Chapter 2

Literature Review

This chapter provides background on the rise and growth of the employee leasing industry as well as early responses to the increased presence of the industry within the contingent worker segment of the labor force.

2.1Historical Origins of Employee Leasing

Employee leasing had its origins in the differential pension treatment of different classes of employees, in which one group of employees (generally officers) had a more generous pension program than other employees. Because the higher pretax contribution to the pension fund represents tax avoidance, the Internal Revenue Service (IRS) generally requires that all " employees" be eligible for the same pension plan. If, however, one group of workers could be considered employees of the firm and another group employees of the leasing company, this could accomplish the same end.

2.2Reasons for Continued Growth of the Employee Leasing Industry

Since TRA, industry growth has been fueled by increases in employee benefit costs, particularly health insurance and workers' compensation premiums, both of which represent a larger share of the nonwage labor cost than UI. Thus, it should be kept in mind that the impetus for employee leasing may lie elsewhere, but the UI system is being affected as a result of these changes in labor market organization.

2.3Public and Private Responses to Industry Growth

1 Howard Potter. "Getting a New Lease," Management Review." April 1989, p. 30.

2 IRC§ 414 (n)(5).

3 James R. Redeker and James O. Castagnera. "The Legal Nightmares of Employee Leasing." Personnel Journal. February 1985, pp. 58-62.>

4 Thomas A. Ulrich and Charles J. Hollon. Business; October to December 1988, p.44.

5 Kenneth Traynor and James G. Pesek. "Implications of Employee Leasing for Small Business," Journal of Small Business Management: October 1987, p. 10.

6 Nonhighly compensated employee is defined

7 Richard S. Belous. The Contingent Economy: The Growth of the Temporary, Part-time and Subcontracted Workforce.National Planning Association, Washington, D.C. 1989.

8 U.S. Congress. Senate. Committee on Labor and Human Resources. Subcommittee on Labor. Hearing on Toward a Disposable Workforce: The Increasing Use of "Contingent Labor." 103d Cong.,1st sess.,1993.S.Hrg.103-620.

9 U.S. Bureau of Labor Statistics. Contingent and Alternative Employment Arrangements, Report No. 900, USDL 95-318, August 1995, Table 1.

10 Ibid., Table 5.

11 It is more accurate to state that most leasing firms are classified in this four-digit industry. When 1972 SICs were first assigned in the early 1970s, there were no leasing firms. When leasing came into existence, the firms were encouraged to report in SIC 7369, but many may have reported in SIC 7362 along with Temporary Help agencies.