Employee leasing

What si Employee Leasing ??

Smaller companies looking to expand their workforce may be comfortable with the technical side of the hiring process, but not the human resource side. Business owners often find themselves overwhelmed by all the payroll accounting, record keeping and benefits which accompany newly hired employees. One popular solution to this problem is the practice of employee leasing.

Employee leasing is similar to the process of hiring temporary workers, but the key difference is permanency. A company wishing to pursue employee leasing will first contact a professional employment organization (PEO) to discuss its particular employment needs. The PEO or other employment leasing company might set up an interview process for recruiting new staff, or might take responsibility for existing workers. The company can still participate in the hiring process, but any hired personnel will officially work for the employee leasing company.

For many employees, the switch from their original company to an employee leasing company is actually a better deal financially. Since a typical PEO handles a large number of employees from numerous companies, future health insurance and other benefits can be negotiated in bulk. A worker at a small electronics company can enjoy the same level of benefits as a worker in a massive automotive plant. Wages and performance reviews are under the auspices of the employee leasing organization, not the original companies.

Employers often pursue employee leasing options in order to eliminate the need for accountants and human resource managers. The employee leasing agency charges a fee in addition to the employees' wages, much like temporary employment agencies. This fee is often less than the cost of hiring human resource experts and payroll accountants. Because workers are not considered employees of the company in a legal sense, personal injuries and workers' compensation claims become the responsibility of the employee leasing agency.

Employee leasing is not a perfect solution for some companies, however. Since workers are not completely under the control of management, communications may become strained. Conflicts may have to be arbitrated by representatives of the employee leasing agency. Termination of non-productive workers may not be as simple as handing out pink slips. Certain union contracts actually prohibit the use of employee leasing agencies or PEOs in order to prevent companies from outsourcing their human resource departments.

Employee Leasing Licensure

An employee leasing company is a business, which by agreement and for a fee, places employees of a client company on the leasing company's payroll. In turn, the leasing company "leases" these employees back to their original employer, usually for an unlimited period of time.

In 1996, the Vermont Legislature passed a law (21 V.S.A. Secs. 1031-1043) to regulate the employee leasing industry. This law, which originated through an industry request for regulation of leasing companies requires the employee leasing companies doing business in Vermont to be licensed by the Vermont Department of Labor, which is the state department responsible for administering both the unemployment insurance and worker's compensation programs.

Regulation of the employee leasing industry was enacted in part as a response to some situations, most of which occurred outside of Vermont, where an employee leasing company went bankrupt after having collected from its clients money which was to be used to pay wages, benefits, worker compensation premiums and unemployment insurance contributions, but without first making those payments to the appropriate agencies. In those situations, the client companies bore the responsibility of paying those wages, premiums and taxes twice. The financial responsibility and bonding provisions of the employee leasing law are intended to reduce or eliminate the exposure of the client companies should their leasing company suddenly go out of business. By helping ensure that only stable employee leasing companies do business in the state, Vermont's employee leasing law provides protections to workers, client companies and the leasing industry itself. It also helps to ensure that the cost of unemployment insurance and workers' compensation is borne by the client company, and not spread amongst all other employers.

Employee leasing companies provide a number of valuable services to their clients. Typically, an employee leasing company will provide payroll services and assist companies in managing their human resources by providing employee manuals and other services, which are sometimes difficult for smaller companies to provide on their own. Better management of workplace safety can help control the cost of worker compensation. Improved hiring practices and experienced representation in unemployment insurance benefit and tax matters can help keep the cost of unemployment compensation down. Because leasing companies represent a number of employers, and therefore a larger pool of workers, the cost of benefits can sometimes be lowered. In some cases, client employers, which could not afford to provide certain benefits such as health insurance, find it affordable to do so when taking advantage of the buying power of an employee leasing company.

In order to maximize the advantages and minimize the risks of employee leasing, Vermont employers are encouraged to only utilize those services provided by a company licensed to do business in Vermont. A list of employee leasing companies licensed to do business in Vermont is maintained by the Vermont Department of Labor.

To become an Employee Leasing firm, you must complete an application and other required forms. Rules and Employer Leasing Licensing Requirements are also available.

Employee Leasing Companies- Final Rule


A. This regulation is issued by the Department of Labor pursuant to the authority vested in the Commissioner of Labor by 21 V.S.A. Section 1032.

B. This regulation applies to any person that transacts business in the state of Vermont as an employee leasing company. The regulation does not apply to temporary help companies as defined in 21 V.S.A. §1031(8) and section 2 below.

C. The purpose of this regulation is to establish rules which govern the licensing and regulated activities of employee leasing companies in the state of Vermont.


As used in this regulation:

"Applicant" means a person applying for a license or for a renewal of a license under this rule. 21 V.S.A. §1031(1).

