THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY BROWNE, PIPPY, RAFFERTY, McILHINNEY, TOMLINSON, FOLMER, BREWSTER, FARNESE, STACK AND BLAKE, MAY 16, 2011

REFERRED TO LABOR AND INDUSTRY, MAY 16, 2011  

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.  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 owns, directly or

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

employer organization.

"Covered employee."  An individual coemployed by 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.

"Direct hire employee."  An individual who is an employee of

either the client or the PEO within the meaning of the act of

June 2, 1915 (P.L.736, No.338), known as the Workers'

Compensation Act, and who is not a covered employee.

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

insurance business in accordance with the laws of this

Commonwealth.

"Licensed producer."  An individual or business entity that

is licensed as an insurance producer by the Insurance Department

in accordance with the provisions of Article VI-A of the act of

May 17, 1921 (P.L.789, No.285), known as The Insurance

Department Act of 1921.

"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 the

professional employer organization on behalf of each client or

group of affiliated clients with payment obligations and certain

policy communications related to such workers' compensation

policy 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 business 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 103.  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.

(3)  Providing temporary help services.

Section 104.  Construction.

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

this act or in any professional employer agreement shall affect,

modify or amend any existing collective bargaining agreement, 

specifically limit or affect any future collective bargaining

agreement, or affect, modify or amend any 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. For purposes of determining the number of

workers for existing and prospective collective bargaining

agreements, each client shall be treated as employing its direct

hire employees and only those covered employees coemployed by

the client.

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

professional employer agreement shall:

(1)  Diminish, abolish or remove rights of covered

employees of 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 its direct hire employees and 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.

(f)  Other entity as employer.--Nothing in this act shall be

construed to designate any entity other than the client as the

employer of any employee performing services for or on its

behalf while employed directly or indirectly by a PEO for any

purposes other than those specifically designated in this act.

Persons performing services for or on behalf of a client shall

be deemed to be employees of the client for all purposes other

than those specifically designated in this act where persons may

be considered employees 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 state 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

controlling person.

(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

agreements 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, a 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, any

person's personal identifying information, employer

identification numbers, a Federal employment identification

number, provisions of the professional employer agreements 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.

The department shall make available such personal identifying

information, employer identification numbers, a Federal

employment identification number, provisions of the professional

employer agreements and client lists obtained by the department

from a PEO or PEO group under this act to a rating organization

licensed pursuant to section 712(a) of the act of June 2, 1915

(P.L.736, No.338), known as the Workers' Compensation Act, as

required to comply with that rating organization's statutory

obligations. Information obtained under this subsection shall

only be used by the rating organization to comply with those

statutory duties either prescribed under the Workers'

Compensation Act or required by the Insurance Department

pursuant to its statutory authority under the act of May 17,

1921 (P.L.789, No.285), known as The Insurance Department Act of

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

Insurance Company Law of 1921, and shall not be considered

public records under 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 establish positive 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 shall be entitled to 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 for all covered employees in this Commonwealth 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, nothing in this act shall be

deemed to affect or alter any provision of Pennsylvania law.

Specifically:

(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. The PEO shall

ensure that each professional employer agreement is reduced to

writing and signed by both the client and the PEO and each

professional employer agreement 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)  Nothing in this act or in a professional employer

agreement shall relieve a client from compliance 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. No professional employer organization

shall knowingly engage in or assist in the violation of the

statutes referenced in this paragraph.

(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 PEO or client has the responsibility to provide

workers' compensation coverage for covered employees, in

compliance with section 503, which responsibility shall be

specifically allocated in the professional employer agreement

to either the client or the PEO in accordance with section

503(a).

(c)  Notice to terminate.--With respect to each professional

employer agreement entered into by the PEO, the PEO shall

provide 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 as of the effective date of

the termination.

(d)  Notice to covered employees and clients.--

(1)  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.

(2)  If the PEO is providing benefits to covered

employees pursuant to a PEO sponsored welfare benefit plan,

the PEO shall provide specific notice to the client as to

services provided by the PEO concerning those benefits. These

responsibilities include those related to administration,

which includes Consolidated Omnibus Budget Reconciliation Act

(COBRA) administration, plan administration, enrollment and

renewal services pursuant to their professional employer

agreement. The notice may be contained in the professional

employer agreement or in a separate notice.

