THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY BRENNAN, GERGELY, MIRABITO, BELFANTI, CALTAGIRONE, CARROLL, D. COSTA, FARRY, GIBBONS, GRUCELA, HANNA, HARKINS, KOTIK, MANN, MUNDY, MUSTIO, D. O'BRIEN, PASHINSKI, PETRI, SAINATO, SIPTROTH, J. TAYLOR, R. TAYLOR, WHITE AND YOUNGBLOOD, APRIL 29, 2010

REFERRED TO COMMITTEE ON LABOR RELATIONS, APRIL 29, 2010  

AN ACT

Providing for the registration and regulation of professional

employer organizations and for powers and duties of the

Department of Labor and Industry; and imposing penalties.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

CHAPTER 1

PRELIMINARY PROVISIONS

Section 101.  Short title.

This act shall be known and may be cited as the Professional

Employer Organization Registration and Recognition Act.

Section 102.  Declaration of policy.

The General Assembly finds and declares as follows:

(1)  Professional employer organizations provide a

valuable service to commerce and the citizens of this

Commonwealth 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)  Professional employer organizations operating in

this Commonwealth should be properly recognized and regulated

by the Department of Labor and Industry, as provided in this

act.

(3)  Any allocation of the employer duties and

responsibilities pursuant to this act will preserve all

rights to which covered employees would be entitled under a

traditional employment relationship.

Section 103.  Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Administrative fee."  The fee charged to a client by a

professional employer organization for professional employer

services. The administrative fee shall not be deemed to include

any amount of a fee by the professional employer organization

that is for wages and salaries, benefits, workers' compensation,

payroll taxes, withholding or other assessment paid by the

professional employer organization to or on behalf of covered

employees under the professional employer agreement.

"Client."  Any person who enters into a professional employer

agreement with a professional employer organization.

"Coemployer."  A professional employer organization or

client.

"Coemployment relationship."  A relationship which is

intended to be an ongoing relationship rather than a temporary

or project specific one, wherein the rights, duties and

obligations of an employer which arise out of an employment

relationship have been allocated between coemployers pursuant to

a professional employer agreement and this act.

"Controlling person."  A person that, individually or acting

in concert with one or more persons, owns, directly or

indirectly, 10% or more of the equity interest in a professional

employer organization.

"Covered employee."  An individual having a coemployment

relationship with a professional employer organization and a

client who meets the following criteria:

(1)  The individual has received written notice of co-

employment with the professional employer organization.

(2)  The individual's coemployment relationship is

pursuant to a professional employer agreement subject to this

act.

Subject to section 504, individuals who are officers, directors,

shareholders, partners and managers of the client and who are

operational managers or perform day-to-day operational services

for the client are covered employees only to the extent that the

client and the professional employer organization expressly

agree in the professional employer agreement.

"Department."  The Department of Labor and Industry of the

Commonwealth.

"Insurer."  A legal entity authorized or licensed to transact

an insurance business in accordance with the laws of this

Commonwealth.

"Master policy basis."  An agreement under which a single

workers' compensation policy issued to the professional employer

organization provides coverage for more than one client and may

provide coverage to the professional employer organization with

respect to its direct hire employees. Two or more clients that

are insured under the same policy solely because they are under

common ownership are considered a single client for purposes of

this definition.

"Multiple coordinated policy basis."  An agreement under

which a separate workers' compensation policy is issued to or on

behalf of each client or group of affiliated clients but payment

obligations and certain policy communications are coordinated

through the professional employer organization.

"PEO group."  Two or more professional employer organizations

that are majority owned or commonly controlled by the same

entity, parent or controlling person.

"Person."  Any individual, partnership, corporation, limited

liability company, association or any other form of legally

recognized entity.

"Professional employer agreement."  A contract by and between

a client and a professional employer organization that provides:

(1)  for the coemployment of covered employees;

(2)  for the allocation of employer rights and obligations

between the client and the professional employer organization

with respect to the covered employees; and

(3)  that the professional employer organization and the

client assume the responsibilities required by this act.

"Professional employer organization" or "PEO."  Any person

engaged in the business of providing professional employer

services.

"Professional employer services."  The service of entering

into coemployment relationships under this act.

"Registrant."  A professional employer organization

registered under this act.

