AB1056: Bill Text

2005 - 2006 LEGISLATURE

2005 Assembly BILL 1056

February 21, 2006 - Introduced by Representative Loeffelholz. Referred to Committee on Financial Institutions.

AB1056,1,6 An Act to renumber 102.01 (2) (a); to amend 73.0301 (1) (d) 3m., 102.01 (2) (f), 103.005 (10), 108.02 (21e) (a), 108.02 (21e) (d), 108.02 (21e) (f) and 108.02 (21e) (g); and to create 20.445 (1) (j), 21.72 (1) (a) 9., 49.857 (1) (d) 9., 102.01 (2) (ad), 102.01 (2) (an), 102.04 (2p), 102.29 (6m) and 105.117 of the statutes; relating to: registration of professional employer organizations, requiring the exercise of rule-making authority, making an appropriation, and providing a penalty.

Analysis by the Legislative Reference Bureau

current law

Professional employer organizations

Under current law, for purposes of liability for unemployment insurance, a professional employer organization (PEO) is considered to be the employer of the employees whom the PEO engages to perform services for its clients. Current law defines a PEO as any person who contracts to provide the nontemporary, ongoing employee workforce of more than one client under a written leasing contract, the majority of whose clients are not under the same ownership, management, or control as the person other than through the terms of the contract, and who meets all of the following qualifications:

1. The person has the right to hire and terminate the employees who perform services for the client and to reassign the employees to other clients.

2. The person sets the rate of pay of the employees and pays the employees from its own accounts.

3. The person has a general right of direction and control over the employees, which right may be shared with the client to the degree necessary to allow the client to conduct its business, meet any fiduciary responsibility, or comply with any applicable regulatory or statutory requirements.

4. The person assumes responsibility for the unemployment insurance coverage of the employees.

5. The person has the obligation to establish, fund, and administer employee benefit plans for the employees.

6. The person provides notice of the employee leasing arrangement to the employees.

the bill

Registration and regulation of professional employer organizations

Introduction

This bill provides for the registration and regulation of PEOs. Specifically, under the bill:

1. No person may offer or provide professional employer services, advertise that the person is a professional employer organization or that the person provides professional employer services, or otherwise hold itself out as a professional employer organization, unless the person first registers with the Department of Workforce Development (DWD).

2. Subject to certain exceptions, a PEO must maintain a net worth of not less than $100,000 or a bond or other commitment in an amount that is not less than $100,000 to secure the payment of wages and other amounts that are payable by the PEO.

3. A professional employer agreement must allocate between the PEO and the client the rights, duties, and obligations that arise out of an employment relationship, including certain duties and obligations that are specified in the bill.

4. Certain other responsibilities of a PEO and client are specified in the bill, and the bill specifies that certain other rights, duties, and obligations under current law are unaffected by the bill.

Registration

Initial registration. The bill requires a PEO that is operating in this state on the effective date of the bill to register with DWD by no later than 180 days after that date and provides that such an initial registration is valid until 180 days after the end of the first fiscal year of the PEO that ends more than one year after that date. Similarly, the bill requires a PEO that is not engaged in the business of providing professional employer services in this state on that date to register with DWD before engaging in that business and provides that such an initial registration is valid until 180 days after the end of the first fiscal year of the PEO that ends after the date of initial registration.

The bill defines "professional employer services" as the service of entering into coemployment relationships. "Coemployment relationship," in turn, is defined as a relationship between a PEO and a client of the PEO (client), a PEO and an employee of the PEO and of the client (covered employee), and a client and a covered employee under a professional employer agreement that is intended to be an ongoing relationship and not a temporary or project-specific relationship and in which the rights, duties, and obligations of an employer that arise out of an employment relationship are allocated between the PEO and the client as provided in the professional employer agreement and the bill. The bill also defines a "professional employer agreement" as a written contract between a PEO and a client under which the majority of the employees of the client or of the employees in a division or work unit of the client are covered employees, the rights, duties, and obligations of an employer that arise out of an employment relationship are allocated between the PEO and the client, and the PEO and the client assume their respective duties and obligations under the bill.

Under the bill, a person may apply for registration by paying the applicable fee as provided in the bill and filing a registration form that includes all of the following information:

1. The name or names under which the applicant conducts business.

2. The address of the principal place of business of the applicant and of each office that the applicant maintains in this state.

3. The social security number or federal employer identification number of the applicant.

4. A list by jurisdiction of each name under which the applicant has operated in the five years preceding the date of the application, including any alternate names of the applicant, the names of any predecessor business entities of the applicant, and, if known, the names of any successor business entities of the applicant.

