HOUSE OF REPRESENTATIVES

H.B. NO.

1399

TWENTY-SEVENTH LEGISLATURE, 2013

 

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.  The legislature finds that Act 225, Session Laws of Hawaii 2007, enacted as chapter 373K, Hawaii Revised Statutes, provides for a general excise tax exemption on amounts a client company pays to a professional employment organization for employee wages and benefits.

     The legislature further finds that Act 129, Session Laws of Hawaii 2010, enacted as chapter 373L, Hawaii Revised Statutes, established registration, audit, and bonding requirements for professional employer organizations.  Since these requirements went into effect on July 1, 2011, most local small professional employer organizations have been unable to comply with Act 129's surety bond requirements because of the capital and cost requirements.  Consequently, these professional employer organizations have incurred or are faced with prohibitive audit fee costs, which when passed on to clients, make small local businesses less competitive with much larger or mainland based companies.  Act 129 also contains inconsistent definitions of co-employment arrangements making application of the law confusing and unenforceable, has an inconsistent impact on locally-owned professional employer organizations as compared to  mainland-owned or much larger payroll service bureaus, and makes it difficult for small professional employer organizations without large financial resources to obtain sufficient bonding from insurance companies and banks.

     The legislature further finds that professional employer organizations, like most employers, are already regulated by civil and criminal laws and are subject to department of labor and industrial relations penalties for failure to comply with payroll and labor laws.  Additional regulatory enforcement of professional employer organizations by the department of labor and industrial relations needs to be simplified.

     Finally, the legislature finds that professional employer organizations should be allowed to become successor employers of client companies.

     The purpose of this Act is to make regulation of professional employer organizations more consistent by:

     (1)  Repealing chapter 373L, Hawaii Revised Statutes;

     (2)  Amending chapter 373K, Hawaii Revised Statutes, to clarify the statutory responsibilities allocated between a client company and a professional employer organization;

     (3)  Enabling the director of labor and industrial relations to notify the department of taxation when professional employer organizations violate chapter 373K, Hawaii Revised Statutes, and are, consequently, ineligible for the general excise tax exemption under section 237-24.75, Hawaii Revised Statutes;

     (4)  Amending the definition of "leased employee" for purposes of enterprise zone coverage to conform to the terminology of chapter 373K, Hawaii Revised Statutes; and

     (5)  Allowing professional employer organizations the option to be successor employers to client companies and to transfer the experience records of client companies.

     SECTION 2.  Chapter 373K, Hawaii Revised Statutes, is amended by adding six new sections to be appropriately designated and to read as follows:

     "§373K-A  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; and

     (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.

     (c)  Failure to register or maintain registration shall constitute a professional employer organization's noncompliance with this chapter and shall result in notification to the department of taxation that the professional employer organization shall not be eligible for the tax exemption under section 237-24.75.

     (d)  The director shall establish fees and requirements for the registration and maintenance of registration by professional employer organizations by rules adopted pursuant to chapter 91.

     §373K-B  Fees.  Effective July 1, 2014, the director shall collect fees for registration pursuant to this chapter as follows:

     (1)  A registration fee of $250; and

     (2)  A biennial renewal fee of $500

until such time as the director establishes fees and other requirements for registration and maintenance of registration in accordance with section 373K-A(d).

     §373K-C  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)  Notifying the department of taxation in writing of any violation of this chapter or the denial, suspension, revocation, or denial of renewal of registration of a professional employer organization under this chapter and the resulting loss of the general excise tax exemption as provided by section 237-24.75; and

     (3)  Doing all things necessary to carry out the functions, powers, and duties established by this chapter.

     §373K-D  Professional employer agreements; notification to department.  (a)  During the term of an agreement between a professional employer organization and a client company, the professional employer organization shall be deemed the employer for purposes of disbursing unemployment insurance, workers' compensation, temporary disability insurance, and prepaid health care coverage for assigned employees.

     (b)  A professional employer organization shall provide written notice to the department of labor and industrial relations, on a form provided by the department, of the relationships between the professional employer organization and its client companies within thirty business days of the initiation of the relationship and within thirty business days of the termination of the relationship.  The notice provided by a professional employer organization, including the names of the client companies and information that may identify the client companies, shall be confidential and not subject to disclosure under chapter 92F.