"Secretary."  The Secretary of Labor and Industry of the

Commonwealth.

"Temporary help services."  Services consisting of a person:

(1)  recruiting and hiring its own employees;

(2)   finding other organizations that need the services

of those employees;

(3)  assigning those employees to perform work at or

services for the other organizations to support or supplement

the other organizations' work forces, 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; and

(4)  customarily attempting to reassign the employees to

other organizations when they finish each assignment.

Section 104.  Scope.

A person engaged in the business of providing professional

employer services shall be subject to registration and

regulation under this act regardless of its use of the term or

conducting business as a professional employer organization,

PEO, staff leasing company, registered staff leasing company,

employee leasing company, administrative employer or any other

name. The following shall not be deemed to be professional

employer organizations or the providing of professional

employment services for purposes of this act:

(1)  Arrangements wherein a person, whose principal

business activity is not entering into professional employer

arrangements and which 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 (Public Law 99-514, 26 U.S.C. § 1 et seq.).

(2)  Independent contractor arrangements by which a

person assumes responsibility for the product produced or

service performed by such person or the person's agents and

retains and exercises primary direction and control over the

work performed by the individuals whose services are supplied

under such arrangements. 

(3)  Providing temporary help services.

Section 105.  Construction.

(a)  Collective bargaining agreements.--Nothing contained in

this act or in any 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 the National Labor Relations Act (49 Stat. 449, 29 U.S.C.

§ 151 et seq.), the Railway Labor Act (Public Law 69-257, 44

Stat. 577) or the act of June 1, 1937 (P.L.1168, No.294), known

as the Pennsylvania Labor Relations Act.

(b)  Employment arrangements.--Nothing in this act or in any

professional employer agreement shall:

(1)  Diminish, abolish or remove rights of covered

employees to a client or obligations of such client to a

covered employee existing prior to the effective date of the

professional employer agreement.

(2)  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, nor shall it prohibit or amend

any contractual relationship or restrictive covenant 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.

(3)  Eliminate any right otherwise existing in law,

except as provided in this act.

(4)  Create any right or cause of action not otherwise

existing in law except as specifically set forth in the

professional employer agreement or this act.

(c)  Licensing.--Nothing contained in this act or any

professional employer agreement shall affect, modify or amend

any Federal, State or local licensing, registration or

certification requirement applicable to any client or covered

employee. The following apply:

(1)  A covered employee who must be licensed, registered

or certified according to law or regulation is deemed solely

an employee of the client for purposes of the license,

registration or certification requirement.

(2)  A PEO shall not be deemed to engage 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

coemployment relationship with a covered employee who is

subject to such requirements or regulation.

(3)  A client shall have the sole right of direction and

control of the professional or licensed 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 or certification of the covered employees or

clients.

(d)  Tax credits and other incentives.--For purposes of

determination of tax credits and other economic incentives

provided by the Commonwealth or other government entity and

based on employment, covered employees shall be deemed employees

solely of the client. A client shall be entitled to the benefit

of any tax credit, economic incentive or other benefit arising

as the result of the employment of covered employees of the

client. If the grant or amount of any incentive is based on the

number of employees, then each client shall be treated as

employing only those covered employees coemployed by the client.

Covered employees working for other clients of the PEO shall not

be counted. Each PEO will provide, upon request by a client or

an agency or department of the Commonwealth, employment

information reasonably required by any agency or department of

the Commonwealth responsible for administration of a tax credit

or economic incentive and necessary to support any request,

claim, application or other action by a client seeking the tax

credit or economic incentive.

(e)  Disadvantaged business.--With respect to a bid,

contract, purchase order or agreement entered into with the

Commonwealth or a political subdivision of the Commonwealth, 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 because the

client company has entered into an agreement with a PEO or uses

the services of a PEO.

CHAPTER 3

REGISTRATION

Section 301.  Registration.

(a)  Registration requirements.--The department shall

register a PEO or PEO group only if the PEO or the PEO group

meets all requirements of this act. A PEO seeking limited

registration pursuant to subsection (e) shall provide the

department with information and documentation necessary to show

that the PEO qualifies for limited registration.

(b)  Registration information.--An application for

registration shall include the following information:

(1)  The name or names under which the PEO or the PEO

group members conduct business and the legal name.

