Senate Bill No. 282
(By Senators Jenkins, Bailey, Plymale, Stollings,
Barnes, Boley, Bowman, Green, McKenzie, Kessler and Love)
[Introduced January 21, 2008; referred to the Committee on
Government Organization; and then to the Committee on Finance.]
A BILL to amend the Code of West Virginia, 1931, as amended, by
adding thereto a new article, designated §33-46A-1, §33-46A-2,
§33-46A-3, §33-46A-4, §33-46A-5, §33-46A-6, §33-46A-7,
§33-46A-8, §33-46A-9, §33-46A-10 and §33-46A-11, all relating
to professional employer organizations; providing declaration
of purpose and intent; providing definitions; clarifying
rights, duties and obligations unaffected by the article;
requiring license from the Insurance Commissioner to engage in
the business of a professional employer organization; setting
forth licensure requirements; providing for legislative and
emergency rules; authorizing the Insurance Commissioner to
establish licensure and other fees; setting forth requirements
for professional employer agreements; allocating tax credits,
status, incentives and liability; providing requirements for
workers' compensation coverage; providing requirements for unemployment compensation coverage; providing enforcement
measures, including penalties; requiring study of health
plans; and prohibiting self-funded health plans.
Be it enacted by the Legislature of West Virginia:
That the Code of West Virginia, 1931, as amended, be amended
by adding thereto a new article, designated §33-46A-1, §33-46A-2,
§33-46A-3, §33-46A-4, §33-46A-5, §33-46A-6, §33-46A-7, §33-46A-8,
§33-46A-9, §33-46A-10 and §33-46A-11, all to read as follows:
ARTICLE 46A. PROFESSIONAL EMPLOYER ORGANIZATIONS.
§33-46A-1. Purpose and intent.
The Legislature hereby finds that:
(1) Professional Employer Organizations (hereinafter "PEOs")
provide a valuable service to commerce and the citizens of this
state by increasing the opportunities of employers to develop
cost-effective methods of satisfying their personnel requirements
and providing employees with access to certain employment benefits
which might otherwise not be available to them;
(2) PEOs operating in this state should be properly recognized
and regulated by the Insurance Commissioner; and
(3) Any allocation of employer duties and responsibilities
between a PEO and a client-employer pursuant to this article should
preserve all rights to which covered employees would be entitled
under a traditional employment relationship.
(a) "Administrative fee" means the amount charged to a
client-employer by a PEO for professional employer services. It
does not include amounts paid by a client-employer to the PEO for
wages and salaries, benefits, payroll taxes, withholding or
assessments paid by the PEO to or on behalf of covered employees
under the professional employer agreement.
(b) "Client-employer" means an employer who enters into a
professional employer agreement with a PEO.
(c) "Commissioner" means the Insurance Commissioner of West
(d) "Covered employee" means a person employed by a
client-employer pursuant to the terms of a PEO agreement or by
operation of law. Persons who are officers, directors,
shareholders, partners and managers of the client-employer and who
perform day-to-day operational services for the client-employer
will be covered employees to the extent expressly set forth in the
professional employer agreement.
(e) "PEO group" means two or more PEOs that are majority owned
or commonly controlled by the same entity, parent or controlling
(f) "Person" means a natural person or a legal entity,
including, without limitation, a sole proprietorship, firm,
partnership, limited liability company, association, trust or
(g) "Professional employer agreement" means a written contract
by and between a client-employer and a PEO under which a PEO
contracts to provide professional employer services for an
(h) "Professional employer organization" or "PEO" means a
person engaged in the business of providing professional employer
services, regardless of its use of the term, or conducting business
as a "staff leasing company," "registered staff leasing company,"
"employee leasing company," "administrative employer," or any other
name. For purposes of this article, the following is not a PEO:
(1) A person who shares employees with a commonly-owned
company within the meaning of section 414(b) and (c) of the
Internal Revenue Code of 1986, as amended, but neither holds itself
out as a PEO nor enters into professional employer agreements as
its principal business activity;
(2) An independent contractor who assumes responsibility for
the product produced or service performed by a person or his or her
agents and who retains and exercises primary direction and control
over the work performed; or
(3) A person who provides temporary help services.