     (c)  The director, to the extent practicable, may accept electronic filings in conformance with chapter 489E, including applications, documents, reports, and other filings required under this chapter.  The director may also provide for the acceptance of electronic filings by professional employer organizations.  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.

     §373K-E  Hearings.  (a)  Unless otherwise provided by law, every case in which the director denies, suspends, revokes, or denies renewal of a professional employer organization's registration shall be subject to administrative appeal and hearing in accordance with chapter 91, except as otherwise provided by this section.  Administrative hearings held pursuant to this section may be conducted by the director or an appointed hearings officer.

     (b)  In all proceedings pursuant to this section, the director or hearings officer shall have the same powers regarding administering oaths, compelling the attendance of witnesses, the production of documentary evidence, and examining witnesses as are possessed by the circuit courts.  In the case of noncompliance by any person of any subpoena or order issued by the director or hearings officer, or the refusal of any witness to testify to any matter on which the witness may be questioned lawfully, the circuit court in the county in which the person subject to the subpoena or order resides, upon application by the director or hearings officer, may enforce obedience to a subpoena or order in the same manner as a subpoena issued by the clerk of the circuit court.

     §373K-F  Judicial review by circuit court.  Any professional employer organization aggrieved by a final decision and order of the director or hearings officer in a contested case, as defined in chapter 91, shall be 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 as provided by chapter 91."

     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] a covered employee under a professional [employment organization arrangement] employer agreement or co-employment arrangement who is assigned to a particular client company [on a substantially full-time basis for at least one year.] as defined under chapter 373K."

     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 [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.] if:

         (A)  By or through any contract between a client company and the professional employer organization, or otherwise, employees are excluded from any employee rights or employee benefits required by law to be provided to covered employees of the client company by the professional employer organization;

         (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;

         (C)  The professional employer organization fails to properly register with the director of labor and industrial relations or pay any fees required by chapter 373K; or

         (D)  The professional employer organization is not in compliance with chapter 373K and the director of labor and industrial relations has notified the department of taxation in writing of such noncompliance.

          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."

     SECTION 5.  Chapter 373K, Hawaii Revised Statutes, is amended as follows:

     1.   By amending its title to read:

"PROFESSIONAL [EMPLOYMENT] EMPLOYER ORGANIZATIONS"

     2.   By amending section 373K-1, Hawaii Revised Statutes, to read:

     "[[]§373K-1[]]  Definitions.  As used in this chapter, unless the context otherwise requires:

     "Assigned employee" means an employee under a professional [employment organization arrangement] employer agreement whose work is performed in the State.  The term does not include an employee hired to support or supplement a client company's workforce as temporary staffing or help[.] services.  "Assigned employee" has the same meaning as the term "leased employee" as defined in section 414(n) (with respect to employee leasing) of the Internal Revenue Code of 1986, as amended.

     "Client company" means a person that contracts with a professional [employment] employer organization and is assigned employees by the professional [employment] employer organization under that contract.

     "Co-employment" means an arrangement by which employees of a professional employer organization are assigned to work at the client company's work site and the assigned employee's assignment is intended to be of a long-term or continuing nature, rather than temporary staffing or help services, and the rights, duties, and obligations of an employer that arise out of an employment relationship are allocated between the client company, which is the work site employer, and the professional employer organization, which is the offsite employer of record.

     "Covered employee" means an individual who has a co-employment relationship with a professional employer organization and a client company and who is an assigned employee of the client company.

     "Director" means the director of labor and industrial relations.

     "Offsite employer of record" means a professional employer organization pursuant to a professional employer agreement to which is contractually assigned the financial and administrative duties of a client company, including human resources administration, payroll and payroll taxes, workers' compensation and temporary disability coverage, state unemployment, and prepaid health care coverage of co-employees pursuant to a professional employer agreement.

     "Person" means a natural or legal person.