(2)  The address of the principal place of business of

the PEO or the PEO group members and the address of each

office maintained in this Commonwealth.

(3)  The taxpayer or employer identification number of

the PEO or the PEO group members.

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

PEO or the PEO group members 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

that, individually or acting in concert with one or more

other persons, owns or controls, directly or indirectly, 10%

or more of the equity interests of the PEO or PEO group

member.

(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 or PEO group member.

(7)  A financial statement that sets forth the financial

condition of the PEO or PEO group and meets the following

requirements:

(i)  The financial statement shall be prepared in

accordance with generally accepted accounting principles.

(ii)  The financial statement shall be 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. A PEO or PEO group may

submit a combined or consolidated audited financial

statement to meet the requirements of this subparagraph.

(iii)  The financial statement shall cover the PEO or

PEO group's most recent fiscal year. If a financial

statement for the most recent fiscal year is not

available at the time the application is filed, the

department may grant the PEO or PEO group an extension of

time to submit the financial statement, allow the PEO or

PEO group to submit the immediately preceding financial

statement or, if the PEO or PEO group does not have

sufficient operating history to have a financial

statement for a complete fiscal year, allow the PEO or

PEO group to submit a financial statement for a shorter

period of time that is reviewed by a certified public

accountant.

(8)  The provisions of the professional employer

agreement in use or that will be used by the PEO or PEO group

in this Commonwealth.

(9)  A complete list of current clients with covered

employees who perform services within this Commonwealth at

the time of registration.

(10)  Evidence of current workers' compensation insurance

policies issued to or through the PEO insuring covered

employees located in this Commonwealth.

(11)  Designation of a registered agent for acceptance of

service of process in this Commonwealth.

(12)  All additional information required by the

department to demonstrate that the PEO or PEO group meets the

requirements for the applicable registration.

(c)  Timely application and duration of registration.--

(1)  An initial registration, if granted by the

department, shall be effective through the end of the

calendar year following the year in which the application for

registration is filed with the department. All other

registrations shall be effective for 12 months from the

effective date indicated by the department.

(i)  Each PEO or PEO group operating within this

Commonwealth as of the effective date of this act shall

file its application for initial registration no later

than 30 days after the effective date of this act.

(ii)  Each PEO not operating within this Commonwealth

as of the effective date of this act shall receive its

initial registration prior to commencement of operations

within this Commonwealth.

(2)  A PEO or PEO group that will continue its operations

beyond the termination of its initial registration or its

most recent renewal registration shall file an application to

renew its registration with the department no later than 90

days before the end of the current registration. If a timely

application for renewal is filed, the current registration

shall remain effective until the department grants or denies

the application for renewal.

(d)  PEO group registration.--PEOs in a PEO group may satisfy

the application, reporting and financial requirements of this

act 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 person of the PEO group under

the consolidated or combined statement must guarantee the

obligations of the PEOs in the PEO group.

(e)  Limited registration.--

(1)  A PEO or PEO group is eligible for a limited

registration under this act if the PEO or PEO group meets the

following:

(i)  Is domiciled outside this Commonwealth and is

licensed or registered as a PEO or PEO group in another

jurisdiction having PEO registration or licensing

requirements, including those related to financial

capability as set forth in section 303, that, in the

estimation of the department, are at least as stringent

as those set forth in this act.

(ii)  Does not maintain an office in this

Commonwealth.

(iii)  Does not directly solicit clients with covered

employees who may perform services within this

Commonwealth.

(iv)  Does not have more than 50 covered employees

who may perform services in this Commonwealth on any

given day.

(2)  Section 303 shall not apply to applicants for

limited registration.

(f)  List.--The department shall maintain a list of PEOs and

PEO groups registered under this act that is readily available

to the public by electronic or other means.

(g)  Forms.--Applications for registration shall be made in

the manner prescribed by the department. The department may

prescribe forms necessary to promote the efficient

administration of this section.

