December 17, 2009, Introduced by Senator CROPSEY and referred to the Committee on Commerce and Tourism.
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 organization 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.
(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) "Licensee" means a PEO licensed under this act.
(h) "PEO group" means 2 or more PEOs that are majority owned
or commonly controlled by the same entity, parent, or controlling
person.
(i) "Person" means any individual, partnership, corporation,
limited liability company, association, or any other legal entity.
(j) "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
as required by this act.
(k) "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 as defined by
section 29 of the Michigan employment security act, 1936 (Ex Sess)
PA 1, MCL 421.29.
(l) "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.
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. A PEO is
not considered to be engaged in any occupation, trade, profession,
or other activity that is subject to licensing, registration, or
certification requirements, or is otherwise regulated by a
governmental entity solely by entering into and maintaining a co-
employment relationship with a covered employee who is subject to
those requirements or regulations.
(4) For purposes of determination of a tax credit, economic
incentive, or other benefit provided by this state or any other
government entity that is based on employment, covered employees
are considered employees solely of the client. A client is entitled
to the benefit of a tax credit, economic incentive, or other
benefit arising as the result of the employment of covered
employees of that client. Notwithstanding the fact that the PEO is
the W-2 reporting employer, the client shall continue to qualify
for that tax credit, economic incentive, or benefit. If the grant
or amount of a tax credit, economic incentive, or benefit is based
on the number of employees, then each client shall be treated as
employing only those covered employees co-employed by the client,
but covered employees working for other clients of the PEO shall
not be counted. Each PEO shall provide, upon request by a client or
an agency or department of this state, employment information
reasonably required by the agency or department responsible for
administering the tax credit, economic incentive, or benefit that
is necessary to support the request, claim, application, or other
action by a client seeking the tax credit, economic incentive, or
benefit.
(5) Unless otherwise provided by law and with respect to a
bid, contract, purchase order, or agreement entered into with the
state or a political subdivision of the state, a client 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 due to the client company's
execution of an agreement with a PEO or to the use of the services
of a PEO.
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, 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. Before December 31, 2010, applicants may
file an unaudited financial statement. On or after January 1, 2011,
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 270 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 the Michigan employment security act, 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.
(6) The department shall, to the extent practical, allow the
acceptance of electronic filings, including applications,
documents, reports, and other filings required under this act. The
department may allow for the acceptance of electronic filings and
other assurance by an independent and qualified assurance
organization that provides satisfactory assurance of compliance
acceptable to the department consistent with, or in lieu of, the
requirements of this section and sections 9 and 15, and other
requirements of this act. The department shall allow a PEO to
authorize an assurance organization, approved by the director, to
act on the PEO's behalf in complying with the licensure
requirements of this act including, but not limited to, electronic
filings of information and payment of license fees. Use of an
approved assurance organization is optional. This subsection does
not limit or change the department's authority to license, to
rescind, revoke, or deny a license, or to investigate or enforce
any provision of this act.
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 for an individual license
and $500.00 for a PEO group license.
(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 for an individual license and $250.00 for a
PEO group license. The renewal license fee shall include the
license fee representing the 3-year term.
(3) 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. As
used in this subsection, "Detroit consumer price index" means the
most comprehensive index of consumer prices available for the
Detroit area by the bureau of labor statistics of the United States
department of labor.
Sec. 15. Unless otherwise exempt under this act, each PEO or
collectively each PEO group shall submit to the department evidence
of and maintain either of the following:
(a) Positive working capital, which is considered to be
current assets minus current liabilities, as defined by generally
accepted accounting principles and as reflected in the financial
statements submitted to the department with the initial licensure
and each annual renewal.
(b) A PEO or group that does not have positive working capital
may provide a bond, irrevocable letter of credit, or securities
with a minimum market value equaling the deficiency plus
$100,000.00. That 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.
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 subdivision, 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.
(c) 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. To the extent
workers' compensation is provided by either the client or the PEO,
the exclusive remedy provisions of the workers disability
compensation act of 1969, 1969 PA 317, MCL 418.101 to 418.941,
shall apply to the client, the PEO, and for all covered employees
and other employees irrespective of which co-employer obtains that
workers' compensation coverage.
(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. The responsibility to obtain workers' compensation
coverage for covered employees as required by law shall be
specifically allocated in the professional employer agreement to
either the client or the PEO. Coverage for both the directly
employed workers of a client and the covered employees of that
client must be all in the residual or all in the voluntary market.
In addition, workers' compensation coverage for covered employees
may be obtained by either the client through a standard workers'
compensation policy or through duly authorized self-insurance, by
the PEO through a duly authorized self-insurance program through a
master policy issued to the PEO by a carrier authorized to do
business in this state, or through a multiple coordinated policy
issued by a carrier authorized to do business in this state in the
name of the PEO or the client.
Sec. 21. (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. A fully insured welfare benefit plan offered to
the covered employees of a single PEO shall be treated, for
purposes of state law, as a single employer welfare benefit plan.
(6) For purposes of this state or any political subdivision of
this state and except as otherwise specifically provided for PEO
arrangement by law, covered employees whose services are subject to
sales tax are considered the employees of the client for purposes
of collecting and levying sales tax on the services performed by
the covered employee. This act does not relieve a client of any
sales tax liability with respect to its goods or services.
(7) Except as otherwise specifically provided for PEO
arrangement by law, a tax or assessment imposed upon professional
employer services or any business license or other fee that is
based upon gross receipts shall allow a deduction from the gross
income or receipts of the business derived from performing
professional employer services that is equal to that portion of the
fee charged to a client that represents the actual cost of wages
and salaries, benefits, worker's compensation insurance, payroll
taxes, withholding, or other assessments paid to, or on behalf of,
a covered employee by the professional employer organization under
a professional employer agreement.
(8) Except as otherwise specifically provided for PEO
arrangement by law, a tax assessed, assessment, or mandated
expenditure on a per capita or per employee basis shall be assessed
against the client for covered employees and against the
professional employer organization for its employees who are not
covered employees co-employed with a client. Benefits or monetary
consideration that meet the requirements of mandates imposed on a
client and that are received by covered employees through the PEO,
either through payroll or through benefit plans sponsored by the
PEO, shall be credited against the client's obligation to fulfill
those mandates.
(9) Except as otherwise specifically provided for PEO
arrangement by law and in the case of a tax or an assessment
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 for the
covered employees for the purpose of computing the tax.
Sec. 23. (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) Aids or abets another person in the unlicensed practice of
an occupation.
(c) Engages in activities regulated under this section without
obtaining a license or demonstrating exemption from licensure under
this act.
(d) 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. 25. This act takes effect January 1, 2010.