HOUSE OF REPRESENTATIVES

H.B. NO.

2645

TWENTY-SIXTH LEGISLATURE, 2012

H.D. 1

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO PROFESSIONAL EMPLOYER ORGANIZATIONS.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  Chapter 373L, Hawaii Revised Statutes, is amended by adding six 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 fines under sections 373L-B(b), 373L-C, and 373L-D shall be deposited in the fund.  Interest earned from the balance of the fund shall become a part of the fund.

     §373L-B  Notice of judgments, penalties, fines, address.  (a)  Each registered professional employer organization shall provide written notice within thirty days to the department of any judgment, award, disciplinary sanction, order, or other determination which adjudges or finds that the organization is civilly, criminally, or otherwise liable for any personal injury, property damage, or loss caused by the organization's conduct in the practice of the organization's profession.  An organization shall also give notice of such determinations made in other jurisdictions.

     (b)  In addition to any other penalties provided by law, the failure of a professional employer organization to comply with this section is a violation punishable by a fine established by the director pursuant to section 373L-E.  Any action taken to impose or collect the fine provided for in this subsection shall not be considered a criminal action.

     (c)  Each professional employer organization shall file with the department the organization's current mailing and business address.  A professional employer organization shall 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-C  Denial, suspension, revocation, fine, or denial of renewal of registration.  The director may deny, suspend, revoke, fine, or deny renewal of registration of any professional employer organization when a 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)  Fails to post a bond in accordance with this chapter;

     (4)  Makes any false statement, representation, or certification in any document or record required to be maintained under this chapter;

     (5)  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;

     (6)  Fails to timely pay wages, withholding taxes, or any other payments pursuant to the professional employer agreement; or

     (7)  Otherwise violates this chapter or any rule adopted or order of the director issued pursuant to this chapter.

     §373L-D  Fees and administrative costs.  No applicant for registration pursuant to this chapter shall be allowed to register unless the appropriate fees have been paid.  The fees to be established by the director may include an application fee, initial registration fee, biennial renewal fee, restoration fee, and other reasonable and necessary fees related to the department's administrative costs.  Unless otherwise provided by law, the fees shall be deposited into the professional employer organization special fund.  Effective July 1, 2012, the department of commerce and consumer affairs shall collect fees pursuant to this chapter as follows:

     (1)  Application fee         $100;

     (2)  Initial registration fee     $2,500;

     (3)  Biennial renewal fee    $2,500; and

     (4)  Restoration fee         $250;

until such time that the director adopts, amends, or repeals the fees by adopting rules in accordance with chapter 91.

     §373L-E  Responsibilities and duties of the director.  The general duties and powers of the director shall include:

     (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 fines;

     (3)  Inspecting and auditing the books and records of a registrant with the costs to be borne by the registrant; and

     (4)  Doing all things necessary to carry out the functions, powers, and duties of this chapter.

     §373L-F  Professional employer agreements; mandatory provisions; disclosures.  The director shall establish provisions and disclosures that shall be included in all professional employer organization agreements.  These mandatory provisions and disclosures shall include but not be limited to statements requiring the provision of written copies of certain documents to client companies and the timely payment of wages, withholding of taxes, and payment of taxes by professional employer organizations."

     SECTION 2.  Section 373K-2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Where any client company uses the services of assigned employees and co-employs assigned employees with a professional employment organization, the client company and the professional employment organization, with respect to the assigned 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 to the assigned employees if the assigned employees were employees of the client company alone, and were not co-employees of the professional employment organization.

     These employee rights 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 assigned employee, which contains terms or conditions that could not be lawfully contained in a contract or agreement directly between the client company and the assigned employee in which no professional employment organization is involved.  [Notwithstanding any statute, local ordinance, executive order, rule, or regulation to the contrary, where the laws, rights, and protections referred to in this section define or require a determination of the "employer",] For the purposes of chapter 237, the employer shall be deemed to be the client company and not the professional employment organization.  The department of labor and industrial relations shall notify the department of taxation in writing of any violation of this subsection.  Notwithstanding the provisions of this chapter and chapter 373L relating to co-employment of professional employer organizations and client companies, the professional employer organization as the paying agent pursuant to title 26 United States Code section 3401(d)(1), shall be deemed to be the employer of record who shall be responsible for all obligations of assigned employees at the client companies' worksites for purposes of chapters 383, 386, 392, and 393."

     SECTION 3.  Section 373L-1, Hawaii Revised Statutes, is amended as follows:

     1.  By adding two new definitions to be appropriately inserted and to read:

     ""Controlling persons" 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", "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 employment organization under that contract.

     "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 to co-employ 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 company 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."

     SECTION 4.  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 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.

     (c)  Registration under this section shall expire on [December 31 of each odd-numbered year.] June 30 of each even-numbered year.  Before [December 31 of each odd-numbered year,] June 30 of each 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.  Registrants holding a registration that has 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.]"

     SECTION 5.  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,] as follows:

     (1)  Professional employer organizations consisting of fewer than one hundred full-time or part-time employees shall post a minimum of $500,000;

     (2)  Professional employer organizations entering into the industry with no prior experience shall post a minimum of $500,000; and

     (3)  All other professional employer organizations shall post an amount equal to five per cent of the organization's prior year's total wages, benefits, workers' compensation premiums, and unemployment compensation contributions;

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.

     (b)  The bond required by this section shall be issued by a surety or federally insured lending institution authorized to do business in the State to indemnify a client company who may suffer loss as a result of nonperformance by a professional employer organization.

     (c)  Upon cancellation or expiration of the bond, the surety or insurer shall remain liable for any claims against the bond for a period of six months; 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.

     (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.  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 damage resulting from noncompliance of a professional employer organization with this chapter, may bring an action on the bond to recover the damage therefrom.  The director may deposit with a court of competent jurisdiction all or any part of the sum of the bond."

     SECTION 6.  In codifying the new sections added by section 1 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 7.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 8.  This Act shall take effect on July 1, 2112.


 


Report Title:

Professional Employment Organizations; Professional Employer Organizations

 

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 with chapter 373L, Hawaii Revised Statutes (HRS).  Establishes the Professional Employer Special Fund to manage the registration of professional employer organizations.  Amends certain definitions in chapter 373L, HRS, to make them consistent with definitions in chapter 373K, HRS.  Effective July 1, 2112.  (HB2645 HD1)

 

 

 

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