(e)  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.

(f)  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.

(g)  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)  Both the PEO and the client shall be an employer of

covered employees assigned to the client for purposes of this

act 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.

(3)  When the responsibility to provide workers'

compensation coverage is specifically allocated in the

professional employer agreement to the PEO, the PEO must

elect to provide coverage for all covered employees assigned

to that client pursuant to subsection (b)(3), (4) or (5).

(4)  When the responsibility to provide workers'

compensation coverage is specifically allocated in the

professional employer agreement to the client, the client

must provide coverage pursuant to subsection (b)(1) or (2).

(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 the client's covered

employees. Separate experience modification, risk

classifications, merit rating adjustments, construction

classification premium adjustments or certified safety

committee program credits shall be applied to the exposures

of the client covered by a policy obtained under this

paragraph based on the client's entire Pennsylvania

operations notwithstanding coverage provided under additional

professional employer agreements pursuant to paragraphs (3),

(4) and (5).

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

insure or group self-insure its workers' compensation

obligations for the client's covered employees.

(3)  The PEO purchasing workers' compensation insurance

on a multiple coordinated policy basis from an insurer

authorized to provide workers' compensation coverage to the

PEO and to the client 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

primary named insured and must identify both the PEO and the

client as insureds. The following apply:

(i)  Separate experience data must be reported to the

licensed rating organization for workers' compensation

insurance for each multiple coordinated policy in a

format complying with requirements of the approved

statistical plan for workers' compensation coverage.

(ii)  Risk classifications shall be assigned to each

client based on the totality of that client's

Pennsylvania operations regardless of whether workers

engaged therein are provided under one or more

professional employer agreements or are direct hire

employees of the client.

(iii)  If applicable, separate experience

modification, merit rating adjustments, construction

classification premium adjustment or certified safety

committee program credits shall be applied to the

exposures of each client covered by a multiple

coordinated policy based on the client's entire

Pennsylvania operations whether coverage is being

provided for the client's exposures under the client's

own policy or on a master policy basis or multiple

coordinated policy basis under one or more professional

employer agreements, or some combination thereof.

(iv)  Policies written in accordance with this

paragraph by the same insurer with the PEO as named

insured may be combinable for premium discount and other

purposes including a retrospective rating program or any

other approved pricing program. Such programs may be

based on the combined total standard premium and losses

of all such policies issued to the PEO as the primary

named insured.

(v)  Nothing in this paragraph shall prohibit a

professional employer organization from participating in

a large deductible program, retrospective rating program

or any other rating program approved for and written

under a workers' compensation policy offered by an

insurer. Further, nothing in this paragraph shall

restrict an insurer from collecting workers' compensation

premium based on the totality of the exposure under these

multiple coordinated policies and applying rates and

discounts consistent with those approved for the insurer

pursuant to the rating program.

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

department 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 or

licensed producer shall provide a certificate of insurance

evidencing workers' compensation coverage to each client and

to the PEO with respect to the covered employees of that

client. The following apply:

(i)  When coverage is provided under a master policy,

the insurer must report separate experience data to the

licensed rating organization for workers' compensation

insurance for each client insured within any master

policy in a format complying with the requirements of the

approved statistical plan for workers' compensation

coverage.

(ii)  Risk classifications shall be assigned to each

client based on the totality of that client's

Pennsylvania operations regardless of whether workers

engaged therein are provided under one or more

professional employer agreements or are direct hire

employees of the client.

(iii)  If applicable, separate experience

modification, merit rating adjustments, construction

classification premium adjustments or certified safety

committee program credits shall be applied to the

exposures of each client covered by a master policy based

on the client's entire Pennsylvania operations whether

coverage is being provided for the client's exposures

under the client's own policy or on a master policy basis

or multiple coordinated policy basis under one or more

professional employer agreements, or some combination

thereof.

(iv)  Nothing in this paragraph shall prohibit a

professional employer organization from participating in

a large deductible program, retrospective rating program

or any other rating program approved for and written

under a workers' compensation policy offered by an

insurer. Further, nothing in this paragraph shall

restrict an insurer from collecting workers' compensation

premium based on the totality of the exposure under the

master policy and applying rates and discounts consistent

with those approved for the insurer pursuant to the

rating program.

