November 6, 2008, Introduced by Rep. Condino and referred to the Committee on Labor.
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.
(c) "Coemployment relationship" means a relationship that is
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. A coemployment relationship shall contain all of the
following elements:
(i) The PEO may enforce only those employer rights, and is
subject to only those obligations, as specifically allocated to the
PEO by the professional employer agreement or as provided for under
this act.
(ii) The client may enforce those rights and shall provide and
perform those employer obligations allocated to the client by the
professional employer agreement and as provided for under this act.
(iii) The client may enforce any right, and is obligated to
perform any obligation of an employer, not specifically allocated
to the PEO by the professional employer agreement or as provided
for under this act.
(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) An independent contractor arrangement by which a person
assumes responsibility for the product produced or service
performed by that person or his or her agents and retains and
exercises primary direction and control over the work performed by
the individuals whose services are supplied under such
arrangements.
(iii) 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.
(m) "Temporary help services" means services consisting of a
person engaged in any of the following:
(i) Recruiting and hiring its own employees.
(ii) Finding other organizations that need the services of
those employees.
(iii) Assigning those employees to perform work at, or services
for, the other organizations to support or supplement the other
organizations' workforces, or to provide assistance in special work
situations including, but not limited to, employee absences, skill
shortages, seasonal workloads, or to perform special assignments or
projects.
(iv) Customarily attempting to reassign the employees to other
organizations when they finish each assignment.
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 accrued 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. A PEO shall have no responsibility or liability
in connection with, or arising out of, any existing or new
contractual relationship or restrictive covenant unless the PEO has
specifically agreed otherwise in writing.
(c) Create any new or additional enforceable right of a
covered employee against a PEO that is not specifically provided
for by the professional employer agreement or as provided for under
this act.
(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.
(4) A covered employee who must be licensed, registered,
certified, or otherwise regulated according to law or rule is
considered solely an employee of the client for purposes of that
license, registration, certification, or other regulatory
requirement.
(5) A PEO is not considered to engage in any occupation,
trade, profession, or other activity that is subject to licensing,
registration, certification, or other regulatory requirements,
solely by entering into and maintaining a coemployment relationship
with a covered employee who is subject to those requirements.
(6) A client has the sole right of direction and control of
the professional or regulated activities of covered employees and
of the client's business. Covered employees and clients shall
remain subject to regulation by the regulatory or governmental
entity responsible for licensing, registration, certification, or
other regulation of those covered employees or clients.
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.
(c) The PEO's taxpayer or employer identification number.
(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, 25% 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.
(c) Does not have more than 50 covered employees employed or
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.
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 $100,000.00 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) Except as specifically provided for in this act
or in the professional employer agreement, the allocation of
rights, duties, and obligations in each coemployment relationship
shall be as follows:
(a) The client may exercise all rights and shall perform all
duties and responsibilities otherwise applicable to an employer in
an employment relationship.
(b) The PEO may exercise only those rights and shall perform
only those duties and responsibilities specifically required by
this act or set forth in the professional employer agreement. The
rights, duties, and obligations of the PEO as coemployer with
respect to any covered employee is limited to those rights, duties,
and obligations arising pursuant to the professional employer
agreement and this act during the term of coemployment by the PEO
of the covered employee.
(c) Unless otherwise expressly agreed by the PEO and the
client in a professional employer agreement, the client retains the
exclusive right to direct and control the covered employees as is
necessary to conduct the client's business, to discharge any of the
client's fiduciary responsibilities, and to comply with any
licensure requirements applicable to the client or to the covered
employees.
(2) Except as specifically provided in this act, the
coemployment relationship between the client and the PEO, and
between each coemployer and each covered employee, is governed by
the professional employer agreement. Each professional employer
agreement shall include the following provisions:
(a) The allocation of rights, duties and obligations.
(b) 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.
(c) 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.
(d) The responsibility to obtain workers' compensation
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.
(3) 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.
(c) A client is not liable for the acts, errors, or omissions
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.
(c) Aids or abets another person in the unlicensed practice of
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.
(c) Denial of a license or renewal 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.