(h)  Electronic filing and compliance.--The department may to

the extent practical provide for the acceptance of electronic

filings in conformance with the act of December 16, 1999

(P.L.971, No.69), known as the Electronic Transactions Act,

including applications, documents, reports and other filings

required by this act. The department may provide for the

acceptance of electronic filings and other assurance from an

independent and qualified assurance organization approved by the

department that provides satisfactory assurance of compliance

acceptable to the department in lieu of the requirements of this

section and section 303 and other requirements of this act or

the rules promulgated pursuant to this act. If the department

provides for the acceptance of electronic filings under this

section, a PEO or PEO group may authorize an assurance

organization, approved by the department, to act on the PEO's or

PEO group's behalf in complying with the registration

requirements of this act, including electronic filings of

information and payment of registration fees. Nothing in this

subsection shall limit or change the department's authority to

register or terminate registration of a PEO or PEO group or to

investigate or enforce any provision of this act.

(i)  Record confidentiality.--All financial statements,

employee personal identifying information, employer

identification numbers, a Federal employment identification

number, and client lists obtained by the department from a PEO

or PEO group under this act shall not be public records under

the act of February 14, 2008 (P.L.6, No.3), known as the Right-

to-Know Law.

(j)  Appeals.--

(1)  If the department denies an application for

registration or revokes a registration under section 701, the

PEO or PEO group may appeal the department's determination to

the secretary. The appeal must be received by the department

within 30 days after the date of the determination.

(2)  An appeal of a determination by the department

denying an application for a renewal registration or revoking

a registration shall operate as a supersedeas while the

appeal is pending. The effective date of a denial or

revocation subject to this subsection shall not be prior to

the expiration of the appeal period under paragraph (1).

(3)  Proceedings under this section are subject to 2

Pa.C.S. Ch. 5 Subch. A (relating to practice and procedure of

Commonwealth agencies) and Ch. 7 Subch. A (relating to

judicial review of Commonwealth agency action).

Section 302.  Fees.

(a)  Fees.--Except as provided in subsection (b), the

department shall charge the following fees for applications

under this act:

(1)  Initial PEO registration, $500.

(2)  Initial PEO group registration, $750.

(3)  Renewal registration, $250.

(4)  Limited registration, $250.

(b)  Amended fees.--No less than 60 days after publishing

notice of an intent to revise fees in the Pennsylvania Bulletin,

the department may revise the fees to be charged under

subsection (a) or establish additional fees. Fees as revised or

established by the department shall not exceed amounts

reasonably necessary for the administration of this act. The

department shall retain the application fees for the purposes of

administering this act.

Section 303.  Financial capability.

(a)  Working capital.--Except as provided in section 301(e),

each registrant shall maintain either:

(1)  positive working capital at registration or renewal

as reflected in the financial statements provided under

section 301(b)(7); or

(2)  if the registrant does not meet the requirement in

paragraph (1), the registrant shall provide one or more of

the instruments set forth in subsection (b) with a minimum

aggregate value sufficient to eliminate negative working

capital plus $100,000. The instruments shall secure payment

by the registrant of all taxes, wages, benefits or other

entitlements due to or with respect to covered employees if

the registrant fails to make payment when due.

(b)  Instruments.--The following instruments may be

maintained to comply with subsection (a)(2):

(1)  A surety bond on a form prescribed by the department

issued by an insurer authorized to transact surety business

in this Commonwealth by the Insurance Department. The

following shall apply:

(i)  The surety company shall possess a current A.M.

Best Rating of B+ or better or a Standard and Poor's

rating of claims paying ability of A or better.

(ii)  The PEO shall replace the bond with a new bond

issued by a surety company with an acceptable rating or

with another instrument under this subsection if the

surety company's rating falls below the acceptable rating

after the bond is issued. If the bond is not replaced

within 60 days, the department may draw on the surety

bond and deposit the proceeds with the State Treasurer to

secure payment as set forth in subsection (a)(2).

(2)  An instrument held under a trust agreement

prescribed by the department and maintained to secure payment

as set forth in subsection (a)(2). The following shall apply:

(i)  The deposit shall consist of cash, bonds or

other evidence of indebtedness issued, assumed or

guaranteed by the United States of America or by an

agency or instrumentality of the United States;

investments in common funds or regulated investment

companies which invest primarily in Federal Government or

State government agency obligations; or bonds or other

security issued by the Commonwealth and backed by the

Commonwealth's full faith and credit.

(ii)  The securities shall be held in a Commonwealth

chartered bank and trust company or trust company as

defined in section 102 of the act of November 30, 1965

(P.L.847, No.356), known as the Banking Code of 1965, or

a federally chartered bank or foreign bank with a branch

office and trust powers in this Commonwealth.

