The Benefits and Potential Risks of Using Leased Workers

For a start-up business, as for an established business, the prospect of retaining leased workers holds both benefits and risks. A leased worker is an individual who provides services for a business, but who is an employee of, and is paid by, a separate specialty leasing company. The leasing company, as the Employer, is responsible for personnel administration matters, such as payroll withholdings; employment benefits; pension; medical, dental and disability insurance; educational allowances; and vacations. Leased workers are considered employees of the leasing company for tax and benefit purposes.

The primary danger in using leased employees results where the business using the leased workers' services is deemed to be a "joint employer" of the leased worker along with the leasing or temporary staffing agency.

The risks to the business using a leased employee are exposure that:

  • The leased worker will be able to pursue employment discrimination charges;
  • The worker will have a claim for wages under the Fair Labor Standards Act;
  • The joint employer must recognize the leased worker's collective bargaining representatives;
  • The worker can file a wrongful discharge claim; and
  • The worker can seek pension and employee welfare benefits.

It may be desirable that the agreement between the business and the leasing agency contain an indemnification provision.

Our firm is sophisticated in these matters in that our clients include major leasing and staffing companies. We are uniquely well-equipped to represent both a business contemplating using the services of a "leased employee," independent contractor, temporary staffer and/or outsourcing service. Knowing in advance the potential benefits and detriments of these various relationships can avoid expensive problems in the future.

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