"Client company" means a person who enters into an agreement with an employee leasing company to lease any or all of its regular employees. 21 V.S.A. §1031(3).

"Commissioner" means the commissioner of Labor or the commissioner's designee, 21 V.S.A. §1031(2), except where otherwise indicated.

"Controlling person" means an individual who is at least 18 years of age and has the authority to direct the management or policies of an employee leasing company or who is employed, appointed or authorized by an employee leasing company to enter into contractual relationships with client companies on the employee leasing company's behalf. 21 V.S.A. §1034.

"Employee leasing agreement" means an agreement, executed between an employee leasing company and a client company, pursuant to which an employee leasing company provides one or more individuals to perform services for a client company on an ongoing basis. 21 V.S.A. §1031(4).

"Employee leasing company" or "leasing company" means a person engaged in the business of providing individuals to perform ongoing services for an indefinite time period for client companies pursuant to one or more employee leasing agreements executed between the leasing company and the client company. "Employee leasing company" does not include labor organizations, or a temporary help company. 21 V.S.A. §1031(5).

"Financial responsibility" means the current and expected future condition of financial solvency sufficient to support a reasonable expectation that an employee leasing company can successfully conduct its business without jeopardizing the interests of the employees leased to the client company, client company or the public. 21 V.S.A. §1031(6).

"Licensee" means an employee leasing company licensed under this rule. 21 V.S.A. §1031(7).

"Temporary help company" means a person who hires its own employees and provides them to another business entity as temporary full or part-time personnel to provide services for a finite period of time in special or unusual situations such as employee absences, temporary skill shortages, seasonal workloads and special work assignments and projects. 21 V.S.A. §1031(8). Determination as to whether a company is an employee leasing company or a temporary help company must necessarily be made on a case by case basis. Factors to be considered include the agreement between the company and the client business, the number of persons provided to the client business(es), the length and type of service provided to the client business, and the employees' understanding as to whether they may be rotated periodically among different client businesses or are assigned to one client business unless fired. Typically a temporary help company hires individuals experienced in various fields who form a standby labor pool, which provides client businesses with temporary help to supplement the client's regular staff or to perform special services. The individual may or may not be available for fulltime work and may reject job assignments for any reason. The client company may not know what the individual is paid or whether the individual receives benefits.


A. No person shall engage in the business of employee leasing in Vermont unless the person is granted a license by the commissioner. 21 V.S.A. §1033.

B. An applicant shall file an application for licensure with the commissioner on a form approved by the commissioner accompanied by a one-time, non-refundable application fee of $100.00 and a licensing fee of $1,000.00. 21 V.S.A. §1033(b).

C. A license under this rule shall expire one year from the date shown on the license. At least 60 days before the expiration date of the license, a licensee shall file a renewal application accompanied by the licensing fee and documentation as required by this section. 21 V.S.A. §1033(c).

D. The applicant shall file the following, on forms, and in a manner, satisfactory to the Commissioner:

1) A list of all the controlling persons of the applicant, their biographical information, and an affidavit from each attesting to his or her good moral character and management competence.

2) Documentation that the applicant maintains a place of business in this state, or has designated an agent of service, domiciled in the state, if there are to be no more than 50 leased employees working in the state, and that the applicant is licensed, if required, in the applicant's state of domicile.

3) Certification that the applicant does not conduct a temporary help business through the same entity as the employee leasing business.

4) An agreement to maintain separate records for each client company; and file reports as required by this rule and law for each of its client companies.

5) An agreement to pay unemployment contributions and workers' compensation premiums based on the experience rating of each client company, provided that, for workers' compensation premiums, the client company has sufficient workers' compensation premium volume to be experience rated, otherwise the workers' compensation premiums shall be paid at the rate approved for an employer that cannot be experience rated, and provided that, for unemployment compensation contributions, the client company has sufficient experience to be experience rated, otherwise contributions shall be paid at the applicable new employer rate.

6) An acknowledgment of the applicant's joint and several liability with its client companies for protections required by or damages due under laws designed to protect the health, safety or welfare of an individual leased to a client company.

7) Evidence of financial responsibility in accordance with this rule.

8) An agreement that the commissioner of Labor may liquidate any securities or bond, provided pursuant to this rule, upon default by the applicant in the payment of wages, benefits, workers' compensation premiums, awards or unemployment compensation contributions, in order to use the funds to pay the same.

9) Such additional information as the commissioner determines is necessary to evaluate the application.

See, 21 V.S.A. §1033(b)(1-8).