(3)  An irrevocable letter of credit using provisions

required by the department issued by and payable at a branch

office of a commercial bank located in the United States. The

letter of credit shall state that the terms of the letter of

credit automatically renew annually unless the letter of

credit is specifically nonrenewed by the issuing bank 60 days

or more prior to the anniversary date of its issuance. The

following shall apply:

(i)  At the time of issuance of the letter of credit,

the issuing bank or its holding company shall have a B/C

or better rating or 2.5 or better score by Thomson

BankWatch, or the issuing bank shall have a CD rating of

BBB or better by Standard & Poor's Corporation.

(ii)  The registrant shall replace the letter of

credit with a new letter of credit issued by a bank with

an acceptable credit rating or with another acceptable

form of security if a bank's rating falls below the

acceptable rating after the letter of credit is issued.

If the letter of credit is not replaced within 60 days,

the department will draw on the letter of credit and will

deposit the proceeds to secure payment as set forth in

subsection (a)(2).

(iii)  The registrant shall execute a trust agreement

on a form prescribed by the department with a

Commonwealth chartered bank and trust company or trust

company as defined in section 102 of the Banking Code of

1965 or a federally chartered bank or foreign bank with a

branch office and trust powers in this Commonwealth. The

trust agreement must accommodate proceeds from a letter

of credit drawn on by the department.

(c)  Certification.--Within 60 days after the end of each

calendar quarter, a registrant shall submit to the department a

certification by a senior manager that all applicable Federal,

State and local taxes and required insurance premiums have been

paid on a timely basis for that quarter.

CHAPTER 5

PEO DUTIES AND AGREEMENTS

Section 501.  Duties and contractual relationship.

(a)  Allocation of rights, duties and obligations.--Except as

specifically provided in this act or in the professional

employer agreement, in each coemployment relationship:

(1)  The client shall be entitled to exercise all rights,

and shall be obligated to perform all duties and

responsibilities, otherwise applicable to an employer in an

employment relationship.

(2)  The PEO shall be entitled to exercise only those

rights, and obligated to 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 shall be limited to those arising

pursuant to the professional employer agreement and this act

during the term of coemployment by the PEO of the covered

employee.

(3)  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 client's fiduciary responsibilities or to

comply with any licensure requirements applicable to the

client or to the covered employees.

(b)  Contractual relationship.--Except as provided by law,

the coemployment relationship between the client and the PEO,

and between each coemployer and each covered employee, shall be

governed by the professional employer agreement. Each

professional employer agreement shall be reduced to writing and

signed by both the client and the PEO and shall provide:

(1)  The allocation of rights, duties and obligations as

described in subsection (a).

(2)  That the PEO shall have responsibility to pay wages

to covered employees; to withhold, collect, report and remit

payroll-related taxes and may remit unemployment taxes in

accordance with section 504; and, to the extent the PEO has

assumed responsibility in the professional employer

agreement, to make payments for employee benefits for covered

employees. As used in this paragraph, the term "wages" does

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, such as

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

these payments in the professional employer agreement.

(3)  That the PEO and the client shall comply with the

Commonwealth's wage and labor laws, including the act of May

13, 1915 (P.L.286, No.177), known as the Child Labor Law, the

act of August 15, 1961 (P.L.987, No.442), known as the

Pennsylvania Prevailing Wage Act, the act of July 14, 1961

(P.L.637, No.329), known as the Wage Payment and Collection

Law, and the act of January 17, 1968 (P.L.11, No.5), known as

The Minimum Wage Act of 1968. If the client is a health care

facility as defined in section 2 of the act of October 9,

2008 (P.L.1376, No.102), known as the Prohibition of

Excessive Overtime in Health Care Act, the client shall

comply with that act.

(4)  That the PEO shall have a right to hire, discipline

and terminate a covered employee as may be necessary to

fulfill the PEO's responsibilities under this act and the

professional employer agreement. The client shall have a

right to hire, discipline and terminate a covered employee.

(5)  The responsibility to provide workers' compensation

coverage for covered employees, in compliance with section

503, shall be specifically allocated to either the client or

the PEO.

