An employer in the US has certain obligations to its employees and certain obligations to the government. For example when an employer pays its employees, it must take certain deductions from the employees’ paycheck and forward it to the state and federal government. Additionally, the employer has to pay certain state and federal payroll taxes. At year end, the employer has to issue W2s to all its employees and further comply with court orders regarding such matters as wage garnishments.
The employer may also have to obtain a workers’ compensation policy so that if an employee is injured on the job, the employee would be covered by this policy.
The employer has to comply with a plethora of state and federal laws such as American with Disabilities Act, Family Medical Leave Act, WARN Act and many more.
In the past 20 to 50 years, there has developed an industry, the Employee Leasing industry, sometimes referred to as Professional Employer Organization (PEO), that does all these for companies.
In an employee leasing relationship, the employee leasing company, by agreement, takes over the responsibilities of the employer. This relieves the employer of the headaches of dealing with employees, which are non-productive and allow the employer to concentrate on the core of its business; what makes it money.
Therefore, in an employee leasing relationship, the employer no longer pays the wages of its employees. The employer pays such wages to the employee leasing company which in turn issues a check to the employees.