AB760: Bill Text

LRB-3598/1

GMM:lxk&kf:rs

2007 - 2008 LEGISLATURE

2007 Assembly BILL 760

February 4, 2008 - Introduced by Representatives Newcomer, Albers, Ballweg, Berceau, Davis, Hebl, Hintz, Hixson, Hilgenberg, Hraychuck, Jorgensen, Kaufert, Kerkman, Kleefisch, Kreuser, LeMahieu, Mason, Montgomery, Mursau, Nelson, Nygren, A. Ott, Parisi, Pope-Roberts, Sheridan, Shilling, Smith, Soletski, Townsend, Turner, Van Roy and Vukmir, cosponsored by Senators Wirch, Breske, Hansen, Kapanke, Kreitlow, Lassa, Plale, Olsen, Schultz and Taylor. Referred to Committee on Small Business.

AB760,1,4 An Act to amend 440.08 (2) (a) (intro.); and to create 440.03 (13) (b) 57m., chapter 461 and 635.02 (7) (b) 3. and 4. of the statutes; relating to: registration of professional employer organizations, requiring the exercise of rule-making authority, 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 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 PEO or that the person provides professional employer services, or otherwise hold itself out as a PEO, unless the person first registers with the Department of Regulation and Licensing (DORL).

2. Subject to certain exceptions, a PEO must maintain working capital 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. Certain rights, duties, and obligations under current law relating to insurance, licensing, and tax credits and other economic development incentives 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 DORL by no later than 180 days after that date. The bill 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 the effective date of the bill. 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 DORL before engaging in that business in this state 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.

Under the bill, a person may apply for registration by paying the initial credential fee determined by DORL 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. 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.

4. 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.

6. A financial statement that sets forth the financial condition of the applicant as of a date that is not more than 13 months 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. The bill specifies that the financial statement shall be without qualification as to the going concern status of the applicant.

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 DORL of any changes in the information specified in the previous registration form, filing an updated financial statement, and paying the renewal fee determined by DORL. 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 does not maintain an office in this state or directly solicit clients in this state, and that has no more than 50 employees performing services for clients 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.

Electronic or alternative registration. In addition, the bill permits DORL to promulgate rules providing for registration of a PEO on acceptance by DORL of a registration form, financial statement, or any other information or documentation required under the bill or rules promulgated by DORL in the form of an electronic record and, if a signature is required, on acceptance of an electronic signature. The bill also permits DORL to promulgate rules providing for registration of a PEO, without compliance with the registration and financial capability requirements of the bill, on acceptance of assurance provided by a bonded, independent, and qualified assurance organization that has been approved by DORL that provides assurance satisfactory to DORL that the PEO is qualified to engage in the business of providing professional employer services in this state (alternative registrant).

Financial capability

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

1. Working capital of not less than $100,000, except that DORL may issue a registration or renewal registration to a PEO that has less than $100,000 in working capital contingent on the PEO meeting the minimum working capital requirement no later than 180 days after the issuance of the registration or renewal registration. During the period of contingent registration, the PEO must submit quarterly financial statements to DORL accompanied by an attestation that all 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 an employee of the PEO who is performing services for a client were paid when due.

2. A bond, certificate of deposit, escrow account, or irrevocable letter of credit in an amount that is not less than $100,000, or, if the PEO's financial statement submitted to DORL indicates a deficit in working capital, a bond, certificate of deposit, escrow account, or irrevocable letter of credit in an amount that is not less than $100,000 plus an amount that is sufficient to cover that deficit, 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 an employee of the PEO who is performing services for a client if the PEO does not make those payments when due.

Rights, duties, and obligations unaffected

The bill provides that a PEO that offers, markets, sells, administers, or provides professional employer services that include the provision of employee benefit plans for the employees of the PEO performing services for a client is not engaged in the business or sale of insurance or in the business of an employee benefit plan administrator. The bill requires this provision to be liberally construed to permit PEO's to provide employee benefit plans without being considered to be engaged in the business or sale of insurance or in the business of an employee benefit plan administrator.

Also, for purposes of the insurance laws governing small employer health insurance, the bill provides that an insurer that contracts with a PEO that has more than 50 employees performing services for one or more clients is not a small employer insurer with respect to the contract between the insurer and the PEO, that a PEO that provides health care benefits for more than 50 employees performing services for one or more clients is not a small employer, and that a client of such a PEO is not a small employer if the employees of the PEO performing services for the client are offered health care benefits under a health benefit plan sponsored by the PEO.

In addition, the bill provides that nothing in the bill or in a contract for the provision of the nontemporary, ongoing workforce of a client may be construed to affect or impair any federal, state, or local licensing, registration, or certification requirement that is applicable to a client or to an employee of the PEO who is performing services for a client.

Finally, the bill provides that, for purposes of tax credits, economic development incentives, and other benefits that arise out of the employment of employees, the client is entitled to those credits, incentives, and other benefits that arise out of the employment of an employee of a PEO who is performing services for the client.

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:

AB760, s. 1 Section 1. 440.03 (13) (b) 57m. of the statutes is created to read:

AB760,5,3 440.03 (13) (b) 57m. Professional employer organization or professional employer group.

AB760, s. 2 Section 2. 440.08 (2) (a) (intro.) of the statutes, as affected by 2007 Wisconsin Act 20, is amended to read:

AB760,5,8 440.08 (2) (a) (intro.) Except as provided in par. (b) and in ss. 440.51, 442.04, 444.03, 444.11, 448.065, 447.04 (2) (c) 2., 449.17 (1m) (d), and 449.18 (2) (d), and 461.02 (3) (a) and (b) and (4), the renewal dates for credentials are as follows:

AB760, s. 3 Section 3. Chapter 461 of the statutes is created to read:

AB760,5,11 chapter 461 Professional employer organizations

AB760,5,12 461.01 Definitions. In this chapter:

AB760,5,14 (1) "Applicant" means a professional employer organization or a professional employer group that applies for registration under s. 461.02.

