Bill Text: HI SB2424 | 2012 | Regular Session | Amended
Bill Title: Professional Employer Organizations; Fees and Expenses; Bond Requirements; Appropriation
Spectrum: Partisan Bill (Democrat 10-0)
Status: (Vetoed) 2012-07-10 - (S) Vetoed on 07-10-12 - Returned from the Governor without approval (Gov. Msg. No. 1396). [SB2424 Detail]
Download: Hawaii-2012-SB2424-Amended.html
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THE SENATE |
S.B. NO. |
2424 |
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TWENTY-SIXTH LEGISLATURE, 2012 |
S.D. 2 |
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STATE OF HAWAII |
H.D. 2 |
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C.D. 1 |
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A BILL FOR AN ACT
RELATING TO PROFESSIONAL EMPLOYER ORGANIZATIONS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that Act 225, Session Laws of Hawaii 2007, established a new chapter on professional employment organizations that provided a general excise tax exemption on amounts a client company paid to a professional employment organization.
The legislature further finds that Act 129, Session Laws of Hawaii 2010, established a new chapter in the Hawaii Revised Statutes on professional employer organizations. The legislature notes that the proper term for this type of business entity is professional employer organization, as established in Act 129. The legislature also notes that two chapters relating to professional employer organizations are unnecessary.
Act 129 established registration requirements for professional employer organizations. Although these requirements went into effect on July 1, 2011, additional operational provisions are needed to enable the department of labor and industrial relations to fully implement Act 129.
The purpose of this Act is to:
(1) Eliminate duplicative provisions relating to professional employer organizations by repealing chapter 373K, Hawaii Revised Statutes, and incorporate the existing general excise tax exemption into chapter 373L, Hawaii Revised Statutes; and
(2) Facilitate the implementation of the professional employer organization law as established by Act 129, Session Laws of Hawaii 2010.
SECTION 2. Chapter 373L, Hawaii Revised Statutes, is amended by adding eleven new sections to be appropriately designated and to read as follows:
"§373L-A Professional employer organization special fund. There is established in the state treasury a special fund to be known as the professional employer organization special fund to be administered by the department to implement and operate the registration of professional employer organizations established by this chapter. Moneys collected as fees or penalties under sections 373L-C, 373L-D, 373L-E, and 373L-H shall be deposited in the fund. Interest earned from the balance of the fund shall become a part of the fund. Moneys in the fund may be expended for personnel and operating expenses and staff training.
§373L-B Registration required. No person within the purview of this chapter shall use the terms "professional employer organization," "PEO", "staff leasing company", "registered staff leasing company", "employee leasing company", "administrative employer", or other similar name unless the person is registered and in compliance with this chapter and the rules and regulations of the director.
§373L-C Notice of judgments, penalties. (a) Each registered professional employer organization shall provide written notice within thirty days to the department of any judgment, award, or disciplinary sanction imposed against the organization for violating a statutory provision in an action brought by any state or federal regulatory agency.
In addition to any other penalties provided by law, the failure of a professional employer organization to comply with this subsection is a violation punishable by a penalty established by the director pursuant to section 373L-F. Any action taken to impose or collect the penalty provided for in this subsection shall not be considered a criminal action.
(b) Each professional employer organization shall file with the department the organization's current mailing and business address. It shall be the professional employer organization's duty to provide written notice to the department of any change of address within thirty days of the change. Failure of the professional employer organization to provide the notice shall absolve the department or director from any duty to provide notice of any matter required by law to be provided to the professional employer organization.
§373L-D Denial, suspension, revocation, denial of renewal of registration, or penalty. In addition to any other actions authorized by law, the director may deny, suspend, revoke, or deny renewal of registration of any professional employer organization or impose a penalty when the professional employer organization, including its controlling persons:
(1) Fails to meet the requirements for registration as provided in this chapter;
(2) Fails to satisfy a civil fine, penalty, or restitution order arising out of any administrative or enforcement action brought by any governmental agency for conduct involving fraud or dishonest dealing;
(3) Has had an order or judgment entered against it in the past ten years in any criminal, administrative, or enforcement action for conduct involving fraud or dishonest dealing, or for any violation of any state's laws or rules;
(4) Fails to post a bond in accordance with this chapter;
(5) Makes any false statement, representation, or certification in any document or record required to be maintained under this chapter;
(6) Fails to keep, maintain, and disclose, upon request of the department, the books and records required to be maintained under this chapter for inspection or audit for the period of time designated by the director;
(7) Fails to timely pay wages, withholding taxes, or any other payments pursuant to the professional employer agreement; or
(8) Otherwise violates this chapter, or any rule adopted or final order of the director issued pursuant to this chapter.