(i) "Professional employer services" means functions which are
customarily exercised by an employer with respect to its employees,
including, but not limited to, hiring, firing and disciplining
employees, paying wages, withholding and paying payroll taxes and
maintaining employee benefit plans other than health insurance
plans, as allocated to a PEO in a PEO agreement.
(j) "Worksite employees" means persons employed by a PEO and
not by a client-employer.
§33-46A-3. Rights, duties and obligations unaffected by this
(a) Nothing in this article or in any professional employer
agreement affects, modifies or amends any collective bargaining
agreement, or the rights or obligations of a client-employer, PEO
or covered employee under the Federal National Labor Relations
Article, the Federal Railway Labor Article or article one-a,
chapter twenty-one of this code.
(b) Nothing in this article or in any professional employer
(1) Diminishes, abolishes or removes rights of covered
employees as to a client-employer or obligations of a
client-employer to covered employees existing prior to the
effective date of the professional employer agreement;
(2) Affects, modifies, or amends any contractual relationship
or restrictive covenant between a covered employee and a
client-employer in effect at the time a professional employer
agreement becomes effective;
(3) Prohibits or amends or any contractual relationship or
restrictive covenant that is entered into subsequent to the effective date of a professional employer agreement between a
client-employer and a covered employee; or
(4) Diminishes, abolishes or removes the legal obligations of
an employer to its employees.
(c) A PEO has no responsibility or liability in connection
with, or arising out of, any existing or new contractual
relationship or restrictive covenant between a covered employee and
a client-employer unless the PEO has specifically agreed otherwise
(d) This article does not create any new or additional
enforceable right of a covered employee against a PEO that is not
specifically provided by the professional employer agreement, this
article or by operation of law.
(e) A PEO is entitled to enforce only those employer rights
and is subject to only those obligations specifically allocated to
the PEO by the professional employer agreement or this article;
(f) The client-employer is entitled to enforce those rights
and obligated to perform those obligations allocated by the
professional employer agreement and this article, as well as any
rights and obligations of an employer not specifically allocated to
the PEO by the professional employer agreement, this article or by
operation of law.
(g) Nothing in this article or any professional employer
agreement affects, modifies or amends any state, local or federal licensing, registration or certification requirement applicable to
a client-employer or covered employee.
§33-46A-4. Licensing requirements.
(a) Except as otherwise provided in this article, no person
may provide, advertise or otherwise hold himself, herself or itself
out as providing professional employer services to client-employers
in this state, unless licensed under this article.
(b) Every PEO operating within this state as of the effective
date of this article must obtain a license under this article no
later than the thirtieth day of September, two thousand eight.
(c) Each applicant for licensure under this article shall
provide the commissioner with the following information:
(1) The name or names under which the PEO conducts business;
(2) The address of the principal place of business of the PEO
and the address of each office it maintains in this state;
(3) The PEO's taxpayer or employer identification number;
(4) A list by jurisdiction of each name under which the PEO
has operated in the preceding five years, including any alternative
names, names of predecessors and, if known, successor business
(5) A statement of ownership, which shall include the name and
evidence of the business experience of any person who, individually
or acting in concert with one or more other persons, owns or
controls, directly or indirectly, twenty-five percent or more of the equity interests of the PEO;
(6) A statement of management, which shall include the name
and evidence of the business experience of any person who serves as
president, chief executive officer or otherwise has the authority
to act as senior executive officer of the PEO; and
(7) The PEO's most recent audited financial statement setting
forth the financial condition of the PEO or PEO Group, which may
not be older than thirteen months. The financial statement shall
be prepared in accordance with generally accepted accounting
principles, and audited by an independent certified public
accountant licensed to practice in the jurisdiction in which the
accountant is located, and shall be without qualification as to the
going concern status of the PEO.
