Go over leasing terms before hiring
Published 11/04/05

Whether to lease employees from an employee leasing company depends on several considerations including not just the cost, but the integrity of the employee leasing company. The leasing relationship does not remove the obligations from being an employer, it just arranges for the employee leasing company to handle some of them for the company.

Employee leasing companies are required to be licensed and are deemed an employer thereby requiring they meet the obligations of other employers, including, but not limited to, providing worker's compensation coverage, making applicable withholdings from worker's paychecks and not discriminating under state or federal law, yet those employees are also still employees of the company. Therefore, it is prudent for an employer that is using an employee leasing company to first ensure it is a reputable and licensed company.

A reminder of the importance of choosing a reputable employee leasing company is the recent federal grand jury indictment of three Quincy residents in a $30,000,000 payroll scheme involving their temporary employment agency.

Tina Le, Steve Ngyuyen, and Mercedes Tang were in charged on October 12, 2005 with paying hundreds of temporary employees a total of approximately $30,000,000 in unreported cash payroll over a ten year period for manual labor performed at factories and warehouses in Massachusetts . Most of the workers were Vietnamese immigrants.

Under their agreements with client companies, they were responsible for filing taxes on behalf of the employees and paying for worker's compensation insurance. However, the indictment alleges that they would pay most of the employees in cash and not report the cash payment to the IRS and further defrauded their workers' compensation carrier. They allegedly concealed these activities through the use of shell corporations, frequently reincorporating under another name to avoid scrutiny by the IRS or insurance auditors.

An employer should have a written agreement between the employee leasing company and the employer in which the employee leasing company agrees to handle certain employer obligations such as to provide the worker's compensation coverage, paying state unemployment contributions on a weekly basis and making applicable withholdings from the worker's paychecks, and further agrees that the employee leasing company indemnifies and holds harmless the employer leasing the employees to the extent that the employee leasing company fails to meet its obligations.

Yet, as noted above, the contract is only as good as the integrity of the employee leasing company. Employers should also monitor the invoices of the employee leasing company to ensure that all the charges are consistent with their agreement and any changes in payroll and/or withholdings are acknowledged in the invoices.

For a worker who is working at a company yet is being paid through an employee leasing company, the worker should be aware that the employee leasing company is legally responsible for payment of all wages and benefits to the employee and state unemployment contributions without regard whether the client company pays the employee leasing company for such wages, benefits or contributions.

Therefore, if the company upon which the worker is doing work becomes insolvent, the worker should speak with the employee leasing company about receiving any unpaid wages.

For employers using an employee leasing company, those employers must be just as sensitive to their obligations under state and federal employment discrimination laws for the leased employees as they are for their regular employees since they are equally liable. For example, an employer would be mistaken to believe he could fire a worker because she was a female with immunity because that worker was on the payroll of the employee leasing company.

In summary, use of an employee leasing company to lease some or all of a company's employees can have a benefit of reducing the administrative obligation on the executives of the company.

However, hiring a reputable, licensed employee leasing company and ensuring there are adequate provisions within the contract to protect the employer is prudent and in considering this option it would be best for an employer to contact its legal counsel to review any employee leasing agreement prior to its execution.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and business persons on a variety of legal issues, including employment, and advocating on their behalf. You can reach Attorney Marr by e-mail at: dmarr@hamker.com

This information is general information and may not reflect the most current legal developments, verdicts or settlements. The information provided should not be relied upon as an indication of the actual state of the law or of future developments. The information contained on the Hamblett & Kerrigan website is for informational purposes only and does not constitute legal advice. If the information referenced may be of legal importance to you, you should consult with an attorney to provide you with legal guidance and opinion as the the effect of the current law upon your situation.