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

employees assigned to a client shall all be collectively covered

either by the State Workers' Insurance Fund or by insurers

authorized to transact workers' compensation insurance in the

voluntary market. Covered employees insured by the State

Workers' Insurance Fund 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.--

(1)  A client retains the statutory obligation to provide

workers' compensation coverage for employees that are not

covered employees pursuant to the professional employer

agreement. Nothing in this paragraph shall preclude a client

from purchasing a workers' compensation policy insuring both

its covered employees and its direct hire employees.

(2)  If a client's insurer or the client, if self-

insured, 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 or the client, if self-insured,

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.

(3)  If the client does not have coverage for direct hire

employees, either through an insurer or by self-insurance,

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 PEO's insurer or the PEO, if self-insured, shall

pay the benefits, subject to reimbursement of claims costs

and loss adjustment expenses by the client, if it is

determined that the claimant is not a covered employee of the

PEO.

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

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 to the client.--

(1)  If coverage is provided under a policy issued to the

PEO for covered employees of 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 direct hire employees of the client

who are not covered employees and not otherwise covered

under a policy described in this section.

(ii)  While coverage provided under a policy issued

to 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 the client amounts that reflect or include

the cost of coverage, these charges 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.

(2)  The written notice to the client shall explicitly

state that:

(i)  If the professional employer organization

terminates the professional employment agreement with the

client, termination of workers' compensation coverage by

the insurer shall be effective the sooner of:

(A)  Sixty days after notice of intent to

terminate workers' compensation coverage by the

insurer has been given by the professional employer

organization to the client.

(B)  Fifteen days after notice of intent to

terminate workers' compensation coverage by the

insurer for nonpayment has been given by the

professional employer organization to the client.

(C)  The date on which workers' compensation

coverage for the covered employees is transferred to

the client's workers' compensation policy or other

coverage.

(ii)  The requirements under paragraph (1) shall

continue to apply to workers' compensation coverage

provided by the insurer after the notice is given

pursuant to subparagraph (i).

(iii)  The client shall pay for all workers'

compensation coverage provided by the insurer, including

reasonable administrative expenses, subsequent to the

termination of the professional employer agreement by the

professional employer organization.

(iv)  If workers' compensation coverage is provided

through a workers' compensation insurance policy issued

to the professional employer organization on behalf of

the client who has been given notice pursuant to

subparagraph (i), the professional employer organization

shall notify the affected insurer of the notice.

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

agreement provides for the PEO to provide 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 through self-insurance in accordance with

subsection (b)(4) 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 issued

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)  Notice by insurer or licensed producer.--The insurer or

licensed producer of a workers' compensation policy sponsored by

a PEO for covered employees shall provide the department with

copies of all notices of coverage, cancellation or nonrenewal

related to that policy. The PEO shall notify the insurer or

licensed producer of the requirement under this subsection.

(i)  Exclusive remedy.--

(1)  The Workers' Compensation Act shall provide the

exclusive remedy for injuries suffered by direct hire and

covered employees in the course and scope of their employment

or coemployment with the PEO and client where the PEO or

client has secured workers' compensation insurance or self-

insured their workers' compensation obligations as required

by the Workers' Compensation Act, this act and the

professional employer agreement. Both the PEO and the client

shall be entitled to the exclusiveness of remedy under

section 303 of the Workers' Compensation Act regardless of

which provided such coverage.

(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.

(j)  Cost.--The professional employer organization shall not

make any materially inaccurate, misleading or fraudulent

representations to the client regarding the cost of workers'

compensation coverage. If the professional employer organization

charges the client an itemized amount for workers' compensation

coverage, the professional employer organization shall provide

the client with an accurate and concise description of the basis

upon which it was calculated and the services that are included.

A professional employer organization shall not charge a client

an itemized amount for workers' compensation coverage that is

materially inconsistent with the actual amounts that the

professional employer organization is charged by the insurer,

given reasonably anticipated loss-sensitive charges, if

applicable, reasonable recognition of the professional employer

organization's costs and a margin for profit.

(k)  Applicability.--This section shall apply to new and

renewal workers' compensation policies issued to professional

employer organizations on or after the effective date of this

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 180 days.