(d) An applicant may apply to the commissioner for an
extension of time for filing its financial statement. A request
for an extension must be accompanied by a letter from an
independent certified public accountant licensed to practice in the
jurisdiction in which the accountant is located, stating the
reasons for the delay and the anticipated completion date of the
(e) A PEO who has not had sufficient operating history to have
an audited financial statement based upon at least twelve months of
operating history must meet the financial capacity requirements set
forth in subsection (h) of this section, and present financial statements reviewed by an independent certified public accountant
licensed to practice in the jurisdiction in which the accountant is
(f) PEOs in a PEO group may satisfy the reporting and
financial requirements of this licensing law on a combined or
consolidated basis provided that each member of the PEO Group
guarantees the obligations under this article of each other member
of the PEO Group. In the case of a PEO Group that submits a
combined or consolidated audited financial statement including
entities that are not PEOs or that are not in the PEO Group, the
controlling entity of the PEO Group under the consolidated or
combined statement must guarantee the obligations of the PEOs in
the PEO Group.
(g) Within one hundred eighty days after the end of a
licensee's fiscal year, the licensee shall apply for renewal of its
license by submitting its most recent audited financial statement
meeting the same requirements as for initial licensure, together
with any changes in the information required for initial licensure,
all as set forth by subsection (c) of this section.
(h) Except for limited licenses granted in accordance with the
provisions of subsection (i) of this section, each PEO shall
maintain a minimum of one hundred thousand dollars in working
capital, as defined by generally accepted accounting principles and
as reflected in the financial statements submitted to the commissioner with the application for initial or renewal license.
(i) The commissioner may grant a PEO domiciled outside this
state a limited license for such time periods as he or she
determines is appropriate, subject to the following requirements:
(1) The applicant for a limited license must submit a request
on a form provided by the commissioner;
(2) The applicant must demonstrate that it:
(A) Is domiciled outside this state;
(B) Is licensed or registered as a professional employer
organization in another state under terms that are substantially
similar to the requirements of this article;
(C) Does not maintain an office in this state or directly
solicit client-employers located or domiciled within this state;
(D) Does not have more than fifty covered employees employed
or domiciled in this state on any given day.
(j) All records, reports and other information obtained from
a PEO under this article, except for the information required by
subsection (c) of this section, and except to the extent necessary
for the proper administration of this article by the commissioner
or his or her agents, is confidential and may not be published or
open to public inspection other than to public employees in the
performance of their public duties.
§33-46A-5. Rule-making authority; fees.
(a) Except as provided in section eight of this article, the
commissioner may propose rules for legislative approval in
accordance with the provisions of article three, chapter
twenty-nine-a of this code, to implement the provisions of this
(1) Procedures for the issuance and renewal of licenses;
(2) Procedures for denying, suspending, revoking, reinstating
or limiting the practice of a licensee;
(3) Requirements for activating inactive or revoked licenses;
(4) Special financial requirements for small, start-up PEOs;
(5) A schedule of fees; and
(6) Any other rules necessary to implement the provisions of
(b) The commissioner may promulgate emergency rules pursuant
to the provisions of section fifteen, article three, chapter
twenty-nine-a of this code, for any purposes set forth for
legislative rules in subsection (a) of this section.
(c) All rules in effect on the effective date of this article,
including legislative exempt rules, remain in effect until amended
§33-46A-6. Requirements for provisions of PEO agreements; general
requirements and provisions.
(a) Each professional employer agreement shall allocate the
(1) Pay wages to covered employees;
(2) Withhold, collect, report and remit payroll-related and
unemployment taxes; and
(3) Make payments for employee benefits on behalf of covered
(b) Each professional employer agreement shall provide that
the client-employer shall retain the right to hire, discipline, and
terminate a covered employee: Provided, That the PEO shall have
the right to terminate a professional employer agreement if a
client-employer refuses without good cause a request from the PEO
that the client-employer discipline or terminate a covered employee
as may be necessary to fulfill the PEO's responsibilities under
this article and the professional employer agreement.
(c) Except to the extent otherwise expressly provided by the
applicable professional employer agreement:
(1) A client-employer is solely responsible for the quality,
adequacy or safety of the goods or services produced or sold in
(2) A client-employer is solely responsible for directing,
supervising, training and controlling the work of a covered
employee, and is solely responsible for the acts, errors or
omissions of a covered employee, when the covered employee is
engaged in the business activities of the client-employer;
(3) A client-employer is not liable for the acts, errors or omissions of a PEO, or of a covered employee of the client-employer
when the covered employee is acting under the express direction and
control of the PEO; and
(4) A PEO is not liable for the acts, errors or omissions of
a client-employer or of a covered employee of the client-employer
when the covered employee is acting under the express direction and
control of the client-employer.
