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HUMAN RESOURCES

Sidestepping the Potholes in Employee Leasing

Questions to ask prospective employee leasing companies.
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One of the most enticing ways to save money and reduce paperwork these days is by contracting with an employee-leasing company. For a fee, such companies will become your human-resources-administration department: they'll handle payroll and payroll taxes, provide health and workers' compensation insurance, and administer other benefits programs. The employee-leasing company becomes the coemployer of your workers, and you get better programs at a price you could never negotiate on your own. (See "The Joy of Leasing," May 1990, Doc No. 05901191.)

That makes a pretty attractive package, but it's one with some unpleasant surprises inside. The employee-leasing field is so new and is growing so fast that it has attracted some undesirable participants. And you don't dare expose your employees to a company that may not make good on insurance claims. Here are the questions you should ask to find an honest, well-run employee-leasing company:

* How long have you been in business? You're probably safest with a company that has been in business for five years and has grown gradually. "There has not yet been a firm in this industry that's had explosive growth that has not been followed with an explosive downfall," asserts L. Morgan Hall, president of the National Staff Leasing Association (NSLA), in Alexandria, Va. Rapid growth means a firm may be underpricing its insurance or pouring too much of its customers' payments into marketing efforts.

* Could I talk to five of your long-standing clients who are in my business and operate in my area? You want those clients to attest to accuracy and consistency in meeting payrolls, as well as confirm the employee-leasing firm's responsiveness. Ask how payroll delivery and other services work. Greg Hammond, general counsel of the NSLA, suggests asking:

" 'If someone gets hurt on the job, is there a procedure to follow?' You want a workers' compensation program, not just workers' compensation insurance."

* How do you handle sexual-harassment charges? "Oh, we let you handle that" is the wrong answer. Sexual harassment is a joint liability of the leasing company and its client. A good company has a comprehensive approach -- which may include training programs in sensitivity, safety, and other areas -- toward such potential problems.

* Could I have the name of your bank, your insurance broker, and your insurance company? Again, the answers should be forthcoming. You should request credit references from the bank, details on the insurance coverage provided, and duration of the relationship with the insurance company. Check also that the insurance company is highly rated by A. M. Best.

* Who is your third-party administrator (TPA)? Employee-leasing companies that are self-insured, as most are, must have an independent company, called a third-party administrator, handle administrative matters and claims payouts. Ask the TPA for a record of the leasing firm's payments of claims and a description of any cash-flow problems, and -- most important -- if the firm has ever asked the TPA to stop paying claims.

* Is your administrator licensed to sell insurance in my state? "If your leasing company is using a self-insured health plan, the third-party administrator or the reinsurer must be licensed in the employee's state," Hall says. Call your state insurance commissioner's office to confirm.

* What kind of reinsurance coverage do you have? The self-insured firm must have an insurance company that will step in if an individual claim exceeds a certain amount or if, in aggregate, all claims surpass a specified figure. Otherwise, you won't be adequately covered against catastrophe.

* Could I see the results of a quarterly audit by an independent third party? Get proof that all tax deposits, insurance premiums, and employee-benefits payments have been made on time. NSLA members must submit such statements. Even if your employee-leasing firm is not a member, ask to receive such reports on an ongoing basis. If it won't comply, find a company that will. -- Ellyn E. Spragins

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Last updated: Aug 1, 1991




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