Bill Text: HI HB2336 | 2010 | Regular Session | Introduced

Hawaii House Bill 2336 (Prior Session Legislation)

Introduced

Bill Title: Professional Employer Organizations

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2010-01-22 - (H) Referred to LAB/EBM, CPC, FIN, referral sheet 4 [HB2336 Detail]

Download: Hawaii-2010-HB2336-Introduced.html

HOUSE OF REPRESENTATIVES	H.B. NO.	2336
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII

A BILL FOR AN ACT

relating to professional employer organizations.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

professional employer organizations

§ ‑1 Definitions. As used in this chapter, unless the context indicates otherwise:

"Client company" means any person who enters into a professional employer agreement with a professional employer organization.

"Co-employer" means either a professional employer organization or a client company.

"Co-employment relationship" means a relationship which is intended to be an ongoing relationship rather than a temporary or project specific one, wherein the rights, duties, and obligations of an employer that arise out of an employment relationship have been allocated between the client company and the professional employer organization pursuant to a professional employer agreement and this chapter.

"Covered employee" means an individual having a co‑employment relationship with a professional employer organization and a client company who meets all of the following criteria:

(1) The individual has received written notice of co‑employment with the professional employer organization; and

(2) The individual's co-employment relationship is pursuant to a professional employer agreement subject to this chapter. Individuals who are officers, directors, shareholders, partners, and managers of the client company shall be covered employees to the extent that the professional employer organization and the client company have expressly agreed in the professional employer agreement that the individuals shall be covered employees; provided that the individuals meet the criteria of this definition and act as operational managers or perform day-to-day operational services for the client company.

"Department" means the department of labor and industrial relations.

"Director" means the director of labor and industrial relations.

"Owner controlled insurance program" means an insurance policy or package of policies purchased by the developer or owner of a construction project that provides one or more types of insurance coverage for the owner or developer, any contractors or subcontractors who perform work for the owner or developer, and employees of the owner, developer, contractor, or subcontractor.

"Professional employer agreement" means a written contract by and between a client company and a professional employer organization that provides for the following:

(1) The co-employment of covered employees; and

(2) The allocation of employer rights and obligations between the client company and the professional employer organization with respect to the covered employees.

"Professional employer organization":

(1) Means any person engaged in the business of providing professional employer services. A person engaged in the business of providing professional employer services shall be subject to this chapter regardless of whether the person uses such a term or conducts business expressly as a "professional employer organization", "PEO", "staff leasing company", "registered staff leasing company", "employee leasing company", "administrative employer", or any other such name; and

(2) Shall not include any of the following:

(A) Arrangements wherein a person, whose principal business activity is not entering into professional employer arrangements and who does not hold itself out as a professional employer organization, shares employees with a commonly-owned company within the meaning of sections 414(b) and (c) of the Internal Revenue Code of 1986, as amended;

(B) Independent contractor arrangements by which a person assumes responsibility for the product produced or service performed by the person or the person's agents and retains and exercises primary direction and control over the work performed by the individuals whose services are supplied under those arrangements; or

"Professional employer services" means the service of entering into co-employment relationships under this chapter in which all or a majority of the employees providing services to a client company or to a division or work unit of the client company are covered employees.

"Temporary help services" means an arrangement by which a person recruits and hires its own employees and:

(1) Finds other organizations that need the services of those employees;

(2) Assigns those employees to perform work or services for other organizations to support or supplement the other organizations' workforces or to provide assistance in special work situations including but not limited to employee absences, skill shortages, seasonal workloads, or special assignments or projects; and

(3) Customarily attempts to reassign the employees to successive placements with other organizations at the end of each assignment.

§ -2 Duties of the department. (a) The department shall certify that a professional employer organization is in compliance with this chapter if a professional employer organization meets all the requirements of this chapter.

(b) The department shall maintain a list that is readily available to the public by electronic or other means of professional employer organizations certified under this chapter.

(c) The department, to the extent practicable, shall permit the acceptance of electronic filings, including applications, documents, reports, and other filings required under this chapter. Rules permitting electronic filing shall provide for the acceptance of electronic filings and other assurance by a bonded, independent, and qualified assurance organization approved by the director; provided that the assurance organization provides satisfactory assurance of compliance acceptable to the department consistent with the requirements of this chapter and rules adopted pursuant to this chapter. Use of an approved assurance organization by an applicant shall be optional. Nothing in this subsection shall limit or change the department's authority to register or terminate registration of a professional employer organization or to investigate or enforce this chapter.