(c)  Notice to covered employees.--With respect to each

professional employer agreement entered into by a PEO, the PEO

shall provide written notice to each covered employee affected

by the agreement of the general nature of the coemployment

relationship between and among the PEO, the client and the

covered employee.

(d)  Specific responsibilities.--Except to the extent

otherwise expressly provided by the applicable professional

employer agreement:

(1)  A client shall be solely responsible for the

quality, adequacy or safety of the goods or services produced

or sold in client's business.

(2)  A client shall be solely responsible for directing,

supervising, training and controlling the work of the covered

employees with respect to the business activities of the

client and solely responsible for the acts, errors or

omissions of the covered employees with regard to these

activities. 

(3)  A client shall not be 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.

(4)  A PEO shall not be 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.

(5)  Nothing in this subsection shall serve to limit any

contractual liability or obligation specifically provided in

the written professional employer agreement.

(6)  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 which is not covered by

workers' compensation 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.

(e)  Professional employer services not insurance.--A PEO

under this act is not engaged in the sale of insurance or in

acting as a third party administrator by offering, marketing,

selling, administering or providing professional employer

services which include services and employee benefit plans for

covered employees.

(f)  Taxation.--

(1)  Covered employees whose services are subject to

sales tax shall be deemed the employees of the client for

purposes of collecting and levying sales tax on the services

performed by the covered employee. Nothing contained in this

act shall relieve a client of any sales tax liability with

respect to its goods or services.

(2)  Any tax upon professional employer services or any

business license or other fee which is based upon gross

receipts shall be limited to the administrative fee of the

PEO.

(3)  Any tax assessed on a per capita or per employee

basis shall be assessed against the client for covered

employees and against the PEO for its employees who are not

covered employees coemployed with a client.

(4)  In the case of tax imposed or calculated upon the

basis of total payroll, the PEO shall be eligible to apply

any small business allowance or exemption available to the

client for the covered employees for purpose of computing the

tax.

Section 502.  Benefit plans.

(a)  Retirement and welfare benefit plans.--A client and a

PEO shall each be deemed an employer for purposes of sponsoring

retirement and welfare benefit plans for its covered employees.

(b)  Construction.--A fully insured welfare benefit plan

offered to the covered employees of a single PEO shall be

considered for purposes of Commonwealth law and regulation to be

a single employer welfare benefit plan and shall not be

considered a multiple employer welfare arrangement.

(c)  Insurance Company Law.--For purposes of section 621.2 of

the act of May 17, 1921 (P.L.682, No.284), known as The

Insurance Company Law of 1921, a PEO shall be considered the

employer of all of its covered employees, and all covered

employees of one or more clients participating in a health

benefit plan sponsored by a single PEO shall be considered

employees of the PEO.

(d)  Plans not fully insured.--If a PEO offers to its covered

employees any health benefit plan which is not fully insured by

an insurer, the plan shall:

(1)  Utilize a third-party administrator licensed to do

business in this Commonwealth.

(2)  Hold all plan assets, including participant

contributions, in a trust account.

(3)  Provide sound reserves as determined by an actuary

using generally accepted actuarial standards of practice.

(4)  Provide written notice to each covered employee

participating in the benefit plan that the plan is self-

insured or is not fully insured.

Section 503.  Workers' compensation.

(a)  Requirement for coverage of covered employees.--

(1)  The PEO and the client shall be an employer of

covered employees assigned to the client for purposes of this

section and the act of June 2, 1915 (P.L.736, No.338), known

as the Workers' Compensation Act.

(2)  The responsibility to provide workers' compensation

coverage for the covered employees shall be specifically

allocated in the professional employer agreement to either

the client or the PEO. In the absence of a written

allocation, the client shall be deemed responsible for

workers' compensation coverage for the covered employees

assigned to that client.

(b)  Methods of coverage.--A client and a registered PEO that

have entered into a professional employer agreement may meet

their statutory obligation under the Workers' Compensation Act

for coverage as employers for the covered employees by any of

the following:

(1)  The client obtaining a standard workers'

compensation policy from an insurer authorized to provide

workers' compensation coverage covering all of the client's

covered employees and direct hire employees.

(2)  The client being approved by the department to self-

insure its workers' compensation obligations for the client's

covered employees and direct hire employees.