5. A statement of ownership, which must include the name and business experience of every person who owns or controls 25 percent or more of the ownership interest of the applicant.

5. A statement of management, which must include the name and business experience of every person who serves as president or chief executive officer of the applicant or who otherwise has the authority to act as the senior executive officer of the applicant.

7. A financial statement that sets forth the financial condition of the applicant as of a date that is not more than 180 days preceding the date of the application, that is prepared in accordance with generally accepted accounting principles, and that has been audited by an independent certified public accountant.

Renewal registration. Under the bill, a PEO that wishes to renew its registration must, by no later than 180 days after the end of the PEO's fiscal year, renew that registration by notifying DWD of any changes in the information specified in the previous registration form, filing an updated financial statement, and paying the renewal fee specified in the bill. A renewal registration is valid for one year after the date of renewal.

Limited registration. The bill permits a PEO that is domiciled outside this state, that is registered or licensed as a PEO in another state that has registration or licensure requirements that are at least as strict as the registration requirements under the bill, that does not maintain an office in this state or directly solicit clients in this state, and that has no more than 50 covered employees employed in this state on any given day to apply for limited registration. A limited registrant is not required to comply with the financial capability requirements under the bill.

Alternative registration. In addition, the bill permits DWD to promulgate rules providing for alternative registration of a PEO on acceptance by DWD of an affidavit or certification provided by a bonded, independent, and qualified assurance organization that has been approved by DWD certifying that the PEO is qualified to engage in the business of providing professional employer services in this state. An alternative registrant also is not required to comply with the financial capability requirements under the bill.

Financial capability

The bill requires a PEO, other than a limited registrant or an alternative registrant, to maintain one of the following:

1. A net worth of not less than $100,000.

2. A bond, certificate of deposit, escrow account, or irrevocable letter of credit in an amount that is not less than $100,000 to secure the payment of wages, salaries, employee benefits, worker's compensation insurance premiums, payroll taxes, unemployment insurance contributions, or other amounts that are payable by the PEO to or with respect to a covered employee if the PEO does not make those payments when due.

Professional employer agreement requirements.

The bill requires a coemployment relationship to be governed by a professional employer agreement that allocates the rights, duties, and obligations of an employer that arise out of an employment relationship as follows:

1. The PEO shall be permitted to exercise and enforce only those rights, and shall be required to perform only those duties and obligations, that are specifically allocated to the PEO under the professional employer agreement or the bill.

2. The client shall be permitted to exercise and enforce all those rights, and shall be required to perform all those duties and obligations, that are specifically allocated to the client under the professional employer agreement or the bill or that are not specifically allocated under the professional employer agreement or the bill and, unless otherwise agreed to in the professional employer agreement, to retain the exclusive right to direct, supervise, and control the activities of the covered employees as necessary to conduct the client's business, to discharge the client's fiduciary duties, or to comply with any licensing requirements that are applicable to the client or a covered employee.

In addition to allocating those rights, duties, and obligations, the bill requires a professional employer agreement to specify all of the following:

1. That the PEO is responsible for paying wages or salary to a covered employee; for withholding, collecting, reporting, and remitting payroll taxes and unemployment insurance contributions on behalf of a covered employee; and, to the extent agreed to in the professional employer agreement, for making payments for employee benefits for a covered employee.

2. Whether the professional employer organization or the client assumes liability for worker's compensation and agrees to obtain a policy of worker's compensation insurance or self-insure as permitted under the worker's compensation law.

3. That the client may hire, discipline, or discharge a covered employee, but that the PEO may also hire, discipline, or discharge a covered employee as necessary to fulfill the professional employer organization's duties and obligations under the professional employer agreement and the bill.

Other responsibilities of PEO and client

The bill also provides that all of the following apply to a coemployment relationship that is created by a professional employer agreement, unless specifically provided otherwise in the agreement:

1. The client is solely responsible for the quality, adequacy, and safety of the goods or services produced, provided, or sold in the course of the client's business.

2. The client is solely responsible for directing, supervising, and controlling the activities of the covered employees with respect to the client's business, for training the covered employees involved in that business, and for the acts, errors, or omissions of the covered employees in the performance of those activities.

3. The client is not liable for the acts, errors, or omissions of the PEO or of a covered employee when the covered employee is acting under the express direction, supervision, and control of the PEO.

4. The PEO is not liable for the acts, errors, or omissions of a client or of a covered employee when the covered employee is acting under the express direction, supervision, and control of the client.

