AN ACT CONCERNING PROFESSIONAL EMPLOYER ORGANIZATIONS.

This bill requires professional employer organizations (PEOs) to register with the Labor Department and creates standards for them, including financial capacity standards. It defines the organizations as businesses that provide employer services for their clients and have entered coemployment agreements with their client's employees. It sets application requirements, allows certain PEOs to meet its reporting and financial requirements as a group, and allows out-of-state organizations to obtain a limited registration.

The bill sets standards for the contracts between the organizations and their clients.

It prohibits the organizations from, among other things, committing willful violations of its provisions and authorizes the labor commissioner to discipline violators.

Finally, the bill states its relationship to other labor laws and laws creating certain economic development programs.

EFFECTIVE DATES: January 1, 2009, except for the definitions section, including the definition of a PEO, is effective on October 1, 2008; which the provision on the bill's relationship to state labor law, which is effective on July 1, 2008; and the provision requiring implementing regulations is effective on passage.

The bill prohibits providing, advertising, or otherwise holding oneself out as providing professional employer services without being registered as a PEO with the Labor Department.

It requires each PEO operating in this state on January 1, 2009 to register by June 1, 2009. This initial registration is valid until the end of its first fiscal year ending after January 1, 2011. It requires each PEO not operating in this state on January 1, 2009, to complete its initial registration before providing services.

The bill requires the Labor Department to (1) keep a list of registered PEOs and (2) develop forms necessary to promote the efficient administration of the registration requirements.

The bill prohibits (1) registration fees from being more than the amount reasonably necessary to administer its provisions, (2) the initial registration fee from being more than $ 1,500, and (3) the renewal fee from being more than $ 1,000.

It requires the commissioner to adopt implementing regulations by January 1, 2009.

The bill defines a “professional employer organization” as any person engaged in the business of providing professional employer services, regardless of whether the person uses the term or conducts business as a PEO, staff leasing company, registered staff leasing company, employee leasing company, administrative employer, or any other name. Under the bill, “professional employer services” means entering into coemployment relationships in which all or a majority of the employees providing services to a client or to a division or work unit of a client are covered employees.

A “coemployment relationship” is an ongoing relationship in which the rights, duties, and obligations of an employer are allocated between a PEO and a client pursuant to a professional employer agreement. A “client” is any person who, as an employer, enters into a professional employer agreement with a PEO. A “covered employee” is an individual who (1) is an employee of a client that has a coemployment relationship with a PEO, (2) has received written notice of the coemployment, and (3) has received a written summary of the obligations and responsibilities of the client and the PEO under a professional employer agreement.

1. arrangements in which a person, other than a person whose principal business activity is entering into professional employer arrangements, shares employees with a commonly owned company within the meaning of Section 414(b) and (c) of the Internal Revenue Code;

2. independent contractor arrangements in which the contractor assumes responsibility for the product produced or service performed and retains and exercises primary direction and control over the work performed by the individuals whose services are supplied; or

3. temporary help services that recruit, hire, and solely set the compensation of their employees, assign employees to work for an organization as temporary, seasonal, or special project employees and reassign employees to other employers at the end of an assignment.

1. the name or names under which the applicant will conduct or has conducted business before January 1, 2009;

2. the addresses of the business's principal office and each office in Connecticut;

3. the applicant's taxpayer or employer identification number;

4. a list by jurisdiction of any name under which the applicant operated in the five years before the application date, including any alternative names, names of predecessors, and, if known, successor businesses;

5. a ownership statement that includes the name and business experience of any person that, individually or with others, owns, controls, or will control, directly or indirectly, 25% or more of the applicant's equity interests;

6. a management statement that includes the name and business experience of any person who serves or will serve as president, chief executive officer, or otherwise has or will have the authority to act as senior executive officer; and

7. a statement of the applicant's financial condition.

The bill requires each applicant engaged in the business of providing professional employer services before January 1, 2009 to submit its most recent audit, which must have been conducted within 13 months before the application date. If an applicant has not had sufficient operating history to have audited financial statements based on at least 12 months of operating history, the bill requires the applicant to meet the financial capacity requirements (specified below) and submit financial statements reviewed by a certified public accountant.

All information obtained from a PEO or PEO group under the bill is confidential and is not to be published or kept open to inspection, except as otherwise required by law.

The bill requires registrations to be renewed annually. A PEO may apply for renewal by submitting, not later than 180 days after the end its fiscal year (1) an audit for the preceding fiscal year and (2) a notice of any changes from the information provided in its immediately preceding application. An applicant may apply for an extension with the department, but this request must be accompanied by a letter from its auditor stating the reasons for the delay and the anticipated audit completion date. The financial statement must be:

1. prepared in accordance with generally accepted accounting principles,

2. audited by an independent and properly licensed certified public accountant, and

3. without qualification as to any increase in the ongoing concern status of the PEO.