§373L-E Fees. No applicant shall be allowed to register pursuant to this chapter unless the appropriate fees have been paid. Effective July 1, 2012, the director shall collect fees pursuant to this chapter as follows:
(1) Application fee $100
(2) Biennial renewal fee based on the average annual count of covered employees as follows:
0 – 100 covered employees $2,500
101 – 250 covered employees $3,000
251 – 499 covered employees $5,000
500 or more covered employees $10,000
(3) Restoration fee $500
until such time as the director amends the fees by rulemaking in accordance with chapter 91. The fees to be established by the director may include but shall not be limited to an application fee, biennial renewal fee, restoration fee, and other reasonable and necessary fees related to the department's administrative costs. The fees shall be deposited into the professional employer organization special fund established under section 373L-A. The number of covered employees for purposes of this section shall be calculated based on the average number of employees reported on a professional employer organization's form UC-B6 (Quarterly Wage, Contribution and Employment and Training Assessment Report) filed with the department for the first quarter of the taxable year, as well as the three quarters preceding the first quarter.
§373L-F Responsibilities and duties of the director. The general duties and powers of the director shall include but not be limited to:
(1) Adopting, amending, and repealing rules in accordance with chapter 91 to issue, deny, condition, renew, or deny renewal of registrations;
(2) Establishing fees and penalties;
(3) Inspecting and auditing the books and records of the professional employer organization; and
(4) Doing all things necessary to carry out the functions, powers, and duties of this chapter.
§373L-G Professional employer agreements; notification to covered employees; notification to department. (a) During the term of the agreement between a professional employer organization and its client company, the professional employer organization shall be deemed the employer for purposes of unemployment insurance, workers' compensation, temporary disability insurance, and prepaid health care coverage.
(b) The professional employer organization shall provide written notice of the relationship between the professional employer organization and the client company to each covered employee of the client company when assigned to the worksite of the client company.
(c) The professional employer organization shall provide written notice to the department on a form provided by the department of the relationship between the professional employer organization and the client company within five business days of the initiation of the relationship and within five business days of the termination of the relationship. The department shall keep the notice provided by the professional employer organization confidential, including the names of the client companies and information that may identify the client companies.
§373L-H Failure to comply; penalty; injunction. (a) If a professional employer organization fails to comply with this chapter or any rule or final order of the director, the professional employer organization shall be liable for a penalty in an amount:
(1) Not less than $1,000; or
(2) $500 for every day during which the failure continues;
whichever sum is greater. The director may, in the director's discretion, for good cause shown, remit all or any part of the penalty in excess of $1,000 to the professional employer organization; provided that the professional employer organization complies with this chapter, rules adopted pursuant to chapter 91, and final orders of the director.
(b) If a professional employer organization fails to comply with this chapter, a rule, or an order for a period of thirty consecutive days, the professional employer organization may be enjoined, by the circuit court of the circuit in which the professional employer organization's principal place of business is located, from carrying on business anywhere in the State so long as the noncompliance continues. An action for an injunction under this subsection shall be prosecuted by the attorney general or any county attorney if so requested by the director.
§373L-I Hearings. Unless otherwise provided by law, in every case in which the director denies, suspends, revokes, or denies renewal of registration, or proposes to impose a penalty on a professional employer organization, the proceeding shall be conducted in accordance with chapter 91 by the director or an appointed hearings officer.
In all proceedings before it, the director or hearings officer shall have the same powers respecting administering oaths, compelling the attendance of witnesses and the production of documentary evidence, and examining witnesses, as are possessed by circuit courts. In case of disobedience by any person of any order of the director or hearings officer, or of any subpoena issued by the director or hearings officer, or the refusal of any witness to testify to any matter on which the person may be questioned lawfully, any circuit court judge, on application by the director or hearings officer, shall compel obedience as in the case of disobedience of the requirements of a subpoena issued by a circuit court or a refusal to testify therein.
