Be Sure You Do Your Homework
Mark Pahmer, president of Graphics for Industry, is a big fan of employee leasing. Corporate Management Group (CMG), a New York City employee-management company, hires Pahmer's staff and, in turn, leases it back to him. Pahmer has been pleased with the arrangement, which results in less expensive health-care premiums and a broader range of benefits choices for employees than he had previously been able to offer. But the most important reward, says Pahmer, is that "the aging of our receivables came down because my bookkeeper now spends 90% of her time dealing with that instead of doing payroll, filing our taxes, and sorting out insurance claims." For a percentage of Pahmer's payroll total, CMG takes care of all that and nearly every other technical and legal human-resources task as well.
Sound too good to be true? Employee leasing doesn't always work out so well. Pahmer's three-year relationship with CMG has been both happy and profitable, but had he been dealing with a less reliable firm, things might have turned out differently. If you think employee leasing would be a plus for your company, you ought to --
1. Know whether you are in one of the 12 states that currently require licensing of employee-leasing companies. The National Association of Professional Employer Organizations (703-524-3636) will give you a rundown of state regulations. Make sure the firm you're dealing with is in compliance.
2. Find out how each firm you consider funds benefits. Many firms are fully indemnified by large reputable insurance companies, and others are self-funded. Steven A. Tessler, president of CMG, says that self-funded firms should have at least 15% of total premiums in reserve to cover the cost of potential claims. Ask to see financial records.
3. Interview each lessor's banker, and ask about bounced checks. An unsavory firm may use your deposits to cover other expenses, leaving your employees high and dry on payday.
4. Call current and former clients (ask for names that aren't on the reference list) to get the real story: Did leasing save them money? How well were their accounts serviced? Were their employees happy with the arrangement?
5. Check on a firm's insurance coverage. Good leasing companies carry a broad range of policies that cover theft, errors, and omissions, for their customers' protection.
6. Speak with advisers. Any employee-leasing firm you seriously consider should have among its outside advisers an accounting firm specializing in taxes and a law firm well versed in employment law.
7. Look for a firm that will, with every pay period, furnish you with such reports as a general ledger, a tax register, and a departmental register. Some firms have software that can link you directly to their systems.
8. Beware of leasing companies that completely protect themselves against legal actions employees might take against you. Provided you've followed instructions, a good leasing firm should share the burden of your defense. Examine the litigation track record of any firm you might engage.
DONNA FENN | Inc.com Contributing Editor
Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.