(3)  The PEO purchasing workers' compensation insurance

on a multiple coordinated policy basis from an insurer

authorized to provide workers' compensation coverage

providing coverage to the client and to the PEO with respect

to the covered employees assigned to the client. Each policy

written on a multiple coordinated policy basis shall be

issued to the PEO as the named insured and must identify both

the PEO and the client as insureds. Policies written in

accordance with this paragraph by the same insurer with the

PEO as named insured are combinable for premium discount and

other purposes including a retrospective rating program or

any other permitted pricing program. For policies written on

a multiple coordinated policy basis, the client's loss

experience will continue to be reported in the name of the

client to the designated advisory organization and will be

available for use by subsequent insurers.

(4)  The PEO being duly qualified and licensed by the

Commonwealth to self-insure its workers' compensation

obligations, including direct employees and covered

employees.

(5)  The PEO purchasing workers' compensation insurance

on a master policy basis from an insurer authorized to

provide workers' compensation coverage. The insurer shall:

(i)  Provide a certificate of coverage providing

coverage to each client and to the PEO with respect to

the covered employees of that client.

(ii)  Report all losses for injuries to covered

employees and all payroll for the PEO in a manner to

identify both the PEO and each client in a manner to

enable the calculation of an experience modification

factor for each client.

(c)  Employee coverage.--Direct employees of and covered

employees assigned to a client shall all be collectively covered

either in the residual market or in the voluntary market.

Covered employees in the residual market may only be covered

pursuant to a policy issued to the client under subsection (b)

(1) or on a multiple coordinated policy basis issued pursuant to

subsection (b)(3).

(d)  Client obligation.--A client retains the statutory

obligation to provide workers' compensation coverage for

employees that are not covered employees pursuant to the

professional employer agreement. If a client's insurer has

issued coverage for direct hire employees, and an injured

employee is entitled to workers' compensation benefits but there

is a dispute as to whether the employee is a direct hire

employee of the client or a covered employee of the PEO, the

client's insurer shall pay the benefits, subject to

reimbursement of claims costs and loss adjustment expenses by

the PEO's insurer if it is determined that the claimant is a

covered employee of the PEO.

(e)  Policy issuance permitted.--Subject to subsection (d),

and notwithstanding the provisions of section 653 of the act of

May 17, 1921 (P.L.682, No.284), known as The Insurance Company

Law of 1921, insurers may issue multiple coordinated policies

and master policies covering fewer than all of a client's

employees pursuant to subsection (b)(3) and (5).

(f)  Notice of coverage.--

(1)  If coverage is provided by the PEO, the PEO shall

give clear and conspicuous written notice to the client that:

(i)  The client of the PEO has a continuing

obligation to provide coverage under the Workers'

Compensation Act for any employees of the client who are

not covered employees and not otherwise covered under a

policy described in this section.

(ii)  While coverage secured or provided by the PEO

is in force, the PEO will be responsible for paying all

premium obligations, including any audit adjustments and

policyholder assessments, and will be entitled to any

premium refunds. The written notice to the client shall

further explain that although the PEO will charge fees to

the client that reflect or include the cost of coverage,

these fees are not considered insurance premium

obligations of the client. If there is a policy

deductible, the written notice to the client shall

further explain that the PEO is responsible for

reimbursing the insurer for the deductible and may not

seek recovery from the client.

(iii)  Explains the procedures by which the client or

PEO may terminate the professional employer agreement,

including any fees or costs payable upon termination, and

that except as otherwise expressly provided or required

by law, all services provided by the PEO to the client

shall cease immediately on the effective date of the

termination.

(2)  The written notice to the client shall explicitly

state that:

(i)  The client's coverage under any workers'

compensation insurance shall terminate immediately on the

termination date of the professional employer agreement,

subject to the client's right to receive a 30 days'

advance notice before workers' compensation insurance

coverage may be terminated involuntarily, except that the

department may prescribe by rule a shorter period of not

less than 15 days for fraud or nonpayment by the client.

(ii)  The option, if any, of the client to purchase

an extension of coverage at the client's expense for the

remainder of the notice period if the notice period

extends beyond the termination date of the professional

employer agreement.

(iii)  The client shall be obligated to pay the cost

to the PEO of workers' compensation coverage, including

reasonable administrative expenses, during any extension

of the coverage period after termination of the

professional employer agreement.

