Introduced Version Senate Bill 282 History

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Key: Green = existing Code. Red = new code to be enacted
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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:


§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.

§33-46A-2. Definitions.

(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 Virginia.

(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 persons.

(f) "Person" means a natural person or a legal entity, including, without limitation, a sole proprietorship, firm, partnership, limited liability company, association, trust or corporation.

(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 administrative fee.

(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 article.
(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 agreement:
(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 in writing.
(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 entities;
(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 financial statement.
(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 located.
(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; and
(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 article, including:
(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 this article.
(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 or repealed.
§33-46A-6. Requirements for provisions of PEO agreements; general requirements and provisions.

(a) Each professional employer agreement shall allocate the responsibility to:
(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 employees.
(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 client-employer's business;
(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 economic incentive.
(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 employees.
(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 agreement:
(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; or
(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 coverage.
(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 claims;
(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 circumstances exist:
(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 PEO.
(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 be added.

This bill was reported from the Joint Standing Committee on Government Organization with no recommendation as to its passage.
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