(d) All records, reports, and other information obtained from a professional employer organization pursuant to this chapter, except to the extent necessary for the proper administration of this chapter by the department, shall be confidential and shall not be published or made available for public inspection; provided that information shall be made available to public employees in the performance of their public duties.

(e) The department, in accordance with chapter 91, shall adopt rules and prescribe forms necessary to promote the efficient administration of this chapter.

§ -3 Certification requirements. (a) No person shall provide, advertise, or otherwise hold oneself out as providing professional employer services in this State, unless the person has been certified as compliant with this chapter by the department pursuant to section -2.

(b) Each applicant for certification under this chapter shall provide the department with the following information:

(1) The name or names under which the professional employer organization conducts business;

(2) The address of the principal place of business of the professional employer organization and the address of each office that the professional employer organization maintains in this State;

(3) The professional employer organization's taxpayer or employer identification number;

(4) A list, organized by jurisdiction, of each name under which the professional employer organization has operated in the preceding five years including any alternative names, names of predecessors and, if known, names of successor business entities;

(5) A statement of ownership, which shall include the name and evidence of the business experience of each person who, individually or acting in concert with any other person or persons, owns or controls, directly or indirectly, twenty-five per cent or more of the equity interests of the professional employer organization;

(6) A statement of management, which shall include the name and evidence of the business experience of any person who serves as president or chief executive officer or who otherwise has the authority to act as a senior executive officer of the professional employer organization;

(7) Proof of valid workers' compensation coverage in compliance with all laws of this State;

(8) Proof of compliance with the Hawaii temporary disability insurance law;

(9) Proof of compliance with the Hawaii prepaid health care act as regards all covered employees of the professional employer organization;

(10) Proof of compliance with the Hawaii employment security law, including payment of any applicable employer liability pursuant to chapter 383; and

(11) A financial statement demonstrating that the financial condition of the professional employer organization is compliant with section -5. At the time of application for or renewal of a license, the applicant shall submit the most recent audit of the applicant, which shall not be older than thirteen months. Thereafter, a professional employer organization or professional employer organization group shall file a succeeding audit within one hundred and eighty days after the last day of each fiscal year of the professional employer organization or professional employer organization group and shall file subsequent audits on an annual basis according to a schedule determined by the department. An applicant may apply for an extension with the department; provided that the request shall be accompanied by a letter from the auditor stating the reasons for the delay and the anticipated audit completion date. A professional employer organization that provides proof to the agency that it operated in the State prior to January 1, 2011, shall have twenty-four months from January 1, 2011, to submit a financial audit as specified in this section.

The financial statement required by this section shall be prepared in accordance with generally accepted accounting principles, shall be audited by an independent certified public accountant licensed to practice in the State, and shall be without qualification as to the going concern status of the professional employer organization. A professional employer organization without sufficient operating history to have audited financial statements based upon at least twelve months of operating history shall present financial statements reviewed by a certified public accountant.

(c) Each professional employer organization operating within this State as of January 1, 2011, shall complete its initial certification not later than one hundred and eighty days after January 1, 2011. The initial registration shall be valid until one hundred and eighty days after the end of the professional employer organization's first fiscal year under registration; provided that the professional employer organization's first fiscal year ends more than one year after January 1, 2010.

Each professional employer organization initiating operations in this State on or after January 1, 2011, shall complete its initial certification prior to commencement of operations within this State.

(d) Within one hundred and eighty days after the end of a professional employer organization's fiscal year, the professional employer organization shall apply for recertification by providing all of the information required by this section to the department. A registrant's existing registration shall remain in effect during the pendency of an application for recertification.

§ -4 Fees. Upon filing an initial registration statement under this chapter, a professional employer organization shall pay to the department an initial registration fee not to exceed $1,500 to cover the administrative costs associated with certification. Upon each annual renewal of a registration statement filed pursuant to this chapter, a professional employer organization shall pay a renewal fee not to exceed $1,500. The fee for electronic filing shall be the same as for paper filing.

§ -5 Financial capability. (a) All professional employer organizations shall maintain positive working capital of no less than $100,000 as defined by generally accepted accounting principles as reflected in the financial statements submitted to the department for annual certification. As an alternative, a professional employer organization may provide to the department a bond, irrevocable letter of credit, or securities with a minimum market value in an amount sufficient to cover the difference between the professional employer organization's actual working capital and the amount required by this section.