(d) A covered employee is not, solely as the result of being
a covered employee of a PEO, an employee of the PEO for purposes of
general liability insurance, fidelity bonds, surety bonds, or
liquor liability insurance carried by the PEO, unless the covered
employee is included by specific reference in the professional
employer agreement and applicable prearranged employment contract,
insurance contract or bond.
§33-46A-7. Tax credits, status, incentives and liability.
(a) A client-employer is entitled to the benefit of any tax
credit, economic incentive or other benefit arising as the result
of the employment of covered employees. Each PEO shall provide,
upon request by a client-employer or an agency of this state,
employment information reasonably required by the agency
responsible for administration of any of the tax credit or economic
incentive and necessary to support any request, claim, application
or other action by a client-employer seeking the tax credit or
(b) With respect to a bid, contract, purchase order or
agreement entered into with the state or a political subdivision of
the state, a client-employer company's status or certification as
a small, minority-owned, disadvantaged or woman-owned business
enterprise or as a historically underutilized business is not
affected because the client-employer company has entered into an
agreement with a PEO or uses the services of a PEO.
(c) This article does not relieve a client-employer of any
sales tax liability with respect to its goods or to the services of
its covered employees.
(d) Any tax upon professional employer services or any
business license or other fee which is based upon gross receipts is
limited to the administrative fee of the PEO.
(e) Any tax assessed on a per capita or per employee basis
shall be assessed against the client-employer for covered employees
and against the professional employer organization for its worksite
(f) In the case of tax imposed or calculated upon the basis of
total payroll, the professional employer organization is eligible
to apply any small business allowance or exemption available to the
client-employer for the covered employees for the purpose of
computing the tax.
§33-46A-8. Workers' compensation.
(a) The responsibility to obtain workers' compensation coverage for covered employees in compliance with all applicable
law shall be specifically allocated in the professional employer
agreement to either the client-employer or the PEO.
(b) If the responsibility is allocated to the PEO under the
(1) The agreement shall require that the PEO maintain and
provide workers' compensation coverage for the covered employees
from a carrier authorized to do business in this state: Provided,
That the provisions of section seven, article two, chapter
twenty-three of this chapter may not be abrogated by a PEO
agreement and the client-employer shall at all times remain
ultimately liable under chapter twenty-three of this code to
provide workers' compensation coverage for its covered employees;
(2) The insurer shall report:
(A) Payroll and claims data for each client-employer to the
commissioner or his or her designated advisory organization in a
manner that identifies both the client-employer and PEO; and
(B) Coverage status with respect to each client-employer in
accordance with the proof of coverage requirements provided for in
statute and rules.
(c) Workers' compensation coverage may be provided:
(1) On a master policy basis, under which a single policy
issued to the PEO provides coverage for more than one
client-employer, and may also provide coverage to the PEO with respect to its worksite employees;
(2) On a multiple coordinated policy basis, under which a
separate policy is issued to or on behalf of each client-employer
or group of affiliated client-employers with certain payment
obligations and policy communications coordinated through the PEO;
(3) On any other basis approved by the commissioner.
(d) This article does not prohibit grouping together the
client-employers of a PEO for the purposes of offering dividend
eligibility, applying a discount to the premium charged, applying
a retrospective rating option arrangement or the use of any other
loss sensitive rating options or large deductible policies as
allowed under state law.
(e) The protection of the exclusive remedy provision of
section six, article two, chapter twenty-three of this code, shall
apply to the PEO, the client-employer, and to all covered employees
and other employees of the client-employer irrespective of whether
the PEO or the client-employer obtains the workers' compensation
(f) The commissioner shall propose rules in accordance with
the provisions of subsection (c), section five, article two-c,
chapter twenty-three of this code, for adoption by the Industrial
Council, to effectuate the purposes of this section, including the
manner in which notice of default of a master policy must be given to client-employers.
§33-46A-9. Unemployment compensation insurance.
(a) For purposes of article one-a, chapter twenty one-a of
this code, covered employees of a registered PEO are considered the
employees of the PEO, which shall be responsible for the payment of
contributions, penalties and interest on wages paid by the PEO to
its covered employees during the term of the applicable
professional employer agreement.