     "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 of covered employees; 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 [employment] employer organization" means [a business entity that offers to co-employ employees that are assigned to] any person that is a party to a professional employer agreement with a client company that co-employs assigned employees at the worksites of its client companies[.] 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.

     "Professional [employment] employer organization services" means an arrangement by which co-employees of a professional [employment] employer organization are assigned to work at the client company and the assigned employee's assignment is 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] a person hires [its] a person's 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.

     "Temporary staffing or 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.

     "Work site employer" means the client company, pursuant to a professional employer agreement, that retains workplace management and supervisory control and responsibility of the co-employees including compliance with labor or employment laws, collective bargaining rights, anti-discrimination provisions, or other laws with respect to the protection and rights of employees and also compliance with chapters 377 and 378."

     SECTION 6.  Section 373K-2, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§373K-2[]]  Professional [employment] employer organization; employee rights; payroll cost exemption.  (a)  Where any client company uses the services of assigned employees and co-employs assigned employees with a professional [employment] employer organization, the client company and the professional [employment] employer 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] employer organization.

     These employee rights shall not be abrogated by any contract or agreement between the client company and the professional [employment] employer organization, or the professional [employment] employer 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] employer 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", 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.]

     (b)  The client company shall be deemed to have satisfied its obligations with respect to any assigned employee under any applicable law, including, without limitation, workers' compensation laws including chapter 386, employee insurance coverage laws 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 professional [employment] employer organization acting in its capacity as co-employer of such assigned employee.

     (c)  Amounts received by a professional [employment] employer organization from a client company in amounts equal to and 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 employees at a client company shall not be subject to the general excise tax as provided by section 237-24.75.

     (d)  The general excise tax exemption under section 237‑24.75 shall not apply to the professional [employment] employer organization if:

     (1)  By or through any contract between the client company and [any] the professional [employment] employer organization, or otherwise, employees are excluded from any employee rights or employee benefits required by law to be provided to covered employees of the client company by the [client company; or] professional employer organization;

     (2)  The professional [employment] employer organization fails to pay any tax withholding for [assigned] covered employees or any federal or state taxes for which the professional [employment] employer organization is responsible[.];

     (3)  The professional employer organization fails to properly register with the director of labor and industrial relations or pay any fees required by this chapter; or

     (4)  The professional employer organization is not in compliance with this chapter and the director of labor and industrial relations has notified the director of taxation in writing of such noncompliance."

     SECTION 7.  Section 383-66, Hawaii Revised Statutes, is amended to read as follows:

     "§383-66  Contribution rates, how determined.  (a)  The department, for the nine-month period April 1, 1941, to December 31, 1941, and for each calendar year thereafter, except as otherwise provided in this part, shall classify employers in accordance with their actual experience in the payment of contributions and with respect to benefits charged against their accounts with a view to fixing the contribution rates to reflect this experience.  The department shall determine the contribution rate of each employer in accordance with the following requirements:

     (1)  The standard rate of contributions payable by each employer for any calendar year through 1984 shall be three per cent.  For calendar years 1985 and thereafter, the standard rate of contributions payable by each employer shall be five and four-tenths per cent;

     (2)  No employer's rate for the calendar year 1942 and for any calendar year thereafter shall be other than the maximum rate unless and until the employer's account has been chargeable with benefits throughout the thirty-six consecutive calendar month period ending on December 31 of the preceding calendar year, except that, for the calendar year 1956 and for each calendar year thereafter, an employer who has not been subject to the law for a sufficient period to meet this requirement may qualify for a rate other than the maximum rate if the employer's account has been chargeable throughout a lesser period but in no event less than the twelve consecutive calendar month period ending on December 31 of the preceding calendar year.  For the calendar years 1985 through 1991, the contribution rate for a new or newly covered employer shall be the sum of the employer's basic contribution rate of three and six-tenths per cent and the fund solvency contribution rate determined for that year pursuant to section 383-68(a), until the employer's account has been chargeable with benefits throughout the twelve consecutive calendar month period ending on December 31 of the preceding calendar year; except that no employer's contribution rate shall be greater than five and four-tenths per cent and no employer with a negative reserve ratio shall have a contribution rate less than the employer's basic contribution rate.  For calendar years 1992 and thereafter, the contribution rate for a new or newly covered employer shall be the contribution rate assigned to any employer with .0000 reserve ratio, until the employer's account has been chargeable with benefits throughout the twelve consecutive calendar month period ending on December 31 of the preceding calendar year;