(b) A bond provided pursuant to this section shall be held by a depository designated by the department and shall be of sufficient amount to secure the payment by the professional employer organization of all taxes, wages, benefits, or other entitlements with respect to covered employees. A professional employer organization that provides proof to the department that it has been operating in the State prior to January 1, 2011 shall have twenty-four months from January 1, 2011 to comply with this section.

§ -6 Co-employment relationship. In a co-employment relationship:

(1) The professional employer organization is entitled to enforce only those employer rights, and is subject to only those obligations, specifically allocated to the professional employer organization by the professional employer agreement and this chapter;

(2) The client company is entitled to enforce those rights, and is obligated to provide and perform those employer obligations, allocated to the client company by the professional employer agreement and this chapter; and

(3) The client company is entitled to enforce any right and is obligated to perform any obligation of an employer not specifically allocated to the professional employer organization by the professional employer agreement or this chapter.

§ -7 General requirements. (a) Except as otherwise provided in this chapter, the co-employment relationship between the client company and the professional employer organization and between each co-employer and each covered employee shall be governed by the professional employer agreement. Each professional employer agreement shall specify the following:

(1) The professional employer organization shall be responsible to pay wages to covered employees; to withhold, collect, report and remit payroll-related and unemployment taxes; and, to the extent the professional employer organization has assumed responsibility in the professional employer agreement, to make payments for employee benefits for covered employees. As used in this section, the term "wages" does not include any obligation between a client company and a covered employee for payments beyond or in addition to the covered employee's salary, draw, or regular rate of pay, such as bonuses, commissions, severance pay, deferred compensation, profit sharing, vacation leave, sick leave, or other compensation for paid time off, unless the professional employer organization has expressly agreed to assume liability for those payments in the professional employer agreement; and

(2) The professional employer organization shall have a right to hire, discipline, and terminate a covered employee as may be necessary to fulfill the professional employer organization's responsibilities under this chapter and the professional employer agreement. The client company shall have a right to hire, discipline, and terminate a covered employee.

(b) Except to the extent otherwise expressly provided by the applicable professional employer agreement:

(1) A client company shall be solely responsible for the quality, adequacy, or safety of the goods or services produced or sold in the client company's business;

(2) A client company shall be solely responsible for directing, supervising, training, and controlling the work of the covered employees with respect to the business activities of the client company and shall be solely responsible for the acts, errors, or omissions of the covered employees with regard to those activities;

(3) A client company shall not be liable for the acts, errors, or omissions of a professional employer organization or a covered employee when the covered employee is acting under the express direction and control of the professional employer organization;

(4) A professional employer organization shall not be liable for the acts, errors, or omissions of a client company or a covered employee of the client company when the covered employee acts under the express direction and control of the client company;

(5) Nothing in this subsection shall serve to limit any contractual liability or obligation specifically provided in the written professional employer agreement; and

(6) A covered employee is not, solely as the result of being a covered employee of a professional employer organization, an employee of the professional employer organization for purposes of general liability insurance, fidelity bonds, surety bonds, employer's liability exclusive of workers' compensation, or liquor liability insurance carried by the professional employer organization unless the covered employees are included by specific reference in the professional employer agreement and applicable prearranged employment contract, insurance contract, or bond.

(c) A temporary help services company may provide professional employer services provided that the temporary help services company meets the requirements of this chapter.

§ -8 Workers' compensation. (a) A certified professional employer organization shall have the sole responsibility to obtain workers' compensation coverage that complies with applicable laws for covered employees. Workers' compensation coverage for covered employees may be obtained by either one master policy issued to the professional employer organization by a carrier authorized to do business in this State, or by the professional employer organization through a duly authorized self insurance program.

(b) A client company may sponsor coverage for covered employees under its own workers' compensation policy only through a duly authorized self insurance program or through coverage under an owner controlled insurance program.

(c) Upon the termination of a professional employer agreement, a client company's experience rating will be determined as follows:

(1) If the client�s relationship with the professional employer organization is terminated less than sixty months after its inception, the client company shall revert to the experience rating used prior to the relationship; and

(2) If the client company's relationship with the professional employer organization is terminated sixty months or more after its inception, the client company shall assume a new employer experience rating.

(d) The protection of the exclusive remedy provision of the workers' compensation law shall apply to the professional employer organization, the client company, and to all covered employees and other employees of the client irrespective of which co-employer obtains the workers' compensation coverage. Exclusive remedy protection shall extend for both coverage A and coverage B of a workers' compensation policy.

§ -9 Benefit plans. (a) A client company and a professional employer organization shall each be deemed an employer for purposes of sponsoring retirement and welfare benefit plans for covered employees.