A “professional employer organization group” is two or more PEOs that are majority-owned or commonly controlled by the same entity, parent, or controlling persons. The bill allows PEOs in a PEO group to satisfy the bill's reporting and financial requirements on a combined or consolidated basis if each of the member of the group guarantees the obligations under the bill of each other group members. In the case of a group that submits a combined or consolidated audited financial statement including entities that are not PEOs or that are not in the PEO group, the controlling entity of the PEO group must guarantee the obligations of the PEO in the group.

The bill allows the labor commissioner to issue a limited registration to a PEO if it provides evidence that it:

1. is domiciled outside this state and is licensed or registered as a PEO in another state;

2. does not maintain an office or directly solicit clients located or domiciled within Connecticut; and

3. does not have more than 50 covered employees employed or domiciled in this state at any particular time.

The bill requires PEOs or PEO groups to meet one of two financial capacity standards. The first is to maintain a minimum of $ 150,000 in working capital, as defined by generally accepted accounting principles, as reflected in the financial statements submitted to the department with the initial registration or annual renewal.

A registrant with less than $ 150,000 in working capital at renewal has 180 days to attain the $ 150,000. During the 180 days, the registrant must submit quarterly statements accompanied by the chief executive officer's attestation that all wages, taxes, workers' compensation premiums, and employee benefits have been paid.

The second way of demonstrating financial capacity is to provide a bond, irrevocable letter of credit, or securities to the Labor Department with a minimum value of $ 150,000. The bond must be held by a depository designated by the commissioner, securing payment by the organization of all taxes, wages, benefits, or other entitlements due to or with respect to covered employees. For a registrant whose annual financial statements do not indicate positive working capital, the amount of a bond must be $ 100,000 plus an amount sufficient to cover the deficit in working capital.

The bill authorizes the commissioner to accept an affidavit or certification of a bonded, independent, and qualified assurance organization approved by the commissioner certifying qualifications of a PEO in lieu of these requirements.

The bill exempts a PEO with a limited registration from the financial capacity requirements.

The bill requires PEOs and their clients to allocate their rights, duties, and obligations in an agreement and specifically requires the agreement to:

1. provide for the (a) allocation of employer rights and obligations between the client and the PEO with respect to the covered employees, and (b) PEO and the client to assume the responsibilities required by the bill; and

2. require the PEO to (a) pay wages to covered employees; (b) withhold, collect, report, and remit payroll-related and unemployment taxes; and (c) make payments for employee benefits for covered employees to the extent the PEO has assumed the responsibility in the agreement.

1. a client is solely responsible for the quality, adequacy, or safety of the goods or services produced or sold by the client's business;

2. a client is solely responsible for directing, supervising, training, and controlling the covered employees' work with respect to the client's business activities and solely responsible for the acts, errors, or omissions of the covered employees with regard to such activities;

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

4. a PEO is not be liable for the acts, errors, or omissions of a client or its covered employees when they are acting under the client's express direction and control; and

5. a covered employee is not, solely as the result of being a covered employee of a PEO, an employee of the organization for purposes of general liability insurance, fidelity bonds, surety bonds, employer's liability that is not covered by workers' compensation, or employer's liability insurance carried by the PEO, unless the covered employee is included by specific reference in the agreement and applicable prearranged employment contract, insurance contract, or bond.

The bill provides that it does not, and professional employer agreements must not (1) diminish existing rights between covered employees and a client existing before the effective date of either the bill or the professional employer agreement or (2) create any new or additional enforceable right of a covered employee against a PEO that is not specifically provided by the professional employer agreement or the bill.

The bill subjects PEOs and their controlling persons to discipline by the labor commissioner for:

1. wilfully violating the bill;

2. being convicted of a crime that relates to (a) the operation of a PEO, (b) fraud or deceit, or (c) the ability of the PEO or its controlling person to operate a PEO; or

3. knowingly making a material misrepresentation to the Labor Department or other governmental agency.

The bill authorizes the labor commissioner, after notice and opportunity for hearing, upon finding that a PEO or its controlling person has committed a prohibited act, to:

1. deny a registration application;

2. revoke, restrict, or refuse to renew a registration;

3. impose an administrative fine up to $ 1,000 for each material violation;

4. place the PEO or its controlling person on probation for a period determined by the commissioner, subject to reasonable conditions he specifies; or

5. issue a cease and desist order.

The bill specifies that it must not be construed as affecting any provision of the state's labor laws, including provisions, regulations, or policies relating to determining the employer-employee relationship.

The bill specifies that a covered employee who must be licensed, registered, or certified under any provision of the general statutes must be deemed to be solely an employee of the client for credentialing purposes. Further, a PEO must not be deemed to engage in any occupation, trade, profession, or other activity subject to licensing, registration, or certification requirements, or otherwise regulated by a governmental entity, solely by entering into and maintaining a coemployment relationship.

For the purpose of determining tax credits and other economic incentives provided by this state or another government and based on employment, the bill deems the client's covered employees to be solely employees of the client.

Under the bill, a client's status or certification as a small, minority-owned, disadvantaged, or woman-owned business enterprise or as a historically underutilized business is not be affected by entering a professional employer agreement.