E. The applicant shall acquire and maintain an initial surety bond or letter of credit for the benefit of the commissioner in the amount of $100,000. A copy of the executed bond or letter of credit shall be filed with the commissioner at the time of application for a license. For each subsequent year of licensing, the applicant must file and maintain a surety bond or letter of credit to the benefit of the commissioner equal to not less than 5% of the prior year's total Vermont wages, benefits, workers' compensation premiums or awards or unemployment compensation contributions, but not less than $100,000 or such other amount as the commissioner may require. See 21 V.S.A. §1033(b)(7); 21 V.S.A. §1035(a).

1) An employee leasing company shall not require a client company to contribute in any manner to payment of the securities or bond required under this subsection.

2) The commissioner may waive the bonding or security requirement if the applicant demonstrates that it is accredited by a national accrediting entity that has been approved by the commissioner.

3) Notice of cancellation or non renewal of the surety bond or letter of credit shall be provided to the commissioner in writing at least 45 days prior to the cancellation or non renewal.

F. The commissioner may reject an application for license:

1) where the application is not fully completed, properly executed or is otherwise deficient;

2) where any fee required by this section is not submitted;

3) where the applicant has had an employee leasing company license revoked in this or any other state, unless such revocation has been subsequently rescinded or otherwise suspended and the problems remedied to the satisfaction of the commissioner.

4) where the applicant has made a material misrepresentation in the application.

5) Conviction of a felony or any misdemeanor involving moral turpitude.

6) If in the conduct of the applicant's or any controlling person's affairs, the applicant or any controlling person has used fraudulent, coercive, or dishonest practices or shown himself or herself to be incompetent, untrustworthy, or financially irresponsible.

G. The records relating to all employee leasing agreements shall be maintained by the licensee for a period of four years after termination of the employee leasing agreement and shall be available to the commissioner for inspection and copying during normal business hours.

H. A licensed employee leasing company shall within 10 days of initiation or termination of an employee leasing agreement notify in writing the commissioner, the commissioner of the department of employment and training and its workers' compensation insurance carrier of the initiation or termination.

1) The initiation notice, required under this sub-section, shall include an acknowledgment by the client company of its joint and several liability for protection or damages provided under laws designed to protect the health, safety and welfare of an employee, as provided for under section 6 (B).

I. A license issued to any person under this rule may not be transferred or assigned, and a licensee may not operate under any other name other than that specified in the application, without having received the prior written consent of the commissioner.


A. Evidence of financial responsibility under this rule shall include an audited financial statement, prepared in accordance with generally accepted accounting principles, that demonstrates that the applicant has an adjusted net worth of at least $100,000.00 or five percent of the prior year's total Vermont wages, benefits, workers' compensation premiums or awards or unemployment compensation contributions, whichever is greater.

1) The financial statement shall have been prepared within six months of the date of application by an independent certified public accountant licensed in this state. 21 V.S.A. §1035(a).

B. The commissioner may audit a licensee's financial condition if the commissioner determines that the licensee's financial responsibility is in question. The commissioner may contract for the audit and charge the licensee a fee that shall not exceed the actual cost of performing the audit. 21 V.S.A. §1035(b).

C. Financial information submitted to the commissioner by an applicant or licensee shall be confidential and shall not be available for public inspection. Nothing in this section shall be construed to restrict the commissioner from sharing this information with the attorney general, the department of banking, insurance, and securities, the Department of Labor, the Department of Taxes, the Secretary of State or the U.S. Internal Revenue Service.


A licensee shall:

A. Within ten days after licensure under this rule, register with the following:

1) The Department of Labor;

2) The Department of Taxes;

3) The Secretary of State; and

4) The U.S. Internal Revenue Service.

B. Make timely payment of workers' compensation premiums and unemployment compensation contributions on all leased employees based on the experience rating of the client company to which the employees are leased.

C. File all reports as required by this rule, and applicable law.

D. Maintain financial responsibility and management competence.

E. Provide written notification of the employment arrangement to all employees leased pursuant to an employee leasing agreement within ten days after executing the agreement.

F. Keep any surety bond or letter of credit in effect or retain accreditation, whichever was provided pursuant to this rule, during the period the license is valid.

G. Implement an employee grievance system and provide to each leased employee at the time of hiring a manual that outlines the terms and conditions of employment, including the applicable grievance system. The manual should also state that the employee leasing company is subject to licensing regulations, which will be provided to the employee by the Department of Labor and Industry upon request.

H. Enter into a written employee leasing agreement with each client company.

See, 21 V.S.A. §1036.


A. Except as otherwise provided for in this rule or in chapter 12 of Title 21, an employee leasing company licensed under this chapter shall be deemed to be the employer for the payment of wages and other employment benefits due to leased employees pursuant to the employee leasing agreement. 21 V.S.A. §1036(b).

B. An employee leasing company and the client company shall be jointly and severally liable for protection or damages provided under laws designed to protect the health, safety and welfare of an employee. 21 V.S.A. §1039(c).


