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Worker Outsourcing (Employee Leasing)

In addition to outsourcing specialized services (such as accounting, legal, payroll, and employee benefits), you may find it worthwhile to outsource all, or most, of your other staff. Under this arrangement, the people that work on your site are actually employees of the outsourcing firm, which handles their paychecks and benefits. You, in turn, pay the outsourcing firm a fee that covers:

  • actual pay and benefits for the employees.
  • the employer's share of Social Security, Medicare and other payroll taxes.
  • administrative overhead for managing the employees' pay and benefits, plus reporting that must be made to various governmental bodies.
  • a profit margin for the outsourcing company

The chief motivation for the development of such arrangements is the onerous regulations and reporting requirements that governments impose on small businesses. To evaluate whether such an arrangement is appropriate for your business, consider:

  • the relative cost, in time and money, of having the employees on your own payroll versus on that of the outsourcing firm.
  • the added flexibility you do (or do not) get with respect to hiring and layoffs.
  • your ability to choose the employees you want.
  • your ability to remove employees who prove to be unsatisfactory.

Before entering into any such outsourcing arrangement, confer with your legal and tax advisers. In some circumstances, government agencies may treat such employees

as your own, rather than employees of the outsourcing firm. This is especially likely if they are under a long-term outsourcing agreement. In that case, you may lose many of the benefits of outsourcing, and actually incur extra or unexpected costs and aggravation.

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