(b) The PEO shall report and pay all required contributions to
the unemployment compensation fund using the state employer account
number and the contribution rate of the PEO.
§33-46A-10. Enforcement; penalties.
(a) No person may offer or provide professional employer
services or use the names PEO, Professional Employer Organization,
staff leasing, employee leasing, administrative employer or other
title representing professional employer services without holding
a license issued under the provisions of this article.
(b) The commissioner shall deny, suspend or revoke the license
of a PEO if he or she finds that the PEO:
(1) Is in an unsound financial condition;
(2) Is using methods or practices in the conduct of its
business that render its transaction of business in this state
hazardous or injurious to its client-employers or the public; or
(3) Has failed to pay a judgment rendered against it in this state within sixty days after the judgment has become final.
(c) The commissioner may, after notice and opportunity for a
hearing in accordance with the provisions of article two, chapter
thirty-three of this code, deny, suspend or revoke the license of
a PEO if the commissioner finds that the PEO:
(1) Has violated any lawful rule or order of the commissioner
or any provision of the insurance laws of this state;
(2) Has refused to be examined or to produce its accounts,
records and files for examination, or if any person responsible for
the conduct of affairs of the PEO has refused to give information
with respect to its affairs, or has refused to perform any other
legal obligation as to an examination, when required by the
commissioner. For purposes of this section, persons responsible
for the conduct of affairs of the PEO include, but are not limited
to, members of the board of directors, board of trustees, executive
committee or other governing board or committee; the principal
officers in the case of a corporation or the partners or members in
the case of a partnership, association or limited liability
company; any shareholder or member holding directly or indirectly
ten percent or more of the voting stock, voting securities or
voting interest of the administrator; and any other person who
exercises control or influence over the affairs of the PEO;
(3) Has, without just cause, refused to pay proper claims or
perform services arising under its contracts or has, without just cause, caused covered employees to accept less than the amount due
them or caused covered employees to employ attorneys or bring suit
against the PEO to secure full payment or settlement of their
(4) At any time fails to meet any qualification for which
issuance of the license could have been refused;
(5) Has been convicted of, or has entered a plea of guilty or
no contest to, a felony without regard to whether the adjudication
was withheld; or
(6) Is under suspension or revocation in another state.
(c) The commissioner may, in his or her discretion and without
advance notice or hearing, immediately suspend the license of a PEO
if the commissioner finds that one or more of the following
(1) The PEO is insolvent or impaired;
(2) A proceeding for receivership, conservatorship,
rehabilitation or other delinquency proceeding regarding the PEO
has been commenced in any state; or
(3) The financial condition or business practices of the PEO
otherwise pose an imminent threat to the public health, safety or
welfare of the residents of this state.
(d) If the commissioner finds that one or more grounds exist
for the suspension or revocation of a license issued under this
article, the commissioner may, in lieu of suspension or revocation, order the PEO to pay to the State of West Virginia a penalty in a
sum not exceeding ten thousand dollars and upon the failure of the
PEO to pay the penalty within thirty days after notice of the
penalty, the commissioner may revoke or suspend the license of the
(e) When a license has been revoked or suspended or renewal of
the license refused, the commissioner may reissue, terminate the
suspension or renew the license when he or she is satisfied that
the conditions causing the revocation, suspension or refusal to
renew have ceased to exist and are unlikely to recur.
§33-46A-11. Study of health plans; self-funded plans prohibited.
(a) The Joint Committee on Government and Finance shall, in
consultation with the Insurance Commissioner, study PEO health
plans and their effect on the health insurance market, including
their role in insuring the uninsured and underinsured and their
impact on the small group market, and report back to the
Legislature during the regular session of 2009, on its findings,
conclusions and recommendations, together with drafts of any
legislation necessary to effectuate its recommendations.
(b) PEOs are prohibited from self-funding health plans for
covered employees of its client-employers.
NOTE: The purpose of this bill is to regulate Professional
Employer Organizations, and to require a study as to their impact
on the health insurance market.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
This bill was reported from the Joint Standing Committee on
Government Organization with no recommendation as to its passage.