GET; Exemption; Professional Employment Organizations
Exempts amounts paid to a professional employment organization on behalf of employees hired by a client company; ensures rights of employees.
TWENTY-SECOND LEGISLATURE, 2003
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO PROFESSIONAL EMPLOYMENT ORGANIZATIONS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The purpose of this Act is to prevent unfair taxation which would adversely affect those Hawaii businesses that may realize added efficiency and cost-effectiveness by obtaining professional employment and payroll-related services from professional employment organizations. Since employee payroll is not subject to the general excise tax, it is appropriate to exempt professional employment organizations from general excise tax on payroll and benefit moneys they receive from their clients and disburse to employees. The general excise tax should apply only to the fee for the performance of the professional employment services. The advantages of this rapidly growing trend on the mainland have not been well utilized in Hawaii because if the general excise tax applies to the pass-through payroll and benefit moneys, the resulting tax is highly likely to be substantially greater than the fee charged for those services.
This tax exemption has precedent in Hawaii law such as in the operation of hotels, where management companies are reimbursed by hotels for similar employee payroll and related costs, and in the case of businesses that receive payroll and benefit moneys for disbursement as an agent.
SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§237- Professional employment organization payroll cost exemption. (a) As used in this section:
"Client company" means a person or company that contracts with a professional employment organization for professional employment services and utilizes the services of leased employees.
"Leased employee" means an employee under a professional employment organization arrangement whose work is performed in the State and who is assigned to a client company. The term does not include an employee hired to support or supplement a client company’s work force as temporary help. "Leased employee" means the same as the term "leased employee" as defined in section 414(n) of the Internal Revenue Code of 1986, as amended, without regard to subparagraph (B) of paragraph (2) thereof.
"Professional employment organization" means a person or company that offers professional employment services.
"Professional employment services" means an arrangement by which leased employees work at a client company and the employee’s work services are intended to be of a long term or continuing nature, rather than temporary. The term does not include temporary help.
"Temporary help" means an arrangement by which an organization hires its own employees and temporarily assigns them to a client company to support or supplement the client company’s work force in a special situation of a short-term nature, including:
(1) An employee absence;
(2) A temporary skill shortage;
(3) A seasonal workload; or
(4) A special assignment or project.
(b) This chapter shall not apply to amounts received by a professional employment organization from a client company, in the course of providing professional employment services, that are disbursed by the professional employment 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 leased employees at a client company.
(c) If any client company utilizes the services of leased employees, the client company and the professional employment organization, with respect to the leased employees, 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 laws with respect to the protection and rights of employees, including chapters 377 and 378, that would apply if the leased employees had been exclusively the employees of the client company. The requirements of any applicable federal, state, or county law, including labor or employment laws, collective bargaining rights, anti-discrimination provisions, or other laws with respect to the protection and rights of employees, including chapters 377 and 378, shall not be abrogated by any contract or agreement between the client company and the professional employment organization, or the professional employment organization and the employee, that contains terms or conditions which could not be lawfully contained in a contract or agreement directly between the client company and the employees if no professional employment organization was involved.
(d) A client company shall be deemed to have satisfied its obligations with respect to its leased employees under any applicable law, including, without limitation, workers compensation laws including chapter 386, employee insurance coverage including chapters 383, 385, 392, and 393, and state tax withholding and reporting laws, if and to the extent that those obligations are satisfied by the professional employment organization acting pursuant to a contract to provide professional employment services to the client company.
(e) If in any contract between the client company and any professional employment organization, employees are actually denied any employee rights or employee benefits required by law to be provided to employees of the client company by the client company, the exemption under this section shall not be applicable prospectively for the specific professional employment organization-client arrangement created by that contract. Written notification of a non de minimus violation of this section to the department of taxation by an interested party and the investigation, verification, and final adjudication of such violation by the department of labor and industrial relations, subject to chapter 91, or a court of competent jurisdiction shall be sufficient to make this exemption prospectively inapplicable for the specific professional employment organization-client arrangement created by the contract. Appeals from any verification decision of the department of labor and industrial relations or the department of taxation shall be made pursuant to state law.
(f) Failure of the professional employment organization to pay any state tax withholding for leased employees assigned to a client company for which the professional employment organization is responsible, other than failure of a de minimus nature, shall make the exemption under this section prospectively inapplicable for the specific professional employment organization-client contract. For purposes of this subsection, the determination of failure to pay any state tax withholding of a non de minimus nature by the department of taxation shall be subject to the rights of appeal provided income taxpayers provided in chapters 232 and 235.
(g) Except as specifically provided herein, the definitions and other terms in this section, including subsection (c), shall not be interpreted to supersede the provisions and definitions in those chapters of the Hawaii Revised Statutes that grant authority to the department of labor and industrial relations, and chapter 368 and part I of chapter 378, nor shall the provisions and definitions in this section, including subsection (c), diminish in any way the powers and authority of the department of labor and industrial relations as set forth in those chapters."
SECTION 3. Section 235-61, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
(a) As used in this section:
(1) "Wages" means wages, commissions, fees, salaries, bonuses, and every and all other kinds of remuneration for, or compensation attributable to, services performed by an employee for the employee's employer, including the cash value of all remuneration paid in any medium other than cash and the cost-of-living allowances and other payments included in gross income by section 235-7(b), but excluding income excluded from gross income by section 235-7 or other provisions of this chapter;
(2) "Employee" includes an officer or elected official, or any other employee;
(3) "Employer" means (A) the person or government for whom an individual performs or performed any service, of whatever nature, as the employee of such person or government, and (B) the person having control of the payment of the wages if the employer as heretofore defined does not have control thereof, including a professional employment organization as defined in section 237- , and (C) any person subject to the jurisdiction of the State and paying wages on behalf of an employer as heretofore defined if the employer is not subject to the jurisdiction of the State; provided that the term employer shall not include any government that is not subject to the laws of the State except as, and to the extent that, it consents to the application of sections 235-61 to 235-67 to it."
SECTION 4. New statutory material is underscored.
SECTION 5. This Act shall take effect on July 1, 2003, and shall apply to gross income or gross proceeds received after July 1, 2003.