AB760,5,17 (2) "Client" means any person that enters into a written leasing contract with a professional employer organization or a professional employer group for the provision of the nontemporary, ongoing workforce of the person.

AB760,5,18 (3) "Controlling person" means any of the following:

AB760,5,21 (a) A person who, individually or acting in concert with one or more other persons, owns or controls, directly or indirectly, 25 percent or more of the ownership interest of an applicant or registrant.

AB760,6,3 (b) A person who serves as president or chief executive officer of an applicant or registrant or who otherwise has the authority to act as the senior executive officer of an applicant or registrant.

AB760,6,5 (4) "Professional employer group" means 2 or more professional employer organizations that are controlled by the same person.

AB760,6,10 (5) "Professional employer organization" has the meaning given in s. 108.02 (21e), regardless of whether the person uses the term "professional employer organization," "PEO," "staff leasing company," "registered staff leasing company," "employee leasing company," or "administrative employer," or uses any other name, as part of the person's business name or to describe the person's business.

AB760,6,12 (6) "Registrant" means a professional employer organization or a professional employer group that is registered under s. 461.02.

AB760,6,20 461.02 Registration requirements. (1) Registration required. 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 as provided in this section. To register under this section, a person shall file the registration form under sub. (2) and pay the initial credential fee determined by the department under s. 440.03 (9) (a).

AB760,6,23 (2) Registration form. To apply for registration under this section, an applicant shall file with the department a registration form prescribed by the department that contains all of the following information:

AB760,6,24 (a) The name or names under which the applicant conducts business.

AB760,7,2 (b) The address of the principal place of business of the applicant and of each office that the applicant maintains in this state.

AB760,7,6 (c) A list by jurisdiction of each name under which the applicant has operated in the 5 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.

AB760,7,8 (d) A statement of ownership, which shall include the name and business experience of every controlling person, as defined in s. 460.01 (3) (a), of the applicant.

AB760,7,10 (e) A statement of management, which shall include the name and business experience of every controlling person, as defined in s. 460.01 (3) (b), of the applicant.

AB760,7,21 (f) A financial statement that sets forth the financial condition of the applicant as of a date that is not more than 13 months 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. The financial statement shall be without qualification as to the going concern status of the applicant. A professional employer group may meet the requirements of this paragraph by submitting a combined or consolidated audited financial statement. An applicant that does not have sufficient operating history to have an audited financial statement that is based on at least 12 months of operating history may meet the requirements of this paragraph by submitting financial statements that have been reviewed by an independent certified public accountant.

AB760,8,2 (3) Initial registration. (a) Each professional employer organization or professional employer group that is operating in this state on the effective date of this paragraph .... [revisor inserts date], shall register with the department by no later than 180 days after that date. An initial registration under this paragraph is valid until 180 days after the end of the first fiscal year of the registrant that ends more than one year after the effective date of this paragraph .... [revisor inserts date].

AB760,8,8 (b) Any person that is not engaged in the business of providing professional employer services in this state on the effective date of this paragraph .... [revisor inserts date], shall register with the department before engaging in that business in this state. An initial registration under this paragraph is valid until 180 days after the end of the first fiscal year of the registrant that ends after the date of initial registration.

AB760,8,18 (4) Renewal registration. A registrant that wishes to renew its registration shall, by no later than 180 days after the end of the registrant's fiscal year, renew that registration by notifying the department of any changes in the information specified in sub. (2) (a) to (e), filing an updated financial statement as described in sub. (2) (f), and paying the renewal credential fee determined by the department under s. 440.03 (9) (a). A registrant may apply to the department for an extension of the time within which to renew a registration by providing with the application a letter from the certified public accountant who is auditing the registrant's financial statement stating the reasons for the delay and the anticipated completion date of the audit. A renewal registration is valid for one year after the date of renewal.

AB760,9,5 (5) Limited registration. (a) A professional employer organization or professional employer group that is domiciled outside this state, that is registered or licensed as a professional employer organization or professional employer group in another state, that does not maintain an office in this state or directly solicit clients that are located or domiciled in this state, and that has no more than 50 employees performing services for clients in this state on any given day may apply for limited registration under this section by filing with the department a limited registration form prescribed by the department and paying the initial credential fee determined by the department under s. 440.03 (9) (a). An applicant that is seeking limited registration shall, in addition to the information provided under sub. (2), provide the department with information and documentation showing that the applicant meets the qualifications specified in this paragraph for limited registration.

AB760,9,10 (b) A professional employer organization or professional employer group seeking limited registration that has employees performing services for clients in this state on the effective date of this paragraph .... [revisor inserts date], shall register with the department as provided in sub. (3) (a), and the initial limited registration shall be valid as provided in sub. (3) (a).

AB760,9,16 (c) A professional employer organization or professional employer group seeking limited registration that does not have employees performing services for clients in this state on the effective date of this paragraph .... [revisor inserts date], shall register with the department as provided in sub. (3) (b), before employing any employees to perform services for clients in this state, and the initial limited registration shall be valid as provided in sub. (3) (b).

AB760,9,21 (d) A registrant that wishes to renew its limited registration shall, in addition to complying with sub. (4), provide the department with information and documentation showing that the registrant continues to meet the qualifications specified in par. (a) for limited registration, and the limited registration shall be valid as provided in sub. (4).

AB760,9,23 (e) A limited registrant is not required to comply with the financial capability requirement under s. 461.03.