§373L-J Judicial review by circuit court. Any professional employer organization aggrieved by a final decision and order of the director in a contested case, as defined in chapter 91, is entitled to judicial review thereof by the circuit court of the circuit in which the professional employer organization's principal place of business is located. The review shall be as provided by chapter 91.
§373L-K Payroll cost exemption. (a) Amounts received by a professional employer organization from a client company equal to amounts that are disbursed by the professional employer organization for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits, and similar employment benefits with respect to covered employees at a client company shall not be subject to the general excise tax as provided by section 237-24.75.
(b) The general excise tax exemption under section 237‑24.75 shall not apply to the professional employer organization if:
(1) By or through any contract between the client company and any professional employer organization, or otherwise, employees are excluded from any employee rights or employee benefits required by law to be provided to employees of the client company by the client company; or
(2) The professional employer organization fails to pay any tax withholding for covered employees or any federal or state taxes for which the professional employer organization is responsible."
SECTION 3. Section 209E-2, Hawaii Revised Statutes, is amended by amending the definition of "leased employee" to read as follows:
""Leased employee" means an
employee under a professional [employment] employer organization
arrangement, or other employee leasing arrangement, who is assigned to a
particular client company on a substantially full-time basis for at least one
year."
SECTION 4. Section 237-24.75, Hawaii Revised Statutes, is amended to read as follows:
"§237-24.75 Additional exemptions. In addition to the amounts exempt under section 237-24, this chapter shall not apply to:
(1) Amounts received as a beverage container deposit collected under chapter 342G, part VIII;
(2) Amounts received by the operator of the Hawaii
convention center for reimbursement of costs or advances made pursuant to a
contract with the Hawaii tourism authority under section 201B‑7[[];
and[]
[](3) Amounts received[]] by a
professional [employment] employer organization from a client
company equal to amounts that are disbursed by the professional [employment]
employer organization for employee wages, salaries, payroll taxes,
insurance premiums, and benefits, including retirement, vacation, sick leave,
health benefits, and similar employment benefits with respect to [assigned]
covered employees at a client company; provided that this exemption
shall not apply to a professional [employment] employer
organization if: [upon failure of the professional employment
organization to collect, account for, and pay over any income tax withholding
for assigned employees or any federal or state taxes for which the professional
employment organization is responsible.]
(A) By or through any contract between a client company and any professional employer organization, or otherwise, employees are excluded from any employee rights or employee benefits required by law to be provided to employees of the client company by the client company; or
(B) The professional employer organization fails to pay any tax withholding for covered employees or any federal or state taxes for which the professional employer organization is responsible.
As used in this paragraph, ["professional
employment organization",] "professional employer
organization", "client company", and ["assigned
employee"] "covered employee" shall have the meanings
provided in section [373K-1.] 373L‑1."
SECTION 5. Section 373L-1, Hawaii Revised Statutes, is amended as follows:
1. By adding two new definitions to be appropriately inserted and to read:
""Controlling person" means any individual, firm, association, or corporation that directly or indirectly has the power to direct or cause to be directed, the management, control, or activities of the professional employer organization.
"Department" means the department of labor and industrial relations."
2. By amending the definitions of "client company", "covered employee", "professional employer agreement", "professional employer organization", and "temporary help services" to read:
""Client company" means any
person [who enters into a professional employer agreement with a
professional employer organization.] that contracts with a professional
employer organization and is assigned employees by the professional employer
organization under that contract.
"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]
the relationship 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.
"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] assignment of
covered employees[;] to the client company; 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" or
"organization" means [any person that is a party to a
professional employer agreement with a client company regardless of whether the
person uses the 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
similar name.] a business entity that offers employees that are assigned
to the worksites of its client companies.
"Temporary help [services]"
means an arrangement by which [a person recruits and hires the person's 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 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.]
an organization hires its own employees and assigns them to a client to support or supplement the client's workforce in a special situation, including:
(1) An employee absence;
(2) A temporary skill shortage;
(3) A seasonal workload; or
(4) A special assignment or project."
3. By deleting the definition of "co-employment".
[""Co-employment" means a
relationship that 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."]
