Report Title:

GET; Employee Leasing Exemption


Provides a GET exemption for amounts representing employee wages and benefits paid to an employee leasing company.


S.B. NO.












SECTION 1. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"237- Leased employee exemption; loss of exemption;

definitions. (a) In addition to other amounts exempt from

taxation under this chapter, this chapter shall not apply to

amounts received by an employee leasing company from a client

company equal to and which are disbursed by the employee leasing

company for leased employee wages, salaries, payroll taxes,

insurance premiums, and benefits, including retirement, vacation, sick leave, and health benefits.

(b) Where any client company of any employee leasing

company utilizes the services of a leased employee, the client

company and the employee leasing company, with respect to the

leased employee, 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 law with respect to the protection and

rights of employees, including chapters 377 and 378, that would

apply to the leased employee if the leased employee had been an

employee of the client company instead of the employee of the

employee leasing company. These rights shall not be abrogated by any contract or agreement between the client company and the

employee leasing company that contains terms or conditions that

could not be lawfully contained in a contract or agreement

directly between the client company and the leased employee if no employee leasing company was involved.

The client company shall be deemed to have satisfied its

obligations with respect to any leased employee under any

applicable law, including without limitation, workers

compensation laws including chapter 386, employee insurance

coverage including chapters 383, 385, 392, and 393, and tax

withholding and reporting laws, if and to the extent that those

obligations are satisfied by the employee leasing company acting

in its capacity as employer of the leased employee.

If, by or through any contract between the client company

and any employee leasing company, or otherwise, leased employees

are excluded from any employee rights or employee benefits

required to be provided to employees of the client company by the client company, the exemption under this section shall not be applicable. Written notification of any violation of this

paragraph to the department by any union or the department of

labor and industrial relations shall be sufficient to make this

exemption unapplicable.

Failure of the employee leasing company to pay any tax

withholding for leased employees or any federal or state taxes

for which the employee leasing company is responsible shall

immediately cancel the exemption under this section permanently.

(c) As used in this section:

"Assigned leased employee" means an employee under an

employee leasing services arrangement whose work is performed in

the State. The term does not include an employee hired to

support or supplement a client company's work force as temporary


"Client company" means a person that contracts with an

employee leasing company and is assigned leased employees by the

employee leasing company under that contract.

"Employee leasing company" means a business entity that

offers employee leasing services.

"Employee leasing services" means an arrangement by which

employees of an employee leasing company are assigned to work at

the client company and the leased employee's assignment is

intended to be of a long term or continuing nature, rather then

temporary. The term does not include temporary help.

"Leased employee" means the same as defined in section

414(n) of the Internal Revenue Code of 1986, as amended.

"Temporary help" means an arrangement by which an

organization hires its own employees and assigns them to a client company to support or supplement the client's work force 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."

SECTION 2. New statutory material is underscored.

SECTION 3. This Act shall take effect on July 1, 2003.