Company saves time and money by leasing its employees.
It may be misunderstood and relatively unknown, but employee leasing is a technique that can save small-company owners time and money
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Tony DiBiasio used to spend 10 to 15 hours a week playing catch-up with personnel-related paperwork. As the president of Spy in the Sky Flying Traffic Watch Co., an airborne traffic-reporting and aviation company in Warwick, R.I., DiBiasio found that deadlines of one sort or another perpetually hovered: payroll taxes to be calculated and filed; health insurance policies to be updated or paid. The constant fear of late payments and penalties was unnerving, he recalls. "Even when I was up to date, I worried about what was in the stack of paper on my desk."
Today DiBiasio no longer sweats about the details of administering payroll and complying with government personnel regulations. In fact, if he (or anyone who works for him) spends an hour a month on these tasks, something's wrong. It's the same company, with many of the same people doing the same jobs, so what happened? Well, last spring DiBiasio decided to lease all 13 of the people who work for Flying Traffic -- including himself -- through an outside contractor.
Although it's been around for several years, employee leasing is still relatively unknown. But it's fast emerging as a way small employers like DiBiasio can not only free up management time, but also obtain major cost savings on health insurance and other benefits. Under a leasing arrangement, the employees still report to the same bosses, who remain in charge of how the business is managed. The big change is that the leasing company assumes such personnel functions as payroll and benefits administration.
Back in the 1970s and early 1980s, some companies used employee leasing as a roundabout way to offer top-of-the-line benefits to owners and other executives; the non-executives, whose employment was shifted to outside agencies, got less (see The Law, "The Pitfalls of Employee Leasing," December 1988, [Article link]). But the Tax Reform Act of 1986 put an end to such practices. Today, estimates Joe Honick, executive director of the National Staff Leasing Association, an industry trade group in Encino, Calif., there are 300 to 400 employee leasing companies doing business in the United States, representing around 700,000 workers. Most, if not all, sell a service to smaller companies that might best be described as an off-site personnel department.
Typically, leasing companies assume responsibility and risk for preparing a company's payroll and paying payroll taxes, along with the various state and federal reporting requirements. Because of the numbers of employees they represent (hundreds, if not thousands), they can hire in-house experts in areas of human-resources management that small companies rarely have. They also provide employee benefits, workers' compensation, and unemployment insurance. And, in contrast to most companies with fewer than 100 employees, they have buying power; for the same dollars smaller employers usually spend on benefits, they can furnish much more comprehensive benefit packages.
Even when DiBiasio had two or three employees back in the late 1970s, paperwork dogged him. But it wasn't until 1986, when he hired five people to handle eight new radio station accounts, that he began toying with ways to unload it. With revenues then of about $700,000, he didn't feel he could justify a full-time bookkeeper at close to $20,000 a year, so he subscribed to a payroll service for about $300 a month. For a while, it freed up time to spend with clients, says DiBiasio. But, unfortunately, not enough.
"I still had to go to the bank every month to deposit my payroll taxes," he says. And he still had to verify all the monthly and quarterly reports and deal with insurance. After months of listening to DiBiasio complain, his accountant suggested that he look into employee leasing.
At first, even though he knew the employees would be the same ones he already had, DiBiasio was concerned that leasing those employees would impinge on his ability to run his business as he wanted. His traffic reports, for example, were offered seven days a week -- beginning before dawn. Would the leasing company restrict when people could work? "I needed total flexibility," he says. After talking to several businesspeople who used leased employees and to the managers of ELC Staffing, in Providence, DiBiasio and his attorney were certain that (1) the idea had merit and (2) that internal control wouldn't be an issue. Confident that he'd retain the freedom to choose who would and would not work for him, he decided to go forward.
DiBiasio's company has been operating with leased employees since April 1, 1989. In some respects, it's like working with a payroll service: every other Monday, ELC calls Flying Traffic's part-time bookkeeper for payroll information -- hours worked, overtime, sick days, vacation time, and so on -- for everyone, including DiBiasio and his wife, who is the office manager. Based on the information it receives, ELC then does several things. First, it calculates and signs the weekly paychecks, which are delivered by courier to DiBiasio's office the next day. It also does the necessary withholding and payments for state and federal taxes, under its own -- not Flying Traffic's -- taxpayer identification number. And it puts money aside for such necessities as workers' compensation and state unemployment insurance -- again, under its own name. For these services, the leasing company (whose name is on the paychecks) charges DiBiasio a monthly fee of about $20 per person. He writes a single check each pay period to cover payroll, service fees, and the various benefits.