SECTION 6. Section 373L-2, Hawaii Revised Statutes, is amended to read as follows:
"[[]§373L-2[]] Registration
required. (a) Every professional employer organization shall register
with the director by providing all of the information required by this section
and by rules adopted by the director pursuant to chapter 91 prior to entering
into any professional employer agreement with any client company in this State.
(b) Registration information required by this section shall include:
(1) The name or names under which the professional employer organization conducts or will conduct 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 general excise tax number;
(4) A copy of the certificate of authority to transact business in this State issued by the director of commerce and consumer affairs pursuant to title 23 or title 23A, if applicable;
(5) 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;
(6) A statement of ownership, which shall include the name 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;
(7) A statement of management, which shall include the name 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;
(8) Proof of valid workers' compensation coverage in compliance with all laws of this State;
(9) Proof of compliance with the Hawaii temporary disability insurance law;
(10) Proof of compliance with the Hawaii prepaid
health care act [as regards all employees of the professional employer
organization];
(11) Proof of compliance with the Hawaii employment
security law, including payment of any applicable employer liability pursuant
to chapter 383; [and]
(12) A financial statement prepared in accordance with
generally accepted accounting principles, audited within three months of
registration or renewal by an independent certified public accountant
licensed to practice in the State, and without qualification as to the going
concern status of the professional employer organization[.]; provided
that if the professional employer organization has not had sufficient operating
history to have audited financial statements, a financial statement that has
been reviewed within three months of registration by an independent certified
public accountant licensed to practice in the State who can attest that the
professional employer organization has $150,000 in working capital shall be
required; and
(13) The name, address, and phone number of the financial institution utilized by the professional employer organization for payroll purposes that operates and maintains branches in the State.
(c) Registration under this section shall
expire on [December 31] June 30 of each [odd-numbered] even-numbered
year. Before [December 31] June 30 of each [odd-numbered]
even-numbered year, the director or the director's authorized delegate
shall mail a renewal application for registration to the address on record of
the registrant. In connection with renewal of registration, a professional
employer organization shall provide all of the information required by
subsection (b). Failure to renew a registration shall result in forfeiture
of that registration. Registrations that have been forfeited may be restored
within one year of the forfeiture date upon payment of renewal and restoration
fees. Failure to restore a forfeited registration within one year shall result
in the automatic termination of the registration. Registrations that have been
terminated pursuant to this section shall be required to reapply for a new
registration as a new applicant.
(d) The director shall [establish fees and
requirements for registration, maintenance of registration, renewal, and
restoration of registration for professional employer organizations by rule
pursuant to chapter 91.] to the extent practicable permit the acceptance
of electronic filings in conformance with chapter 489E, including applications,
documents, reports, and other filings required under this chapter. The
director may provide for the acceptance of electronic filings by a professional
employer organization. Nothing in this subsection shall limit or change the
director's authority to register or terminate registration of a professional
employer organization or to investigate or enforce any provision of this
chapter."
SECTION 7. Section 373L-3, Hawaii Revised Statutes, is amended to read as follows:
"[[]§373L-3[]] Bond
required. (a) No professional employer organization shall enter into a
professional employment agreement with a client company in the State unless the
professional employer organization posts a bond [in the amount of $250,000,
which is a performance or financial guaranty type bond naming the director as
the obligee and which may be canceled only if the professional employer
organization gives sixty days prior written notice to the surety or if the
surety gives thirty days prior written notice to the director of cancellation
of the bond. The requirements of this section shall be satisfied by a single
bond. If a professional employer organization has more than one branch
location, the bond shall cover all locations.] as follows:
(1) Professional employer organizations consisting of fewer than one hundred full-time or part-time employees shall post a minimum of $250,000; provided that the number of employees shall be calculated in the same manner as required under 373L-E; and
(2) All other professional employer organizations shall post a bond in an amount equal to:
(A) One per cent of the organization's prior year's total wages, benefits, workers' compensation premiums, and unemployment compensation contributions; or
(B) $1,000,000;
whichever is less; provided that the amount of the bond shall be no less than $500,000.
