In May, about 40 Gourmet Foods Inc. employees quit their jobs at the Long Beach, Calif.-based food preparation company and began working for another company. Instead of being upset, owner Heinz Naef was thrilled.
Naef's former employees now work for Your Staff, an employee leasing firm, based in Woodland Hills, Calif., that aims to eliminate payroll and paperwork headaches for its clients.
"Unlike a payroll service, an employee leasing company takes care of everything," said Naef, who spent about a year investigating whether to make a conversion to using leased employees.
Naef was finally persuaded when he learned that the leasing company, with its 5,000 employees, could provide his employees with better health insurance and other benefits at a much lower cost.
"The coverage that would cost us $600 to $700 a month per employee costs us around $230," said Naef, whose former employees also became eligible to join a credit union and obtain life insurance policies.
In fact, industry experts say, an employee's benefits package improves about 80 percent of the time when a leasing company takes over.
Today, about 1 million people work for about 1,600 employee leasing, or co-employment, firms. They range from doctors to factory workers. Unlike temporary workers, who move from assignment to assignment, leased workers are permanent employees who usually return to the same job after the conversion.
When leasing employees became popular in the 1970s, it offered many tax benefits to employers. Marvin Selter, founder of National Staff Network in Van Nuys, Calif., is considered one of the industry's pioneers. Although the 1986 tax reforms eliminated most of the tax savings for employers, the industry continues to flourish because it has so many attractions for harried business owners.
"The trend in the 1990s is outsourcing, which means finding others to run your mail room and your computers," said Gordon Brown, president of Your Staff. "We fit into the trend."
The more difficult the government makes it for small-business owners to cope with rules, regulations and paper work, the more popular leasing becomes, according to Brown.
Once you decide to convert your employees, it takes about two to three weeks to complete the process.
"We could do it in one day, but we want to spend some time educating employees about how it will work," Brown said.
"Employees don't really care who they get their check from, but they do care about benefits," said T. Joe Willey, president of Aegis Group in San Bernardino, Calif., who has written several books about leasing and develops software for leasing companies.
"Small-business owners are attracted to the freedom leasing offers them," he said. "If you don't have to deal with government regulations and finding health insurance, it is really a blessing."
As great as it sounds, leasing has a down side. Several firms, including American Workforce based in Dallas, have failed, leaving thousands of employees stranded without jobs. Managing employees and keeping track of their payroll taxes and benefits is complex work. Before signing any contracts, make sure that the company you choose can handle the job.
The key is to choose a leasing company with a track record and financial stability. Find out which insurance companies provide policies for the workers and how long they take to pay claims. Ask whether the firm's audited financial statements are available for review and be sure to ask for references from other business owners who use its services.
For Naef, the change meant that he didn't have to create a personnel department. And, instead of writing 40 or so payroll checks every two weeks, he just writes one big check to his leasing company. "It's so much easier now," he said.
For a free fact sheet on employee leasing or a referral to a firm in your area, write to: The National Staff Leasing Association, 1735 N. Lynn St., Suite 950, Arlington, Va. 22209-2022.