Leasing Employees Can Make Sense for Workers and Owners

Last July 1, all 70 employees at Win-Tex Products Inc. in Dallas resigned and started working for another company. But instead of being a blow to Win-Tex, it was the best thing that ever happened to the small manufacturing firm, according to its chief financial officer, Dwayne Lovell.

The employees went to work for American Workforce, which leased them back to Win-Tex. After the move, nothing really changed except that their benefit package was dramatically improved.

“We had our insurance agent try to put together a similar package and he couldn’t even touch it,” said Lovell, who had previous experience as a leased employee for another firm.

“I like the additional benefits, and since I’m chief financial officer it makes life easier because I don’t have to deal with the government agencies.”

Employee leasing emerged in the early 1970s and gained popularity after changes in the 1982 tax laws created potential tax savings for companies that lease workers. The 1986 tax reforms eliminated most of the tax savings, but the industry has flourished.

Today, there are about 500 leasing companies across the country, an increase from the 390 in business just two years ago, according to industry leaders. Although no one has exact figures, company owners say the total number of leased employees may exceed 300,000.

Long-Term Workers

Leasing seems to be an attractive option for small-business owners who are bogged down with government paper work and tired of hassling with payroll, insurance benefits and pension plans. “Employee leasing gets rid of the headaches,” said Carmen Arno, a former consultant who now serves as president of American Workforce, a Dallas leasing company. “The No. 1 reason for leasing is so a company can offer benefits that it would otherwise not be able to afford.”

Unlike temporary workers who change jobs frequently and usually receive no benefits, leased employees are long-term workers who receive a full range of benefits, including, in many cases, a pension plan.

The benefits are more affordable because the leasing companies are covering hundreds or thousands of workers at a substantial discount. Since the leasing company is the legal employer, it not only provides benefits but interviews and hires workers, keeps track of vacation and sick days, issues payroll checks and fills out all the government forms.

The leasing company can help workers laid off by one client find new jobs working for another client in the system.

Leasing company officials also promote the economic advantages for small-business owners. For example, Arno’s company charges a client $1,250 a month to provide all the benefits and pay the payroll taxes for an employee earning $1,000 a month.

Private companies are not the only ones turning to employee leasing.

“The government has been using leased employees since the early 1960s,” said Maria Schoonover, a subcontract administrator at the Lawrence Livermore National Laboratory in Livermore, Calif. Schoonover is also a graduate student conducting a nationwide survey of employee leasing for her master’s degree.

She said about 2,000 of Livermore’s 8,000 employees are leased. And she is preparing bid proposals to lease another 1,500 workers.

The reliance on leased labor increased several years ago when Congress imposed a hiring freeze on the national labs. (Livermore is owned by the Department of Energy, but managed by the University of California.)

‘Allows Flexibility’

Instead of hiring full-time government workers, Livermore leases all types of employees and pays for them out of operating expenses.

“Leasing allows us the flexibility to carry on,” said Schoonover.

The leased workers range from clerks and computer programmers to highly trained optical engineers who work on the lab’s sophisticated laser projects.

Leased labor is especially popular in the health-care field, where thousands of nurses, doctors and medical technicians work for leasing companies.

Gordon Brown, president of the National Staff Leasing Assn., said leasing is becoming more attractive to companies that can’t keep up with all of the government’s rules and regulations. Brown is also president of Your Staff, a Woodland Hills leasing company that has about 2,500 employees, mostly working in the health-care field.

“The biggest sales person for employee leasing is the government,” said Brown. “In the last two years my company has seen 100% growth.”

Marvin Selter, founder and chairman of National Staff Network in Van Nuys, agrees that “the small- and medium-sized businessman is caught in a terrible, terrible squeeze” between trying to run a business and trying to meet all the government’s requirements.

Considered a pioneer in the employee leasing industry, Selter said clients who lease their employees from him sign only two checks a month to cover the payroll and his company’s services.

Selter was working as a business consultant in the early 1970s when a client asked for help in setting up a pension plan.

“I flippantly said, ‘Put your employees on my payroll,’ and then went to an attorney to see if it could be done,” said Selter.

Today, Selter said, he owns the nation’s largest employee leasing company with branches in about 25 cities and employees in 32 states. He declined to say exactly how many employees he has, but recent news articles quote the number as 31,000.

All employee leasing companies stress their commitment to keeping employees happy. While employees may be a bit nervous when their employer asks them to resign and be rehired by a leasing company, the general feeling is that most are pleased to be offered a better benefit package.

Chance to Comment on Franchise Rules

The Federal Trade Commission has reopened the public comment period on proposed regulations for companies selling franchises. At issue is whether the federal government should preempt state laws regulating the sale and operation of franchises. In July, the International Franchise Assn., a Washington-based trade group, asked the FTC for more time to comment on an alternative set of regulations proposed by the North American Securities Administrators Assn. The public comment period will extend until mid-November, according to an FTC letter released this week.

Session on Minority Enterprises Planned

President Bush has declared Oct. 1-7 “Minority Enterprise Development Week” to honor the nation’s 600,000 minority-owned businesses.

Sergio Arredondo, president of United Steel Fence Co., will be honored as the Western region’s minority small-business person of the year. To celebrate Minority Enterprise Development Week, the U.S. Small Business Administration, the Los Angeles Business Journal, the Pacific Bell Directory and the accounting firm of Alpert & King are sponsoring a conference and awards ceremony Oct. 5. The session is scheduled from 8:30 a.m. to 1:30 p.m. at the Hyatt Wilshire Hotel, 3515 Wilshire Blvd., Los Angeles. The cost, including lunch, is $35. For information and reservations, call Marie Teeple at the SBA, (213) 894-7900.

Guide to Paper Work Problems Published

“How to Avoid the Hidden Costs of Doing Business in California,” is a useful guide for small-business owners overwhelmed by the paper work associated with running a company. Gordon Oliver, an accountant and attorney, has put together a comprehensive collection of information, including examples of government forms, in a handy loose-leaf binder.

The book is available by mail from El Dorado Press, P.O. Box 1755, Lafayette, Calif. 94549. It costs $48, plus $2 for shipping.

THE RIGHT LEASING FIRM Experts suggest shopping around for an employee leasing company by asking these questions:

How long has the leasing company been in business?

Will the leasing company provide bank references to verify its financial stability?

Are the employee benefits offered by major, “name-brand” insurance companies?

How long does it take for the leasing company’s insurance carrier to pay off claims?

Will the fringe benefits be tailored to meet your company’s needs?

Will the company provide a list of references for you to check?

Do you have to sign a long-term contract? Can you cancel the contract on 30 days’ notice?

Does the leasing company furnish quarterly statements showing that payroll taxes, pension fund contributions and insurance premiums have been paid?