Employee Lending Agreements


The term employee lending refers to an agreement whereby the employee's current employer temporarily lends their employee to another company.  Employee lending agreements will include the timeline over which the employee is lent as well as the employee's salary and benefits.


When workload is cyclical or seasonal, companies may find themselves in an "overstaffed" position.  To avoid a surplus of employees, companies can staff for their baseline workload and hire temporary or seasonal employees when cyclical peaks occur.  Re-staffing can be costly, since these new employees may need training in the company's processes, and will work inefficiently until they improve their skills and competency.

Employee lending agreements allow companies to lower their costs during these cyclical downturns, while at the same time providing them access to skilled employees.  In these arrangements, employees will continue to be paid by their primary employer (lender), and the temporary employer reimburses the primary employer for their employees' salaries plus a portion of their benefits programs.

The practice of lending employees involves several significant risks.  Employees may not agree to work for the temporary employer for a number of reasons.  Employers also run the risk the temporary employer may offer their most talented (and valuable) employees a permanent position when the agreement terminates.  This risk must be balanced with the alternatives available to management; especially if one of the options is to layoff (terminate) surplus employees.

Related Terms

compressed workweek, sabbatical, dislocated worker, exit incentives, severance pay, workforce reduction