(g)  Notice to department.--If the professional employer

agreement provides for the PEO to purchase workers' compensation

insurance for covered employees, the PEO shall:

(1)  Notify the department that it has insured covered

employees assigned to a client for workers' compensation on a

multiple coordinated policy basis pursuant to subsection

(b)(3) or on a master policy basis pursuant to subsection

(b)(5) within 15 days after the effective date of the

professional employer agreement.

(2)  Notify the department of any cancellation or

termination of a professional employer agreement under which

the PEO has assumed the obligation to provide workers'

compensation insurance for covered employees within ten days

following the date the notification of cancellation or

termination of the professional employer agreement is

delivered to the client.

(3)  Notify the department of any cancellation or

termination of workers' compensation coverage for covered

employees by the PEO's insurer, or any change in insurers for

covered employees, within ten days of the effective date of

cancellation, termination or change of insurers.

(h)  Exclusive remedy.--

(1)  The Workers' Compensation Act shall provide the

exclusive remedy for injuries suffered by covered employees

in the course and scope of their coemployment with the PEO

and client only where the PEO or client has secured workers'

compensation insurance or self-insured their workers'

compensation obligations as required by the Workers'

Compensation Act and the professional employer agreement.

(2)  Nothing in this act may include within the coverage

of the Workers' Compensation Act individuals, services or

remuneration that are otherwise excluded from the Workers'

Compensation Act.

Section 504.  Unemployment compensation insurance.

(a)  Employer.--Notwithstanding any other provision of this

act, the following shall apply:

(1)  A professional employer agreement under this act

shall constitute an arrangement included in section 4(j)(2.1)

of the act of December 5, 1936 (2nd Sp.Sess., 1937 P.L.2897,

No.1), known as the Unemployment Compensation Law.

(2)   Nothing in this act shall be construed:

(i)  To affect the responsibilities of the client as

the employer of covered employees for purposes of the

Unemployment Compensation Law.

(ii)  To affect the responsibility of the PEO to file

reports pursuant to section 315(a)(4) of the Unemployment

Compensation Law.

(iii)  To preclude the applicability of section 4(j)

(2.1) or any other provisions of the Unemployment

Compensation Law to any arrangement or person not

governed by this act.

(b)  Procedure.--

(1)  A client may authorize a PEO to file employer

reports pursuant to section 304 of the Unemployment

Compensation Law and pay unemployment compensation

contributions, interest and penalties on the client's behalf.

(2)  An authorization, filing or payment under this

subsection shall be made in the manner prescribed by the

department.

(3)  This subsection shall not be construed to allow

multiple employer reports to be filed on a client's

unemployment compensation account for a calendar quarter.

CHAPTER 7

ENFORCEMENT

Section 701.  Enforcement.

(a)  Prohibited acts.--A person commits a misdemeanor of the

third degree if that person:

(1)  Offers, provides, advertises or holds itself out as

providing professional employer services or uses the names

PEO, professional employer organization, staff leasing,

employee leasing, administrative employer or other title

representing professional employer services without first

becoming registered under this act.

(2)  Knowingly and willingly misrepresents a material

fact or fails to disclose a material fact in conjunction with

any application, registration, renewal or in any report

required under this act.

(b)  Inspection and disciplinary action.--

(1)  Upon petition of the department, a court of

competent jurisdiction may enjoin a PEO from taking action

under or violating this act.

(2)  The department may conduct audits, inspections and

investigations as necessary to administer and enforce this

act. The books and records of a PEO and a client shall be

available to the department for inspection and copying at

reasonable times. The department may examine an individual

under oath or affirmation and issue subpoenas to compel the

attendance of witnesses and the production of documents.

(3)  The department may revoke the registration of a PEO

or PEO group, or may impose an administrative penalty in an

amount not to exceed $1,000 for each violation, or both, if

after notice and hearing, the PEO or PEO group:

(i)  Knowingly violates any provision of this act.

(ii)  Ceases to meet any requirement of this act.

(iii)  Knowingly misrepresents a material fact in

conjunction with any application, registration or renewal

or in any report required under this act.

(iv)  Fails to disclose a material fact in

conjunction with any application, registration or renewal

or in any report required under this act.

CHAPTER 21

MISCELLANEOUS PROVISIONS

Section 2101.  Effective date.

This act shall take effect in 60 days.