct the employee's work.

If a leased employee is considered a common-law employee of the recipient company, the recipient company is responsible for providing a retirement plan and ensuring other employee benefits. The recipient company may also be responsible for paying taxes and filing returns for the leased employee.

Common-law employees are controlled by their employer, who decides what work is done and how

Employee leasing is a popular concept, with many companies hiring full-time, part-time, or contract employees on an as-needed basis. A leased employee is someone who is paid by a staffing firm (or a Professional Employer Organization (PEO)) but works for another company, known as the recipient company. The recipient company is the entity that benefits from the services provided by the leased employee.

A common-law employee is someone hired by an employer, with the employer having the right to control the employee's work. Common-law employees are controlled by their employer, who decides what work is done and how. This is true even when the employee is given freedom of action. What matters is that the employer has the right to control the details of how the services are performed. The substance of the relationship, not the label, governs the worker’s status.

The distinction between a common-law employee and an independent contractor is important for tax withholding purposes. The IRS automatically assumes workers are common-law employees unless the company can prove otherwise. The IRS has set rules for determining a worker's status as either a common-law employee or an independent contractor. The determination is based on information that provides evidence of control or independence, so the IRS looks at each business on a case-by-case basis.

A leased employee can be classified as a permanent employee or common-law employee of the recipient company if certain conditions are met. These include the length of service, the number of hours worked, the degree of control and supervision, and whether the employee is hired or fired by the recipient company.

In summary, a leased employee may be considered a common-law employee of the recipient company if the recipient company controls the work performed by the leased employee and has the right to decide what work is done and how it is done.

Leased employees can be beneficial for short-term projects or fluctuating business demands

Employee leasing is a popular concept, with many companies hiring full-time, part-time, or contract employees on an as-needed basis. Outsourcing administrative work to leased employees from a separate organization can be beneficial for short-term projects or fluctuating business demands.

Leased employees are workers who are paid by a staffing firm but perform services for another company, known as the recipient company. The leasing company, or Professional Employer Organization (PEO), manages the payroll, taxes, benefits, insurance, and other important paperwork for the employees who work for their client's businesses. This arrangement can provide significant benefits for companies with short-term projects or fluctuating business demands.

Firstly, leased employees can provide specialized expertise and skills that the employer may not have in-house. This allows employers to access the talent they need without hiring full-time employees. For instance, a company may require additional software engineers for a short-term project. Instead of hiring full-time employees, they could lease employees with the required skills, reducing costs and providing flexibility.

Secondly, leasing employees can improve productivity and flexibility. Leased employees are often highly motivated to perform well, as their continued employment may depend on their performance. Additionally, employers can easily scale their workforce up or down as needed to meet business demands, providing greater agility in response to market changes. For example, a company may need to temporarily increase its customer service staff during the busy holiday season. Instead of hiring permanent employees, they could lease employees for the short term, ensuring they have sufficient staff without the long-term commitment.

Lastly, using leased employees can reduce legal liabilities for employers. When an employer hires a leased employee, the leasing company becomes the legal employer, handling employment-related legal issues and lawsuits. This arrangement can protect the employer from costly liabilities and reduce their exposure to employment-related risks. For instance, if a leased employee takes legal action against the company, the leasing company would be responsible for handling the lawsuit, shielding the employer from potential financial and reputational damage.

In conclusion, leasing employees can be highly beneficial for short-term projects or fluctuating business demands. By providing access to specialized skills, improving productivity and flexibility, and reducing legal liabilities, leased employees offer a strategic option for companies to meet their dynamic business needs. However, it is important to carefully consider the regulations and consult experts to navigate the complexities of determining the common-law employer for retirement plan purposes.

Leased employees may have access to specialised skills that the employer does not have in-house

Employee leasing is a popular concept, with many companies choosing to outsource administrative work to leased employees from a separate organisation. A leased employee is someone who is paid by a staffing firm or leasing company (also known as a Professional Employer Organisation or PEO) but works for another company, known as the recipient company. The recipient company is the client company that the leased employee works for.

Leased employees may have access to specialised skills that the recipient company does not have in-house. This allows the recipient company to access the talent they need without having to hire full-time employees, which can be particularly beneficial for short-term projects or fluctuating business demands. For example, a recipient company that is a trucking business may require a plumber for a short-term project. In this case, the trucking company could hire a leased employee with plumbing skills, as this work would be outside the employer's usual business activities.

The PEO or leasing company manages the leased employee's payroll, taxes, benefits, insurance, and other important paperwork. This means that the recipient company may be responsible for very little of the administrative work that typically comes with hiring a full-time employee. However, the recipient company is still responsible for supervising and directing the work of the leased employee. The recipient company must also ensure that the leased employee's salaries or other remuneration are determined by them and that the leased employee is working full-time for at least a year, with more than 1500 hours put in at the company.

If the recipient company is the leased employee's common-law employer, they will be covered under the recipient company's retirement plan. A leased employee will be considered a common-law employee of the recipient company if the worker is assigned to work specific days and hours as needed by the recipient company, and the worker's decisions are subject to the recipient company's approval.

Frequently asked questions