     (3)  Any amount credited to this State under section 903 of the Social Security Act, as amended, which has been appropriated for expenses of administration, whether or not withdrawn from the trust fund, shall be excluded from the fund for the purposes of this paragraph.  Any advance that may be made to this State under section 1201 of the Social Security Act, whether or not withdrawn from this trust fund, shall be excluded from the fund for the purposes of this paragraph.  No employer's rate shall be reduced in any amount that is not allowable as an additional credit, against the tax levied by the federal Unemployment Tax Act pursuant to section 3302(b) of the federal Internal Revenue Code or pursuant to any other federal statute, successor to section 3302(b), which provides for the additional credit now provided for in section 3302(b);

     (4)  If, when any classification of employers is to be made (which may be after the commencement of the period for which the classification is to be made), the department finds that any employer has failed to file any report required in connection therewith or has filed a report that the department finds incorrect or insufficient, the department shall notify the employer thereof by mail addressed to the employer's last known address.  Unless the employer files the report or a corrected or sufficient report, as the case may be, within fifteen days after the mailing of the notice, the maximum rate of contributions shall be payable by the employer for the period for which the contribution rate is to be fixed.  Effective January 1, 1987, the director, for excusable failure, may redetermine the assignment of the maximum contribution rate in accordance with this section, provided the employer files all reports as required by the department and submits a written request for redetermination before December 31 of the year for which the contribution rate is to be fixed;

     (5)  For the purpose of sections 383-63 to 383-69, if after December 31, 1939, any employing unit in any manner succeeds to or acquires the organization, trade, or business, or substantially all the assets thereof (whether or not the successor or acquiring unit was an "employing unit", as that term is defined in section 383-1 prior to the acquisition), or after December 31, 1988 and prior to December 31, 1992, acquires a clearly identifiable and segregable portion of the organization, trade, or business of another that at the time of the acquisition was an employer subject to this chapter, and the successor continues or resumes the organization, trade, or business and continues to employ all or nearly all of the predecessor's employees, or the successor continues or resumes the clearly identifiable and segregable portion of the organization, trade, or business and continues to employ all or nearly all of the employees of the clearly identifiable and segregable portion, or after July 1, 2013, a professional employer organization contracts with a client company for the co-employment of assigned employees as defined in chapter 373K, an application may be made for transfer of the predecessor's experience record.  If the predecessor employer has submitted all information and reports required by the department including amended quarterly wage reports identifying the employees transferred or retained and executed and filed with the department before December 31 of the calendar year following the calendar year in which the acquisition occurred on a form approved by the department a waiver relinquishing the rights to all or the clearly identifiable and segregable portion of the predecessor's prior experience record with respect to its separate account, actual contribution payment, and benefit chargeability experience, annual payrolls and other data for the purpose of obtaining a reduced rate, and requesting the department to permit the experience record to inure to the benefit of the successor employing unit upon request of the successor employing unit, the experience record for rate computation purposes of the predecessor shall thereupon be deemed the experience record of the successor and the experience record shall be transferred by the department to the successor employing unit and shall become the separate account of the employing unit as of the date of the acquisition.  Benefits chargeable to the predecessor employer or successor employer in case of an acquisition of a clearly identifiable and segregable portion of the organization, trade, or business, after the date of acquisition on account of employment prior to the date of the acquisition shall be charged to the separate account of the successor employing unit.  In case of an acquisition of a clearly identifiable and segregable portion of the organization, trade, or business, the experience record that inures to the benefit of the successor employer shall be determined as follows:

         (A)  Wages, as used in section 383-61, attributable to the clearly identifiable and segregable portion shall be for the period beginning with the most recent three consecutive calendar years immediately preceding the determination of rates under sections 383-63 to 383-69 and through the date of acquisition; and

