Employee leasing: what a leased employee is

By the HRPricing editorial teamReviewed October 18, 2026How we research and score

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Employee leasing is an arrangement in which a leasing company puts workers on its payroll and supplies them to your business, which directs their daily work; most firms that do this now call themselves PEOs. In the tax code, a leased employee is a person supplied under such an agreement who has worked for you substantially full time for at least one year under your primary direction or control (26 USC 414(n), checked October 18, 2026).

A leased employee is a worker on another company's payroll who serves your business substantially full time, under your direction, under a leasing agreement.

See Justworks pricing on Justworks’s site
On this page
  1. Two meanings of employee leasing
  2. Example: the 414(n) rule in a 401(k)
  3. What employee leasing costs
  4. Employee leasing vs PEO vs staffing agency

Two meanings of employee leasing

The tax meaning. Section 414(n) makes you count long-term leased workers as your own employees for retirement plan rules, so a business cannot leave its staff out of a 401(k) by leasing them.

The state law meaning. Several states regulate the companies. Florida bars anyone from operating as an "employee leasing company" without a license (Fla. Stat. 468.531). Illinois requires registration under its Employee Leasing Company Act, and Colorado requires an annual employee leasing company report. In practice these laws cover what the market calls a staff leasing firm or a PEO.

Example: the 414(n) rule in a 401(k)

Say you have 20 employees in your 401(k) and 4 people supplied full time by a leasing firm for over a year, working under your supervisors. For the plan's coverage and nondiscrimination tests, you count 24 people, not 20. You can avoid that only through a safe harbor: the leasing firm covers the 4 in its own money purchase plan with at least a 10% employer contribution, immediate participation and full vesting, and leased workers make up no more than 20% of your non-highly compensated work force. On a $45,000 leased worker, that 10% is $4,500 a year. See 401(k) options for small businesses.

What employee leasing costs

Published PEO (employee leasing) fees, before insurance premiums
ProviderFee per employee per month10 employees per year
Justworks PEO Basic$79$9,480
Remote US PEOfrom $99from $11,880
Justworks PEO Plus$124$14,880
Deel US PEO$125$15,000

Sources: Justworks, Remote and Deel pricing pages, checked Oct 16, 2026. Health premiums and workers' comp are extra. TriNet, Insperity and ADP TotalSource quote only.

The third-party range for quote-only PEOs is $40 to $160 per employee per month, or 2% to 12% of payroll (Fit Small Business, updated October 15, 2026, not vendor prices). Full breakdowns are in what a PEO costs and our PEO rankings.

Employee leasing vs PEO vs staffing agency

A modern PEO is co-employment: you hire, fire and manage, and the PEO runs payroll, taxes and benefits under its plans. A temp agency recruits the worker and places them for a set period. For staff abroad, an employer of record takes the employer role in the other country. The certified version of a PEO is explained in certified PEO.

Frequently asked questions

What is a leased employee?
Under 26 USC 414(n), a leased employee is someone who is not your employee, serves you under an agreement with a leasing organization, has done so substantially full time for at least one year, and works under your primary direction or control.
Are leased employees employees of the company that uses them?
On payroll, no: the leasing company or PEO pays them and files the taxes. For retirement plan tests, yes: 414(n) counts long-term leased workers as yours unless the leasing firm's plan meets the 10% safe harbor.
What is an employee leasing agency?
It is a company that employs workers on paper and supplies them to client businesses. Florida licenses them as employee leasing companies under Fla. Stat. 468.531, and most now market themselves as PEOs.
Is employee leasing the same as a PEO?
Mostly. State laws often use "employee leasing company" for what the market calls a PEO. A PEO usually covers your existing staff in a co-employment deal, at published prices of $79 to $125 per employee per month (Justworks, Remote, Deel, checked October 2026).
Sources (7)
  1. Cornell LII (U.S. Code text): 26 USC 414(n), leased employees (checked Oct 18, 2026)
  2. Florida Legislature: Florida Statutes 468.531 (checked Oct 16, 2026)
  3. Illinois Department of Insurance: Licenses and certifications (Employee Leasing Company Act) (checked Oct 16, 2026)
  4. Justworks: Pricing (checked Oct 16, 2026)
  5. Deel: Pricing (checked Oct 16, 2026)
  6. Remote: Pricing (checked Oct 16, 2026)
  7. Fit Small Business: Best PEO companies (industry fee range) (checked Oct 16, 2026)

This page is general information, not tax, legal or accounting advice. Rules and rates change, so check the official source linked above before you file or sign a contract. Read our disclaimer.