If you’ve been researching outsourced HR help, you’ve likely come across the terms PEO and employee leasing. At first glance, they may appear to be interchangeable, but they reflect two distinct approaches to workforce management. Understanding the distinction is critical prior to making a decision.
The confusion is widespread and expensive. Many business owners believe that PEO and employee leasing are merely alternative names for the very same service, while others fear that both represent surrendering control of employees. The reality is, both can assist in resolving HR and compliance issues, yet they establish tremendously different legal and financial relationships.
This post will explain the distinctions between PEO and employee leasing in clear words. You’ll explore the advantages and disadvantages of each, learn how they affect your organization, and gain practical insights into which choice may be the best fit for your growth plans.
Employee leasing (also referred to as leased employees or leased staffing) is when a third-party company supplies employees to you on a project or temporary basis. The leased employees are technically employees of the leasing company during their time spent at your facility. You manage day-to-day operations; the leasing company administers payroll, taxes, and frequently benefits to those rented individuals.
The employee leasing market has grown in leaps and bounds over the last few decades. Between 1992 and 2017, employment by employee leasing companies grew 682% to a whopping 2.7 million workers from 341,884 workers. That is approximately seven times the workers in 25 years alone.
A PEO becomes a co-employment partner with your firm. Your employees are “co-employed”: you maintain control over hiring, firing, and day-to-day supervision, and the PEO processes payroll, administers benefits, pays workers’ comp, manages HR compliance, and makes employer tax payments. The PEO doesn’t “supply” employees — you hire your employees; the PEO manages many employer tasks on behalf of the workforce you already have.
PEOs serve 173,000 small and medium-sized businesses that employ 4 million individuals as of 2021. Their worksite employees received $216 billion from these businesses in 2020. For perspective, the total number of workers represented by the PEO industry is equivalent to the aggregate workforce of Walmart, Amazon, Kroger, and Home Depot in the United States.
Select employee leasing if you require laborers for particular, finite jobs. Builders lease skilled laborers for certain tasks. Merchants lease extra help during the holidays. Manufacturers lease employees to fill in for injured workers.
Employee leasing is effective when you require skills that are not available in your local market or when it is not cost-effective to train permanent employees. If you require someone who speaks Mandarin for a three-month project, leasing is better than permanent hiring.
Companies with high-seasonal fluctuations find employee leasing particularly useful since they are able to vary their number of workers without the hassles of hiring and discharging permanent staff.
PEO services are helpful for companies with 10 to 100 employees requiring constant HR services. If you’re wasting a lot of time processing payroll, administering benefits, or dealing with compliance matters, a PEO can release that time for business growth.
Small businesses, in particular, profit from PEOs due to the fact that they access enterprise-level benefits at group rates. Big companies can negotiate affordable health insurance premiums since they possess thousands of workers. PEOs bring together employees from several small companies to attain the same level of negotiating leverage.
Studies have proven that firms employing PEOs increase their growth by 7% to 9% compared to those that manage HR internally. Employee turnover rates are also reduced by 10% to 14%. The integration of improved benefits and expert management ultimately attracts and retains top talent.
Connecticut’s job market in 2025 poses specific challenges that influence the PEO vs employee leasing choice. The state unemployment rate is under 4%, providing a very competitive employment landscape in which benefits and professional management are more important than ever.
Connecticut employers spend an average of 10 to 15 hours a month simply keeping up with state and federal employment law updates, according to business reports. The state’s paid family leave policy, increases in the minimum wage, and changing workplace safety requirements make compliance a heavy lift that many small employers can’t handle on their own.
Local businesses utilizing PEOs indicate dramatic benefits in hiring staff from the larger Hartford and New Haven metropolitan regions. They can provide benefit packages similar to big companies while retaining the close culture that renders small companies desirable employers.
Modern employee leasing firms offer advanced matching software and mobile apps for administering temporary employees. Their technology, though, is geared towards placement and scheduling and not advanced HR administration.
PEOs provide unified HR tech platforms that incorporate payroll, benefits administration, time management, performance management, and compliance reporting. The systems offer real-time access to employee information and minimize administrative work for business owners.
Technology differentiation becomes essential as companies expand. Leasing technology manages single placements effectively, whereas PEO platforms scale up to manage entire workforces with expanding companies.
Whether you opt for employee leasing or a PEO, having providers familiar with Connecticut’s business climate provides real benefits. Local knowledge translates into knowing state-specific laws, being familiar with the local labor market, and giving customized service.
OEM America has been assisting Connecticut companies with these decisions for more than 25 years. Being a locally-based PEO, they are knowledgeable of the unique issues companies in the state face. Their tailored approach guarantees that you receive solutions for your business, not packages.
Leasing employees is ideal if you have a temporary need to bridge gaps, while a PEO offers ongoing HR expertise, compliance handling, and access to market-competitive benefits for your current workforce. Both can address significant issues, but they address very distinct issues.
Before you sign a contract or compare quotes, it’s worth having an experienced pair of eyes on the fine print. OEM America has assisted hundreds of Connecticut businesses in reviewing contracts, identifying hidden expenses, and finding the appropriate fit for their growth strategy. We’ll identify the clauses to negotiate and lead you toward a wiser choice.
Ready to save on costs, minimize risk, and get your time back? Schedule a consultation with an OEM America expert today. We’ll give you up to 4 hours of complimentary support, a custom study that could save you $1,000 per employee, and an easy-to-follow plan to help your company grow with confidence. Contact us at 860.528.5555 or complete our contact form to begin.
Q: What is employee leasing?
A: Employee leasing is an arrangement whereby a third-party company employs workers and leases them to your facility for a fixed timeframe. The leasing company remains the employer-of-record for taxes and payroll.
Q: What is a PEO relationship?
A: A PEO arrangement is a co-employment agreement. You have control over the day-to-day operations of employees; the PEO handles payroll, benefits, workers’ comp, and HR administration under a client services agreement.
Q: How does employee leasing differ from PEO?
A: Employee leasing provides temporary employees who remain on the leasing company’s payroll. A PEO works with you to handle HR for your core employees, sharing employers’ responsibilities but not providing staff.
Q: Can I use a PEO for seasonal hiring?
A: PEOs are best for sustained HR support. For seasonal fluctuations, most businesses utilize staffing or leasing companies for temporary workers while retaining a PEO for core employees.
Q: Which costs more: PEO vs employee leasing?
A: Employee leasing is generally more expensive per hour because of markups, but less expensive in the long term. PEOs charge 2-12% of payroll for full-service HR. Employee leasing is more suitable for short-term requirements; PEOs offer more value for long-term workforce management.
Q: What is the PEO employee leasing company structure?
A: Some companies function as both PEOs and employee leasing companies, providing both co-employment services to existing workforces and the placement of temporary workers. The hybrid providers can address various business requirements through a single relationship.