Growing businesses turn to employee leasing.

Many small and medium-sized businesses have begun "leasing" their employees through Professional Employer Organizations (PEOs), a strategy that benefits both employers and employees.

Part of a sea change underway in employee management, PEOs provide an integrated, cost-effective approach to the management and administration of human resources. Functioning almost like a subcontractor of professional business services, PEOs take on the employer risk for their business clients, and they maintain an employer relationship with the professional workers assigned to work for their clients. The PEO allows a company to transfer all its human resource responsibilities, including insurance and benefits, to an outside service provider. The result is usually a reduction of costs, the elimination of red tape and the improvement of employee benefits.

Although large businesses use PEOs, the average client is a small business with 5-25 employees at the worksite. PEOs are used by every type of business--accountants, nonprofits, attorneys, doctors, retailers, zoo keepers and more. In fact, an estimated 2-3 million Americans are already co-employed by PEOs, and this is growing at a rate of 20-30 percent per year. From a legal point of view, the PEO is a company that establishes a contractual relationship with business clients to provide payroll, benefits and human resource services. The PEG establishes and maintains a dual employment relationship with the business client and its employees--a relationship intended to be long term and not temporary. The PEG and business client have mutually agreed-upon responsibilities so that while the business client retains the day-to-day control of the employee, the PEN provides:

* human resource expertise and service;

* pays wage and employment taxes out of its own accounts; and

* reports, collects and deposits employment taxes with state and federal authorities.

In this way, the business client can focus more on its core business and less on the increasingly burdensome demands of human resource management.

The PEN industry evolved from the need to divide the "business of business" into manageable parts and also to achieve economies of scale. These days, not many small or medium-sized businesses can afford to hire a full-time accountant, a human resource professional, a lawyer, a risk manager, a benefits manager and a manager of information services. PEOs offer this comprehensive expertise to their clients, freeing them from the "business of employment."

Businesses receive the professional services they need to help them build their business. Employees receive the benefits their employers might not otherwise be able to offer or afford. Professional help is needed to manage a business. As an example, aver the last two decades, employment-related laws and regulations have multiplied at the federal, state and local level The expertise required to understand and integrate these laws into a small or mid-sized business has outgrown the experience and training of many entrepreneurs. PEOs can offer worksite employees health insurance, retirement savings plans, disability insurance, life insurance, dependent care reimbursement accounts, vision care, dental insurance, employee assistance plans, job counseling and educational benefits. For a small business, establishing and administering this range of plans and benefits would he prohibitive. Economies of scale often allow PEOs to sponsor and offer these plans at an affordable cost, which helps business clients find and utilize the expertise they need.

PEOs can enhance the profitability of their client companies in several ways. One is that the PEO structure reduces employee turnover and helps attract better employees because the PEO usually provides a inure competitive benefits package. The costs related to monitoring and complying with employment laws are reduced. A PEO can manage workers' compensation and unemployment insurance claims and reduce accounting costs for the business. The PEO can also help the business comply with the technicalities and record-keeping obligations of payroll. Additionally, PEOs allow a business owner to concentrate on what they do best.

The advantages are not limited to the company only. All workers would like to enjoy financial security, quality health insurance, a safe working environment and opportunities to build up retirement savings. Many PEOs provide Fortune 500 quality employee benefits including health insurance and 401(k) savings plans, in addition to aggressive workplace risk management. For the employee, a PEO can offer a more comprehensive package of benefits than may not otherwise be available through a small or medium-sized business. For new employees, a PEO offers professional orientation, an employee handbook and professional assistance for employment-related problems. Employees receive up-to-date information on labor regulations, workers' rights and worksite safety through the PEO. In many cases, employees of small businesses are not protected by employment laws unless there is a PEO relationship. Because worksite employees are included in the larger workforce of a PEO, they are often covered by employment laws that would not otherwise apply. Further, there is generally a higher rate of compliance with these laws by PEOs because they provide full-time staff who are responsible for monitoring and ensuring compliance with such laws. The PEOs economy of scale permits a business to lower employment costs, so employee job security improves. Job satisfaction and productivity increase when workers are provided the kind of human resource services they might find with a large corporation. Payroll is on-time and accurate, which is not always the case with some small businesses. Even governments appreciate the PEO concept, since it simplifies tax reporting by consolidating several small companies' employment tax filings into one more professional preparation and accelerates the collection of taxes.

The PEO industry will continue growing because business owners want solutions to the increasingly complex "business of employment."

Jeffrey Ong-Siong is a member of RBZ, LLP, a certified public accounting and strategic business consulting firm. He can be reached at [e-mail].

Mashi Rahmani is president of MMC, Inc., a Los Angeles-based PEO founded in 1983.