(b) Any bond posted pursuant to this
section shall name the director as the obligee and may be canceled only if either
the professional employer organization or the surety gives sixty days prior
written notice to the other and the surety gives at least forty-five days prior
written notice to the director of cancellation of the bond. If a professional
employer organization has more than one branch location in the State, the bond
shall cover all locations. The requirements of this section shall be satisfied
by a single bond. The bond required by this section shall be issued by [a]
an A-rated surety [or federally insured lending institution]
authorized to do business in the State to [indemnify a] fulfill the
obligations of the professional employer organization to the State, client
[company] companies, and covered employees who may suffer loss as
a result of [nonperformance] noncompliance and failure to make
payment by a professional employer organization[.], including but
not limited to unemployment insurance, workers' compensation, temporary
disability insurance, prepaid health care benefits, wages, employee benefits,
and employment taxes.
(c) [Upon cancellation or expiration of the
bond, the] The surety [or insurer] shall remain [liable]
obligated for any claims against the bond [for a period of six months;]
after cancellation or expiration of the bond; provided that:
[(1) The debts were incurred while the bond
was in effect; and
(2) The director notifies the surety or
insurer, as the case may be, of any claims within ninety days of discovery of
any claims.]
(1) The surety was provided written notice of such claim during the six month period immediately following the cancellation or expiration of the bond; and
(2) The claim accrued, but only for the amount accrued, before the expiration or cancellation of the bond.
(d) The surety [or insurer] is not
required to release any moneys or collateral to the professional employer
organization during the six months after cancellation of the bond.
(e) Failure to have in effect a current bond shall result in automatic forfeiture of registration pursuant to this chapter and shall require the professional employer organization to immediately cease doing business in the State. Notwithstanding section 373L-H, if the professional employer organization does not cease doing business, the director may immediately apply to the court for an order to enjoin the professional employer organization. A professional employer organization whose registration is forfeited shall apply as a new applicant for registration in order to resume business in the State.
(f) The director, or any person claiming to have sustained loss resulting from noncompliance and failure to make payments by a professional employer organization as required by this chapter, may bring an action on the bond to recover such damage. The surety may fulfill its obligation under the bond by depositing the penal sum of the bond with the director. Upon receiving any sum from the surety, the director may deduct all money due to the State resulting from the noncompliance and nonpayment by the professional employer organization. Any remaining balance shall be held by the director for the benefit of all other persons who sustained loss by the noncompliance and nonpayment by the professional employer organization, and the director may deposit such balance with a court of competent jurisdiction in order to resolve competing claims. After all claims are finally resolved or settled, any remaining balance from the bond proceeds shall be returned to the surety."
SECTION 8. Chapter 373K, Hawaii Revised Statutes, is repealed.
SECTION 9. The director of labor and industrial relations may establish two .5 full-time equivalent (FTE) permanent additional positions, subject to chapters 76 and 89, Hawaii Revised Statutes, to carry out the purposes of chapter 373L, Hawaii Revised Statutes. The positions may include a disability compensation enforcement specialist IV and office assistant IV.
SECTION 10. There is appropriated out of the general revenues of the State of Hawaii the sum of $177,500 or so much thereof as may be necessary for fiscal year 2012-2013 to be deposited to the credit of the professional employer organization special fund established pursuant to section 373L‑A, Hawaii Revised Statutes.
SECTION 11. There is appropriated out of the professional employer organization special fund the sum of $177,500 or so much thereof as may be necessary for fiscal year 2012-2013 for the department of labor and industrial relations to carry out the purposes of this Act, including the hiring of two .5 full-time equivalent (FTE) permanent positions pursuant to section 9 of this Act, necessary equipment, and fees to the department of commerce and consumer affairs.
The sum appropriated shall be expended by the department of labor and industrial relations for the purposes of this Act.
SECTION 12. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.
SECTION 13. In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.
SECTION 14. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 15. This Act shall take effect upon its approval; provided that sections 10 and 11 shall take effect on July 1, 2012.
Report Title:
Professional Employer Organizations; Fees and Expenses; Bond Requirements; Appropriation
Description:
Adds powers and duties to the Director of Labor and Industrial Relations regarding the registration and regulation of professional employer organizations. Authorizes various penalties for noncompliance; amends definitions and bond level requirements; and establishes the professional employer organization special fund. Repeals chapter 373K, Hawaii Revised Statutes, but moves the general excise tax exemption provisions to chapter 373L, Hawaii Revised Statutes. Appropriates funds to the Department of Labor and Industrial Relations. (CD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.