         (B)  Reserve balance attributable to the clearly identifiable and segregable portion shall be the amount determined by dividing the wages, as used in section 383-61, of the clearly identifiable and segregable portion in the three calendar years (or that lesser period as the clearly identifiable and segregable portion may have been in operation) immediately preceding the computation date of the rating period prior to which the acquisition occurred by the total taxable payrolls of the predecessor for the three-year period (or that lesser period as the clearly identifiable and segregable portion may have been in operation) and multiplying the quotient by the reserve balance of the predecessor employer calculated as of the acquisition date;

          provided the waiver or waivers required herein are filed with the department within sixty days after the date of acquisition, the successor employing unit, unless already an employer subject to this chapter, shall be subject from the date of acquisition to the rate of contribution of the predecessor or of two or more predecessors if they have the same contribution rate.  If there are two or more predecessors having different contribution rates, the successor shall be subject to the rate prescribed for new or newly covered employers under paragraph (2) until the next determination of rates under sections 383-63 to 383‑69, at which time the experience records of the predecessors and successor shall be combined and shall be deemed to be the experience record of a single employing unit and the successor's rate shall thereupon be determined upon the basis of the combined experience.  If the successor at the time of the transfer is an employer subject to this chapter, the rate of contribution to which the successor is then subject shall remain the same until the next determination of rates under sections 383-63 to 383‑69, at which time the experience records of the predecessor and successor shall be combined and shall be deemed to be the experience record of a single employing unit and the successor's rate shall thereupon be determined upon the basis of the combined experience.  For the purpose of determination of rates under sections 383-63 to 383-69 of all successor employing units, waivers as required herein, if not previously filed as hereinabove provided, shall be filed with the department not later than March 1 of the year for which the rate is determined; provided that no waiver shall be accepted by the department for filing unless the employing unit executing the waiver has filed all reports and paid all contributions required by this chapter;

     (6)  The department may prescribe rules for the establishment, maintenance, and dissolution of joint accounts by two or more employers, and, in accordance with the rules and upon application by two or more employers to establish such an account, or to merge their several individual accounts in a joint account, shall maintain the joint account as if it constituted a single employer's account.  The rules shall be consistent with the federal requirements for additional credit allowance in section 3303 of the federal Internal Revenue Code and consistent with this chapter;

     (7)  Whenever there is an amendment to this chapter which, if immediately effective, would change an employer's rate of contributions, the rate of the employer shall be changed in accordance with the amendment and the new rate shall apply for the remainder of the calendar year beginning with the calendar quarter immediately following the effective date of the amendment providing for the change, unless otherwise provided by the amendment;

     (8)  For the purposes of this section, "contribution rate" shall mean the basic contribution rate as defined in section 383-68 when applied to calendar year 1978 or any calendar year thereafter; and

     (9)  For the purposes of this section, the terms "employing unit", "employer", "predecessor", and "successor" shall include both the singular and the plural of each term.  Nothing in this section shall prevent two or more successor employing units, which each succeed to or acquire a clearly identifiable and segregable portion of a predecessor employing unit, from gaining the benefit of the clearly identifiable and segregable portion of the predecessor's experience record;

provided that the terms of this section are complied with, nothing herein shall bar a predecessor employer from waiving the rights to all or the clearly identifiable and segregable portion of the predecessor's prior experience record in favor of a successor employer where the successor acquired a clearly identifiable and segregable portion of the predecessor's organization, trade, or business after December 31, 1988 and prior to December 31, 1992.

     (b)  Notwithstanding any other provision of this chapter, the following shall apply regarding assignment of rates and transfers of experience:

     (1)  If an employing unit transfers its organization, trade, or business, or a portion thereof, to another employing unit, or contracts with a professional employer organization for the co-employment of covered employees as defined in chapter 373K, and, at the time of the transfer, or contract with a professional employer organization, there is substantially common ownership, management, [or] control, or co-employment of the two employing units, both employing units shall file a notification of the transfer with the department on a form approved by the department within thirty days after the date of the transfer.  The department shall transfer the experience records attributable to the transferred organization, trade, or business to the employing unit to whom the organization, trade, or business is transferred.  The rates of both employing units shall be recalculated and made effective beginning with the calendar year immediately following the date of the transfer of the organization, trade, or business;

