HB-6601, As Passed House, November 13, 2008

SUBSTITUTE FOR

HOUSE BILL NO. 6601

A bill to license and regulate professional employer

organizations; to define certain relationships and allocate certain

rights and duties between those relationships; to provide for

certain powers and duties for state agencies; to impose certain

fees and provide for certain security devices; and to provide for

penalties and remedies.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. This act may be cited and shall be known as the

"Michigan professional employer agreement regulatory act".

Sec. 3. As used in this act:

(a) "Client" means any person who enters into a professional

employer agreement with a PEO.

(b) "Coemployer" means either a PEO or a client.

intended to be an ongoing relationship rather than a temporary or

project-specific one, wherein the rights, duties, and obligations

of an employer arising out of an employment relationship have been

allocated between coemployers pursuant to a professional employer

agreement.

(d) "Covered employee" means an individual having a

coemployment relationship with a PEO and a client who has received

written notice of coemployment with the PEO and the individual has

created a coemployment relationship pursuant to a professional

employer agreement. Covered employee includes individuals who are

officers, directors, shareholders, partners, and managers of the

client to the extent the PEO and the client have expressly agreed

in the professional employer agreement that those individuals are

considered covered employees and those individuals act as

operational managers or perform day-to-day operational services for

the client.

(e) "Department" means the department of energy, labor, and

economic growth.

(f) "Director" means the director of the department.

(g) "PEO group" means 2 or more PEOs that are majority owned

or commonly controlled by the same entity, parent, or controlling

person.

(h) "Person" means any individual, partnership, corporation,

limited liability company, association, or any other legal entity.

(i) "Professional employer agreement" means a written contract

by and between a client and a PEO that provides for the following:

(i) Coemployment of covered employees.

(ii) The allocation of employer rights and obligations between

the client and the PEO with respect to the covered employees.

(iii) Assumption of responsibilities by the PEO and the client

to act as the PEO and client.

(j) "PEO" or "professional employer organization" means any

person engaged in the business of providing professional employer

services regardless of its use of a descriptive term other than

"professional employer organization" or "PEO". PEO does not include

any of the following:

(i) An arrangement in which a person, whose principal business

activity is not entering into professional employer agreements and

does not hold itself out as a PEO, shares employees with a commonly

owned company within the meaning of section 414(b) and (c) of the

internal revenue code of 1986, 26 USC 414.

(ii) A provider of temporary help services.

(k) "Professional employer service" means the service of

entering into a coemployment relationship in which all or a

majority of the employees providing services to a client or to a

division or work unit of the client are covered employees.

(l) "Licensee" means a PEO licensed under this act.

Sec. 5. (1) Neither this act nor a professional employer

agreement shall affect, modify, or amend any collective bargaining

agreement, or the rights or obligations of any client, PEO, or

covered employee under any state or federal act.

(2) Neither this act nor any professional employer agreement

shall do any of the following:

(a) Diminish, abolish, or remove rights of covered employees

owed to a client or obligations of that client to a covered

employee regarding rights or obligations existing prior to the

effective date of the professional employer agreement.

(b) Affect, modify, or amend any contractual relationship or

restrictive covenant between a covered employee and any client in

effect at the time a professional employer agreement becomes

effective or that is entered into subsequently between a client and

a covered employee.

(3) Neither this act nor any professional employer agreement

shall affect, modify, or amend any state, local, or federal

licensing, registration, certification, or other regulatory

requirement applicable to any client or covered employee.

Sec. 7. (1) Except as otherwise provided in this act, a person

shall not provide, advertise, or otherwise hold itself out as

providing professional employer services in this state, unless

licensed or exempt from licensure under this act.

(2) An applicant for licensure shall submit to the department

the license fee imposed in section 13 and a completed application

providing the following information:

(a) The name or names under which the PEO conducts business.

(b) The address of the principal place of business of the PEO

and the address of each office it maintains within Michigan.

(d) A list by jurisdiction of each name under which the PEO

has operated within the preceding 5 years, including any

alternative names, names of predecessors and, if known, successor

business entities.

(e) A statement of ownership, which shall include the name and

evidence of the business experience of any person, individually or

acting in concert with 1 or more other persons, owning or

controlling, directly or indirectly, 10% or more of the equity

interests of the PEO.

(f) 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.

