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Leased Employee

Last Updated March 22, 2009


Any person who is not an employee of the recipient and who provides services to the recipient if—

  1. such services are provided pursuant to an agreement between the recipient and any other leasing organization
  2. such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, and
  3. such services are performed under primary direction or control by the recipient.


A recipient is any person for whom a leased employee performs services

Referring Cite

IRC. §414(n)

Additional Helpful Information

Leased Employees

  • Under certain circumstances, a corporation furnishing workers to various professional people and firms is the employer of those workers for employment tax purposes. For example, a professional service corporation may provide the services of secretaries, nurses, and other similarly trained workers to its subscribers.
  • A leased employee is treated as an employee of the recipient with respect to services performed for a recipient unless the following applies
    • such employee is covered by a plan which is maintained by the leasing organization and the plan meets the following requirements

      • the plan is a money purchase pension plan with a nonintegrated employer contribution rate for each participant of at least 10 percent of compensation
      • the  plan provides for full and immediate vesting, and
      • each employee of the leasing organization (other than employees who perform substantially all of their services for the leasing organization) immediately participates in the plan.
    • leased employees do not constitute more than 20 percent of the recipient’s nonhighly compensated work force.
  • An employer who adopts a SEP IRA, may not use the IRS model SEPs if the employer uses the services of leased employees. The employer must instead use a prototype or individually-designed SEP that does not restrict the use of leased employees