Little more than six months ago, managers at Bruce Industries, a professional cleaning firm in Lanham, figured they could never afford health or dental insurance for their 60 employes.
Rates for comprehensive coverage for such a small work force were prohibitive, management said. Yet their workers earned such salaries -- $10,000 to $14,000 annually -- that management wanted to offer some kind of benefits to supplement their incomes.
What Bruce Industries did was fire its employes. Then, the firm had them simultaneously rehired by EmStaff, a nationally known employe leasing firm that recently opened a branch office in Rockville.
EmStaff added the Bruce Industries employes to its overall payroll of several thousand workers, which qualified them for an array of new benefits under a reduced, group rate. The 60 workers were leased back to the cleaning firm. For a fee that includes the cost of the leasing procedure, EmStaff takes care of bookkeeping, payroll and pension plan options for the entire company as well.
Employe leasing, once an oddity viewed more as a West Coast experiment than serious business, has become an increasingly popular management tool, particularly in areas such as Washington where service industries are booming, and employers are vying for additional benefits to attract and maintain a stable work force.
Started in California in the 1970s, the employe leasing business now numbers about 300 firms operating in 45 states, including Maryland and Virginia. Those familiar with the young industry -- also called human resource leasing and contract staffing -- estimate that about 15 firms operate around the Capitol Beltway.
Today, for eight hours of daily labor, employes at Bruce Industries receive paychecks plus health insurance, eye and dental coverage and a prescription plan. Company officials such as Isaiah Williams, vice president, say Bruce Industries benefits from the relief of paper work and better relations with its employes at an overall cost increase of only 5 percent.
"Yes, it eats into the profits, but to me it's worth it," Williams said. "We're in a tough labor market. These people have to work odd hours, they're on the low end of the pay scale, and it's tough for them to get transportation to these office buildings . . . . If I can provide my employes with a good health maintenance plan, my absenteeism is down, and I can keep these workers longer."
Critics of employe leasing say it is used by companies that do not want to deal with employes directly, that want to prevent unionization or that want to avoid possible legal responsibility through the use of an employer middleman. "In practice, employers who are willing to adopt that kind of management are not likely to value employe involvement," said Rex Hardesty, spokesman for the AFL-CIO.
But a study contracted by the Small Business Administration late last year found that companies who used employe leasing firms rated the services highly and that employes also benefited from the change. According to its survey of 21 businesses, typically small operations, 40 percent of the leased employes for the first time received medical insurance, 44 percent began receiving pension coverage, and all gained dental coverage through employe leasing.
"It's hard to generalize, but, basically, it's a plus," said Jules Lichtenstein, chief of the applied policy branch of the SBA. "We started studying it because we've gotten so many requests from small businesses about it."
When Lelia Simmons, a 53-year-old cleaning employe of Bruce Industries, needed new eyeglasses last year, her bill came to $190. Last week, she ordered another pair. This time, she estimates, she will pay $10 to $30, a dramatic drop that is a result of medical coverage that began in October.
"Last year, I had surgery and had to have Medicaid pay because I didn't have insurance," she said. "I'm not the kind that likes to go to the doctor. But I'm glad I have this now, in case I do have to go."
Futurists who have been tracking changes in the labor force, such as John Naisbitt in his book "Re-Inventing the Corporation," noted "This could open up a fresh, new market with us in small business."
-- Peter Leto
that tax changes in 1982 gave small employers an incentive to try leasing and, at one time, estimated that as many as 10 million employes could be leased by 1995.
However, the Tax Reform Act of 1986 appeared to jeopardize enthusiasm for the concept because of the elimination of a lucrative pension loophole in the 1982 law. But those who are watching the market for employe leasing firms say the reform merely caused a shakedown that drove less-well-managed firms into bankruptcy.
One company that is hoping to cash in on employe leasing is PGO Industries, a temporary personnel firm based in Baltimore. Owner Peter Leto said he plans to attend a conference this week, sponsored by the National Staff Leasing Association, to see whether adding full-time employes to his operation would be a profitable proposition in an area where unemployment hovers around a nearly negligible 3 percent and competition for clerical and service workers is keen.
"I think it's a natural expansion of my current business," Leto said. "We're in the thousands-of-people business, and, in Washington, you have businesses that need workers. This could open up a fresh, new market with us in small business."