A. Workers' compensation insurance premiums shall be determined and paid based on the experience rating of the client company for which the leased employee performs services, provided the client company has sufficient workers' compensation premium volume to be experience rated, otherwise the premiums shall be at the rate approved for an employer that cannot be experience rated. 21 V.S.A. §1037(a).

B. The employee leasing company shall maintain separate payroll records and separate records of work-related injuries and illnesses for each client company and for the employee leasing company's nonleased employees.

C. Consistent with the provisions of 21 V.S.A. §687, the client company is responsible for providing workers compensation insurance for the client company's non-leased employees.

D. A workers' compensation insurer shall notify the commissioner and the client company no later than 30 days prior to any failure to renew by the insured, or any request by the insured to terminate, the workers' compensation coverage for the client company's leased employees. 21 V.S.A. §1037(c).

E. Both the employee leasing company and its client company shall be entitled to the exclusivity of remedy provisions of 21 V.S.A. 622 provided that workers' compensation coverage is in effect. 21 V.S.A. §1037(b).


A. For this section, "commissioner" means the commissioner of Labor, or the commissioner's designee, and "department" means the Department of Labor.

B. Unemployment compensation benefits shall be charged against the experience rating record of the applicable client company in accordance with the provisions of 21 V.S.A. §1325.

C. Wage and Contribution reports shall be filed quarterly, and under the seven digit account number assigned by the department, for each client company and contributions shall be paid quarterly on the taxable wages paid by each client company during the preceding calendar quarter at the tax rate assigned by the department to that client company.

D. The commissioner may require an employee leasing company to make weekly contribution payments.

E. The department shall notify both the client company and the employee leasing company of:

1) Benefits charged against the experience rating record of the client company.

2) The contribution rate of the client company based on its status and experience as an employer.

F. An employee leasing company shall register with the department on a form provided by the commissioner and shall file the following with the commissioner:

1) A copy of each employee leasing agreement within ten days after the agreement is executed and notice within ten days after an agreement is terminated.

2) On or before December 31 of each year, or whenever the commissioner shall deem to be reasonably necessary for the proper and efficient administration of the unemployment insurance program, a list of each client company, including the client company's name, address, seven digit state employer account number, as assigned by the department, and federal employer identification number.

G. Each employee leasing firm must, on behalf of each client company, maintain true and accurate records covering each person leased by each client company respecting employment, wages, hours, unemployment and related matters as the commissioner deems reasonably necessary for the effective administration of the unemployment insurance program. Such records shall be available to the commissioner for inspection and copying during normal business hours.


A. An employee leasing company that offers employee benefit and welfare plans shall offer comparable benefits to each client company, but is not required to provide comparable benefits to leased employees of different client companies.

B. An employee leasing company that provides health insurance benefits to its leased employees shall provide those benefits only pursuant to one of the following:

1) An insurance policy issued under chapter 107 of Title 8 by an insurer or entity authorized to do business by the commissioner of banking, insurance, and securities.

2) A plan that has been qualified as a single employer plan under the provisions of the Employment Retirement Income Security Act (ERISA), as amended.


A. For purposes of the collective bargaining process, including the right to organize employee units based upon specific work sites, an employee leasing company shall be bound by law and liable for any violations of a collective bargaining agreement covering any of its leased employees. An employee leasing company shall not reassign leased employees or take any other action for the purpose of interfering with the terms and conditions of any collective bargaining agreement or organizational activity. 21 V.S.A. §1040.

B. Nothing in this rule shall be construed to relieve a client company of its obligations under any applicable law or to reduce or diminish any rights of leased employees to organize or collectively bargain.


A. The commissioner may revoke, suspend, restrict or place on probation the license of any employee leasing company for a violation of any provision of this rule, for unprofessional conduct or for a violation of any law relating to the conduct of the business of employee leasing. Unprofessional conduct includes:

1) Failure to maintain financial responsibility and management competence.

2) Occupational advertising that is intended or tends to deceive the public.

3) Failure to comply with substantial provisions of state or federal law governing the conduct of an employee leasing company.

4) Conviction of a crime related to the conduct of the business of employee leasing by a controlling person of a licensee.

5) Failure to promptly pay all wages, benefits, workers' compensation premiums or awards or unemployment compensation contributions.

B. Before the commissioner shall revoke, suspend, restrict or place on probation the license of any employee leasing company, the licensee shall be entitled to notice and an opportunity to be heard in accordance with 3 V.S.A. Chapter 25.

C. The commissioner may charge the licensee the actual cost of any investigation undertaken at the direction of the commissioner in response to any complaint filed against the licensee.

D. A person may appeal an action taken by the commissioner under this section to the superior court.

E. Any person who conducts the business of employee leasing or holds themselves out as an employee leasing company without being licensed under this chapter shall be fined not more than $15,000.00.

No comments:

Post a Comment