(g) A financial statement describing the financial condition

of the PEO or PEO group. 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 such accountant is located

and shall be without qualification as to the going concern status

of the PEO. A PEO group may submit combined or consolidated audited

financial statements to meet the requirements of this subsection. A

PEO that has not had sufficient operating history to have audited

financials based upon at least 12 months of operating history must

meet the financial capacity requirements described in section 15

and present financial statements reviewed by a licensed certified

public accountant.

(h) A financial audit of the applicant. At the time of

application for an initial license, the applicant shall submit the

most recent audit, which may not be older than 13 months.

Thereafter, a PEO or PEO group shall file on an annual basis,

within 180 days after the end of the PEO or PEO group's fiscal

year, a succeeding audit. An applicant may apply for an extension

with the department except that any request must be accompanied by

a letter from the auditors stating the reasons for the delay and

the anticipated audit completion date.

(i) A certification that the PEO has made an election under

section 13m of 1936 (Ex Sess) PA 1, MCL 421.13m.

(3) Each PEO operating within this state on the effective date

of this act shall file its completed application and submit the

license fee not later than 180 days after the effective date of

this act. Initial licensure is valid until the end of the PEO's

first fiscal year end that is more than 1 year after the effective

date of this act. A PEO not operating within this state on the

effective date of this act shall submit its initial licensure

application prior to commencement of operations within this state.

(4) Within 180 days after the end of a licensee's fiscal year,

the licensee shall renew its license by submitting a renewal

application to the department providing any changes in the

information provided in the licensee's prior application.

(5) PEOs in a PEO group may satisfy the reporting and

financial requirements on a combined or consolidated basis provided

that each member of the PEO group guarantees the obligations under

this act 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. The department shall determine

whether the requirements of this subsection are satisfied.

Sec. 9. (1) The department may issue a limited PEO license. A

PEO seeking limited licensure under this section shall submit to

the department a completed application and license fee for limited

licensure.

(2) A PEO is eligible for a limited license upon meeting the

following conditions:

(a) Is domiciled outside Michigan and is licensed or otherwise

regulated as a PEO in another state.

(b) Does not maintain an office in Michigan or does not

directly solicit clients located or domiciled within Michigan.

domiciled in Michigan on any given day.

(3) A limited license is valid for 1 year and may be renewed.

(4) Section 15 does not apply to applicants for limited

licensure.

Sec. 11. The department shall maintain a list of PEOs licensed

under this act. The list shall be readily available to the public

by electronic or other means.

Sec. 13. (1) The department may charge an application fee for

initial licensure, not to exceed $250.00.

(2) Except in the case of an initial license, a license issued

under this act shall be issued for a term of 3 years. The per year

license fee is $100.00. The renewal license fee shall include the

license fee representing the 3-year term.

(3) The department shall determine by rule promulgated under

the administrative procedures act of 1969, 1969 PA 306, MCL 24.201

to 24.328, the application and license fees to be charged for a PEO

group license.

(4) The department may adjust the license fees under this

section every 3 years by an amount determined by the state

treasurer to reflect the cumulative annual percentage change in the

Detroit consumer price index and rounded to the nearest dollar.

(5) The department may promulgate rules under the

administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to

24.328, as are necessary and appropriate to enable the department

to implement this act.

Sec. 15. Unless otherwise exempt under this act, each PEO or

collectively each PEO group shall submit evidence of and maintain

either of the following:

(a) A minimum of $150,000.00 in working capital, as defined by

generally accepted accounting principles, as reflected in the

financial statements submitted to the department with the initial

licensure and each annual renewal. A PEO or PEO group with less

than $100,000.00 in working capital at renewal has 180 days to

eliminate the deficiency in a manner acceptable to the department.

During that 180 days the PEO or PEO group shall submit quarterly

financial statements to the department accompanied by an

attestation of the chief executive officer that all wages, taxes,

workers' compensation premiums, and employee benefits have been

paid by the PEO or members of the PEO group.

(b) A bond, irrevocable letter of credit, or securities with a

minimum market value of $100,000.00, acceptable to the department.

the bond shall be held by a depository designated by the department

to secure payment by the PEO of all taxes, wages, benefits, or

other entitlement due to, or regarding, covered employees, if the

PEO or PEO group does not make those payments when due. For any PEO

or PEO group whose annual financial statements do not indicate

positive working capital, the amount of the bond shall be

$100,000.00 plus an amount sufficient to cover the deficit in

working capital.

