COMMITTEE SUBSTITUTE
FOR
H. B. 4079
(By Delegates Morgan, Martin and Hartman)
(Originating in the Committee on Government Organization)
[February 19, 2008]
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, and §33-46A-10, 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,
emergency and legislative exempt rules; authorizing the
Insurance Commissioner to establish licensure and other fees;
allowing the Insurance Commissioner to examine business
records and documents; providing for confidentiality of
certain information; setting forth requirements for Professional Employer Agreements; providing requirements for
workers' compensation coverage; providing enforcement measures
including penalties; requiring study of health plans,
taxation, unemployment and labor laws; and prohibiting
self-funded health plans.
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 and §33-46A-10, all to read as follows:
CHAPTER 33. INSURANCE.
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.
§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) "Covered employee" means a person employed by a
client-employer for whom certain employer responsibilities are
shared or allocated pursuant to a PEO agreement. 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 only to the extent
expressly set forth in the professional employer agreement.
(d) "PEO group" means two or more PEOs that are majority owned
or commonly controlled by the same entity, parent or controlling
persons.
(e) "Person" means a natural person or a legal entity,
including, without limitation, a sole proprietorship, firm,
partnership, limited liability company, association, trust or
corporation.
(f) "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.
(g) "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;
(2) A person who neither holds itself out as a PEO, nor enters
into professional employer agreements as its principal business
activity;
(3) 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
(4) A person who provides temporary help services.
(h) "Professional employer services" means functions that are:
(1) Allocated to a PEO in a PEO agreement;
(2) 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, maintaining employee benefit plans, and providing
for mandatory workers' compensation coverage;
(3) Exercised with respect to a majority of the employees of
a client-employer; and
(4) Intended to be of a continuing rather than a temporary or
seasonal nature.
(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 Act,
the Federal Railway Labor Act or article one-a, chapter twenty-one
of this code.
(b) Notwithstanding any other provision of this article,
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, including but not limited to
rights and obligations arising from civil rights laws guaranteeing non-discrimination in employment practices;
(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; or
(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.
§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 July, two thousand nine.
(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 an initial or renewal
license. As an alternative, each PEO may provide a bond,
irrevocable letter of credit, or securities with a minimum market
value of one hundred thousand dollars to the commissioner; such
bond shall be held by a depository designated by the commissioner,
securing payment by the PEO of all taxes, wages, benefits or other
entitlement due to or with respect to covered employees if the PEO
does not make such payments when due. For any PEO whose annual
financial statements do not indicate positive working capital, the
amount of the bond shall be one hundred thousand dollars plus an
amount sufficient to cover the deficit in working capital.
(i) Upon such terms and for such periods as he or she deems
appropriate, the commissioner may grant a PEO a limited license.
Application for such a license must be submitted on forms
prescribed by the commissioner and must demonstrate at a minimum
that the applicant:
(1) Is licensed or registered as a PEO in another state under terms that are substantially similar to the requirements of this
article;
(2) Does not maintain an office in this state or directly
solicit client-employers located within this state; and
(3) Does not have more than fifty covered employees employed
in this state on any given day.
(j) Except where it is otherwise specially provided, the
commissioner shall assess PEOs the following fees: For filing an
application pursuant to subsection (b) or (c) of this section and
an application to renew a license pursuant to subsection (g) of
this section, two hundred dollars; and for receiving and filing
annual reports, one hundred dollars.
§33-46A-5. Examinations; costs; confidentiality of information.
(a) The commissioner may examine or investigate the business
and affairs of any PEO plan he or she considers necessary. The
examination or investigation is subject to and shall be performed
in accordance with the provisions of section nine, article two of
this chapter.
(b) The commissioner shall assess the costs of an examination
to the PEO.
(c) All working papers, recorded information, documents and
copies thereof produced by, obtained by or disclosed to the
commissioner or any other person in the course of an examination
made under this section are subject to the confidentiality provisions of subdivision (4), subsection (l), section nine,
article two of this chapter.
§33-46A-6. Requirements for provisions of PEO agreements.
(a) Each professional employer agreement shall, at a minimum,
allocate the responsibility to:
(1) Arrange for the payment of wages to covered employees;
(2) Withhold, collect, report and remit payroll-related and
unemployment taxes;
(3) Make payments for employee benefits on behalf of covered
employees; and
(4) Provide for mandatory workers' compensation coverage.
(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 every professional
employment agreement may provide that the PEO has the right to
terminate the professional employment 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 as otherwise provided by law:
(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 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) Within twenty days of its execution, every professional
services agreement shall be filed with the commissioner. Such
agreements are confidential by law and privileged, are not subject
to the provisions of chapter twenty-nine-b of this code, and are
not open to public inspection.
(e) A covered employee is not, solely as the result of being
a covered employee, an employee of the PEO for purposes of general
liability insurance, fidelity bonds, surety bonds, wage 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. 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: Provided, That on or before the first day of July, two-thousand eight, the commissioner shall
promulgate an emergency legislative rule in accordance with the
provisions of section fifteen, article three, chapter twenty-nine
of this code, and shall also propose an exempt legislative rule for
adoption by the industrial council in accordance with the
provisions of subdivision (2), subsection (j), section one-a,
article one, chapter twenty-three of this code, establishing
standards for the reporting of client-employer experience in
sufficient detail to enable the assignment of an experience
modifier upon termination of the professional employer agreement:
Provided, however, That no mandatory workers' compensation coverage
may be provided through a PEO arrangement to any client-employers
on a master policy basis other than through coverage in the
voluntary market, as that term is defined in subsection (u),
section two, article two-c, chapter twenty-three of this code.
(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-8. 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 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.
(d) Every PEO licensed under this article is under a
continuing duty to notify the commissioner within ten days of any
of the events set forth in subdivisions (5) and (6) of subsection
(c) or subdivision (3) of subsection (b) of this section.
(e) 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.
(f) 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; 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.
(g) 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-9. Study of health plans, taxation, unemployment and labor
laws; self-funded plans prohibited.
(a) The Joint Committee on Government and Finance shall, in
consultation with the Insurance Commissioner, the Secretary of the
Department of Revenue and the Secretary of the Department of
Commerce, study the issue of PEO sponsorship of and involvement in
employee health plans, including their role in insuring the uninsured and underinsured and their impact on the small group
market, as well issues related to how the operation of PEOs affects
other areas such as taxation and unemployment insurance. The Joint
Committee shall report back to the Legislature on or before the
thirty-first day of December, two-thousand eight on its findings,
conclusions and recommendations, together with drafts of any
legislation necessary to effectuate its recommendations.
(b) PEOs are expressly prohibited from self-funding health
plans for covered employees.
§33-46A-10. Rulemaking authority; fees.
(a) In addition to the authority to propose rules as provided
in section seven 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 but not limited to:
(1) Requirements for the issuance and renewal of licenses;
(2) Requirements for denying, suspending, revoking,
reinstating or limiting the practice of a licensee;
(3) Requirements for activating inactive or revoked licenses;
(4) Special financial and other licensing requirements for
small, start-up PEOs; and
(5) A schedule of fees.
(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.