     (2)  If a person is not an employing unit as defined in section 383-1 at the time it acquires the organization, trade, or business of another employing unit, both the person and the employing unit shall file a notification of the acquisition with the department on a form approved by the department within thirty days after the date of the acquisition.  If the department determines at the time of the acquisition or thereafter, based on objective factors that may include:

         (A)  The cost of acquiring the organization, trade, or business;

         (B)  Whether the person continued the activity of the acquired organization, trade, or business;

         (C)  How long the organization, trade, or business was continued; or

         (D)  Whether a substantial number of new employees were hired for performance of duties unrelated to the organization, trade, or business activity conducted prior to the acquisition, that the acquisition was solely or primarily for the purpose of obtaining a lower rate of contribution, the person shall not be assigned the lower rate and shall be assigned the contribution rate for a new or newly covered employer pursuant to subsection (a)(2) instead;

     (3)  An employing unit or person who is not an employing unit shall be subject to penalties under paragraph (4) or (5) if the employing unit or person who is not an employing unit:

         (A)  Knowingly violates or attempts to violate this subsection or any other provision of this chapter related to determining the assignment of a contribution rate;

         (B)  Makes any false statement or representation or fails to disclose a material fact to the department in connection with the transfer or acquisition of an organization, trade, or business; or

         (C)  Knowingly advises another employing unit or person in a way that results in a violation or attempted violation of this subsection;

     (4)  If the person is an employing unit:

         (A)  The employing unit shall be subject to the highest rate assignable under this chapter for the calendar year during which the violation or attempted violation occurred and for the consecutive three calendar years immediately following; or

         (B)  If the employing unit is already at the highest rate or if the amount of increase in the employing unit's rate would be less than two per cent for the calendar year during which the violation or attempted violation occurred, a penalty equal to contributions of two per cent of taxable wages shall be imposed for the calendar year during which the violation or attempted violation occurred and the consecutive three calendar years immediately following.  Any penalty amount collected in excess of the maximum contributions payable at the highest rate shall be deposited in the special unemployment insurance administration fund in accordance with section 383-127;

     (5)  If the person is not an employing unit, the person shall be subject to a penalty of not more than $5,000.  The penalty shall be deposited in the special unemployment insurance administration fund in accordance with section 383-127;

     (6)  For purposes of this subsection, the following definitions shall apply:

         (A)  "Knowingly" means having actual knowledge of or acting with deliberate ignorance or reckless disregard for the requirements or prohibition involved;

         (B)  "Violates or attempts to violate" includes but is not limited to intent to evade, misrepresentation, or wilful nondisclosure;

         (C)  "Person" shall have the same meaning as defined in section 7701(a)(1) of the Internal Revenue Code of 1986, as amended; and

         (D)  "Organization, trade, or business" shall include the employer's workforce;

     (7)  In addition to the civil penalties imposed by paragraphs (4) and (5), any violation of this section may be prosecuted under sections 383-142 and 383-143.  No existing civil or criminal remedy for any wrongful action that is a violation of any statute or any rule of the department or the ordinance of any county shall be excluded or impaired by this section;

     (8)  The department shall establish procedures to identify the transfer or acquisition of an employing unit for the purposes of this section; and

     (9)  This section shall be interpreted and applied in a manner to meet the minimum requirements contained in any guidance or regulations issued by the United States Department of Labor."

     SECTION 8.  Chapter 373L, Hawaii Revised Statutes, is repealed.

     SECTION 9.  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 10.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 11.  This Act shall take effect on July 1, 2013; provided that the registration requirements of section 2 of this Act shall take effect on July 1, 2014.

 

INTRODUCED BY:

_____________________________

 

 


 


 

Report Title:

Professional Employer Organizations

 

Description:

Repeals HRS chapter 373L; adds definitions and registration and fee requirements to professional employer organization (PEO) law; requires notice to DOTAX of PEO violations for general excise tax exemption purposes; allows PEOs to be successor employers to client companies.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.