(b) If a professional employer organization offers its own covered employees a health benefit plan that is not fully insured by an insurer authorized to conduct the business of insurance in the State of Hawaii, that health benefit plan shall:

(1) Comply with the Hawaii prepaid healthcare act;

(2) Be administered by an administrator licensed under chapter 431;

(3) Hold all plan assets, including participant contributions, in a trust account;

(4) Provide sound reserves for the health benefit plan as determined using generally accepted actuarial standards as set forth in an actuarial opinion filed with the insurance commissioner and prepared and signed by a qualified actuary who is a member in good standing of the American Academy of Actuaries;

(5) Annually submit current audited financial statements to the insurance commissioner;

(6) At the discretion of the insurance commissioner, possess a written commitment, binder, or policy for stop-loss insurance that:

(A) Is issued by an insurer authorized to conduct the business of insurance in Hawaii; and

(B) Meets specific and total coverage requirements established by the insurance commissioner;

(7) Be subject to audit for compliance with the requirements of this section by the insurance division as determined by the insurance commissioner; and

(8) Provide written notice to each covered employee participating in the health benefit plan that the health benefit plan is self-insured or not fully insured and is subject to the federal Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001 et seq.

§ -10 Unemployment compensation insurance. (a) For purposes of unemployment insurance under chapter 383, covered employees of a certified professional employer organization are considered the employees of the professional employer organization which shall be responsible for the payment of contributions, penalties, and interest on wages paid to its covered employees during the term of the applicable professional employer agreement.

(b) Covered employees of a certified professional employer organization shall be eligible to receive unemployment compensation benefits pursuant to chapter 383. All covered employee benefits shall be drawn against the unemployment insurance account of the professional employer organization.

(c) The professional employer organization shall report and pay all required contributions to the unemployment compensation fund using its own state employer account number and contribution rate.

§ -11 Enforcement. (a) It shall be a violation of this chapter to:

(1) Offer or provide professional employer services or use the names "PEO", "professional employer organization", "staff leasing", "employee leasing", "administrative employer", or other title representing professional employer services without first becoming certified pursuant to this chapter; or

(2) Knowingly provide false or fraudulent information to the department in conjunction with any registration, renewal, or report required pursuant to this chapter.

(b) Disciplinary action may be taken by the department against any person for a violation of subsection (a) or for:

(1) Conviction of a crime involving fraud or deceit that relates to the operation of a professional employer organization;

(2) Knowingly making a material misrepresentation to the department or other governmental agency; or

(3) Wilfully violating this chapter or any order or rule of the department pursuant to this chapter.

(c) If the director finds, after notice and an opportunity to be heard, that a professional employer organization or a controlling person of a professional employer organization has violated this chapter, the director shall impose one or more of the following penalties:

(1) Denial of certification;

(2) Revocation, restriction, or refusal to renew certification;

(3) An administrative fine in an amount not to exceed $1,000 for each violation;

(4) Conditions on a certification under this chapter; or

(5) Order the immediate cessation of operations.

§ -12 Conflict with chapter 373K. In case of any conflict between this chapter and chapter 373K, this chapter shall prevail."

SECTION 2. Section 373K-2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Where any client company uses the services of assigned employees and co-employs assigned employees with a professional employment organization, the client company and the professional employment organization, with respect to the assigned employees, shall not be exempt from the requirements of any federal, state, or county law, including labor or employment laws, collective bargaining rights, anti-discrimination provisions, or other laws with respect to the protection and rights of employees, including chapters 377 and 378, that would apply to the assigned employees if the assigned employees were employees of the client company alone, and were not co-employees of the professional employment organization.

These employee rights shall not be abrogated by any contract or agreement between the client company and the professional employment organization, or the professional employment organization and the assigned employee, which contains terms or conditions that could not be lawfully contained in a contract or agreement directly between the client company and the assigned employee in which no professional employment organization is involved. [Notwithstanding any statute, local ordinance, executive order, rule, or regulation to the contrary, where the laws, rights, and protections referred to in this section define or require a determination of the "employer",] For purposes of chapter 237, the employer shall be deemed to be the client company and not the professional employment organization. The department of labor and industrial relations shall notify the department of taxation in writing of any violation of this subsection."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect on January 1, 2011.

INTRODUCED BY:	_____________________________

Report Title:

Professional Employer Organizations

Description:

Requires professional employer organizations to become certified by the department labor and industrial relations. Allocates responsibility for compliance with relevant labor laws between professional employer organizations and client companies. Establishes regulatory requirements.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.