Sec. 17. (1) Each professional employer agreement shall

include the following provisions:

(a) The responsibility of the PEO to pay wages to covered

employees; to withhold, collect, report and remit payroll-related

and unemployment taxes; and, to the extent the PEO has assumed

responsibility in the professional employer agreement, to make

payments for employee benefits for covered employees. For purposes

of this subsection, wages do not include any obligation between a

client and a covered employee for payments beyond, or in addition

to, the covered employee's salary, draw, or regular rate of pay,

including bonuses, commissions, severance pay, deferred

compensation, profit sharing, or vacation, sick, or other paid time

off pay, unless the PEO has expressly agreed to assume liability

for those payments in the professional employer agreement.

(b) The hiring, disciplining, and termination by the PEO of a

covered employee, as may be necessary to fulfill the PEO's

responsibilities under this act and the professional employer

agreement. The client may also hire, discipline, and terminate a

covered employee.

insurance coverage under the workers disability compensation act of

1969, 1969 PA 317, MCL 418.101 to 418.941, for covered employees

shall be specifically allocated in the professional employer

agreement to either the client or to the PEO and shall provide that

the workers' compensation coverage provide for the exclusive remedy

provisions of the workers disability compensation act of 1969, 1969

PA 317, MCL 418.101 to 418.941, to apply to both the client and the

PEO for co-employees of the client. Coverage may be obtained from a

workers' compensation insurer or through self-insurance and

includes the ability for a PEO to purchase workers' compensation

coverage on a multiple coordinated policy basis with the policy

providing coverage to the client and to the PEO for co-employees of

the client. If workers' compensation coverage is allocated to the

PEO under the professional employment agreement, that agreement

shall require that the PEO provide to the client, upon request,

loss experience related to the client's covered employees.

(2) Each professional employer agreement shall provide that

the PEO provide written notice to each covered employee affected by

the agreement regarding the general nature of the coemployment

relationship between and among the PEO, the client, and that

covered employee.

Sec. 19. (1) Except to the extent otherwise expressly provided

for by the professional employer agreement, the following apply:

(a) A client is solely responsible for the quality, adequacy,

or safety of the goods or services produced or sold in the client's

business.

(b) A client is solely responsible for directing, supervising,

training, and controlling the work of the covered employees with

respect to the business activities of the client and is solely

responsible for the acts, errors, or omissions of the covered

employees regarding those activities.

of a PEO or of any covered employee of the client and a PEO when

the covered employee is acting under the express direction and

control of the PEO.

(d) A PEO is not liable for the acts, errors, or omissions of

a client or of any covered employee of the client when the covered

employee is acting under the express direction and control of the

client.

(2) This section does not limit any contractual liability or

obligation specifically provided in the written professional

employer agreement.

(3) 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,

employer's liability not covered by worker's compensation, or

liquor liability insurance carried by the PEO unless covered

employees are included by specific reference in the professional

employer agreement and applicable prearranged employment contract,

insurance contract, or bond.

(4) A PEO is not considered engaged in the sale of insurance

or in acting as a third party administrator by offering, marketing,

selling, administering, or providing professional employer services

that include services and employee benefit plans for covered

employees.

(5) A client and a PEO are each considered an employer for

purposes of sponsoring retirement and welfare benefit plans for its

covered employees, unless otherwise prohibited by law.

(6) If a PEO offers to its covered employees a health benefit

plan that is not fully insured, the PEO shall use a third party

administrator with a certificate of authority under the third party

administrator act, 1984 PA 218, MCL 550.901 to 550.960, to

administer the plan and shall follow all state and federal law in

establishing and operating the plan.

Sec. 21. (1) A person who commits 1 or more of the following

is subject to the penalties prescribed under subsection (2):

(a) Practices fraud or deceit in obtaining or renewing a

license.

(b) Practices false advertising.

an occupation.

(d) Engages in activities regulated under this section without

obtaining a license or demonstrating exemption from licensure under

this act.

(e) In the case of a licensee or an officer of a licensee,

being convicted of a crime relating to the operation of a PEO.

(2) After notice and opportunity for hearing under the

administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to

24.328, the department shall do the following upon the

determination of a violation of this act, a rule adopted under this

act, or an order issued under this act:

(a) Placement of a limitation on a license.

(b) Suspension of a license.

(d) Revocation of a license.

(e) Imposition of an administrative fine to be paid to the

department, not to exceed $5,000.00.

(f) Censure.

(g) Probation.

(h) A requirement that restitution be made, based upon proofs

submitted to and findings made by the hearing examiner after a

contested case.

Sec. 23. This act takes effect January 1, 2010.