5. For purposes of coverage under any policy of general liability insurance or employer's liability insurance, other than worker's compensation insurance, carried by the PEO or under a fidelity or surety bond posted by the PEO, a covered employee is not, solely by reason of being a covered employee, considered to be an employee of the PEO, unless the covered employee is specified as an employee of the PEO for those purposes in the professional employer agreement and in any applicable prearranged employment contract, insurance policy, or bond.

Rights, duties, and obligations unaffected

The bill provides that nothing in the bill or in a professional employer agreement may be construed to do any of the following:

1. Affect or impair any collective bargaining agreement or any right, duty, or obligation of any covered employee, representative of a covered employee, client, or PEO under any state or federal labor law.

2. Diminish, affect, or impair any rights of a covered employee as to a client or any duties or obligations of a client as to a covered employee that existed before the effective date of the professional employer agreement.

3. Affect or impair any contractual relationship or restrictive covenant between a covered employee and a client, whether existing prior to the effective date of the professional employer agreement or entered into after that date.

4. Affect or impair any federal, state, or local licensing, registration, or certification requirement that is applicable to a client or covered employee (licensing requirement). Under the bill: a) a covered employee who is subject to a licensing requirement is considered to be an employee solely of the client for purposes of engaging in any trade, occupation, profession, or other activity that is subject to the licensing requirement; b) a PEO is not considered to be engaging in any trade, occupation, profession, or other activity that is subject to the licensing requirement solely because the PEO has entered into and maintains a coemployment relationship with the covered employee; and c) a client has the sole right to direct, supervise, and control the activities of the covered employee, and the business of the client, that are subject to the licensing requirement.

In addition, the bill provides that, for purposes of taxation, tax credits, and other economic development incentives, all of the following apply:

1. A covered employee whose services are subject to sales or use taxes is considered to be an employee of the client for purposes of liability for payment of sales or use taxes on those services.

2. The liability of a PEO for any tax on professional employer services that is based on gross receipts is limited to a tax on the administrative fee charge by the professional employer organization, which does not include any amount charged to a client by a PEO for wages, salaries, employee benefits, worker's compensation coverage, payroll tax withholdings, unemployment insurance contributions, or other assessments paid to or on behalf of a covered employee by the PEO.

3. The liability of a client for any tax that is based on the payroll of an employer is limited to the amount of that tax that is based on the compensation of a covered employee and the liability of a PEO for such a tax is limited to the amount of that tax that is based on the compensation of an employee who is not a covered employee.

4. The client is entitled to the benefit of tax credits, economic development incentives provided by the state that are based on providing employment, or other benefits that arise out of the employment of a covered employee.

Finally, the bill provides that, for purposes of contracting with, or obtaining a grant or loan from, the state or a local governmental unit, a client's status or certification as a minority business, minority financial adviser, minority investment firm, women's business, small business, native American or Indian business, veteran-owned business, or disadvantaged business is not affected because the client has entered into a professional employer agreement.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB1056, s. 1 Section 1. 20.445 (1) (j) of the statutes is created to read:

AB1056,6,3 20.445 (1) (j) Professional employer organizations. All moneys received under s. 105.117 (2) (h) for the administration and enforcement of s. 105.117.

AB1056, s. 2 Section 2. 21.72 (1) (a) 9. of the statutes is created to read:

AB1056,7,2 21.72 (1) (a) 9. A registration issued under s. 105.117 (2).

AB1056, s. 3 Section 3. 49.857 (1) (d) 9. of the statutes is created to read:

AB1056,7,4 49.857 (1) (d) 9. A registration issued under s. 105.117 (2).

AB1056, s. 4 Section 4. 73.0301 (1) (d) 3m. of the statutes is amended to read:

AB1056,7,8 73.0301 (1) (d) 3m. A license or, certificate, or registration issued by the department of workforce development under s. 102.17 (1) (c), 103.275 (2) (b), 103.91 (1), 103.92 (3), 104.07 (1) or (2) or 105.13 (1), 105.05, or 105.117 (2).

AB1056, s. 5 Section 5. 102.01 (2) (a) of the statutes is renumbered 102.01 (2) (af).

AB1056, s. 6 Section 6. 102.01 (2) (ad) of the statutes is created to read:

AB1056,7,12 102.01 (2) (ad) "Coemployer" means a professional employer organization, as defined in s. 105.117 (1) (j), or a client, as defined in s. 105.117 (1) (c).

AB1056, s. 7 Section 7. 102.01 (2) (an) of the statutes is created to read: