H.B. 29 Enrolled

1

PROFESSIONAL EMPLOYER ORGANIZATION
2 RELATED AMENDMENTS
3 2007 GENERAL SESSION
4 STATE OF UTAH
5 Chief Sponsor: James A. Dunnigan
6 Senate Sponsor: Curtis S. Bramble
7
8 LONG TITLE
9 General Description:
10 This bill modifies provisions related to professional employer organizations and their
11 clients.
12 Highlighted Provisions:
13 This bill:
14 . modifies definition provisions;
15 . provides for an alternative method of registration;
16 . provides for the designation of assurance organizations;
17 . addresses required filings;
18 . addresses insurance;
19 . addresses taxes and fees;
20 . addresses employment related economic incentives and procurement;
21 . repeals out-dated language; and
22 . makes technical changes.
23 Monies Appropriated in this Bill:
24 None
25 Other Special Clauses:
26 None
27 Utah Code Sections Affected:
28 AMENDS:
29 58-59-102, as last amended by Chapter 260, Laws of Utah 2003

30 58-59-302, as last amended by Chapter 260, Laws of Utah 2003
31 58-59-303.5, as enacted by Chapter 260, Laws of Utah 2003
32 58-59-306, as repealed and reenacted by Chapter 260, Laws of Utah 2003
33 ENACTS:
34 58-59-302.5, Utah Code Annotated 1953
35 58-59-306.5, Utah Code Annotated 1953
36 REPEALS:
37 58-59-305, as repealed and reenacted by Chapter 260, Laws of Utah 2003
38
39 Be it enacted by the Legislature of the state of Utah:
40 Section 1. Section 58-59-102 is amended to read:
41 58-59-102. Definitions.
42 In addition to the definitions in Section 58-1-102 , as used in this chapter:
43 (1) "Assurance organization" means a person designated as an assurance organization
44 in accordance with Section 58-59-302.5 .
45 [(1)] (2) "Client" or "client company" means a person [or entity] that enters into a
46 professional employer agreement with a [professional employer organization] PEO.
47 [(2)] (3) "Coemployer" means either a [professional employer organization] PEO or a
48 client.
49 [(3)] (4) "Coemployment relationship" means:
50 (a) as between coemployers, a relationship:
51 (i) whereby the rights, duties, and obligations of an employer which arise out of an
52 employment relationship have been allocated between coemployers under a professional
53 employer agreement and this chapter[,]; and [which]
54 (ii) that is intended to be an ongoing relationship, rather than a temporary or
55 project-specific relationship;
56 (b) as between each PEO and a covered employee as to which a professional employer
57 agreement applies, an employment relationship whereby the PEO is entitled to enforce those

58 rights, and obligated to perform those duties and obligations, allocated to the PEO by the
59 professional employer agreement and this chapter;
60 (c) as between each client and a covered employee to which a professional employer
61 agreement applies, an employment relationship [whereby] under which:
62 (i) the client is entitled to enforce those rights, and obligated to provide and perform
63 those employer obligations, allocated to the client by the professional employer agreement and
64 this chapter; and
65 (ii) the client is responsible for any employer right or obligation not otherwise allocated
66 by the professional employer agreement or this chapter; and
67 (d) as to those rights enforceable by an employee under state law[,]:
68 (i) covered employees are entitled to enforce against the PEO those rights:
69 [(i)] (A) allocated to the PEO by the professional employer agreement and this chapter;
70 or
71 [(ii)] (B) shared by the PEO and the client under the professional employer agreement
72 and this chapter[. All other]; and
73 (ii) any rights, duties, and obligations not described in Subsection (4)(d)(i) enforceable
74 by an employee under state law [shall continue to be] are enforceable against the client under
75 state law.
76 [(4)] (5) (a) "Covered employee" means an individual having a coemployment
77 relationship with a PEO and a client who meets all of the following criteria:
78 [(a)] (i) the individual [has executed an employment agreement] receives written notice
79 of the coemployment relationship with the PEO and the client;
80 [(b)] (ii) the individual is a party to a coemployment relationship with [a] the PEO and
81 [a] the client; and
82 [(c)] (iii) the individual's coemployment relationship is pursuant to a professional
83 employer agreement subject to this chapter. [Individuals who are officers, directors,
84 shareholders, partners, and managers of the client are covered employees]
85 (b) "Covered employee" includes an individual who is an officer, director, shareholder,

86 partner, or manager of a client:
87 (i) to the extent the PEO and the client have expressly agreed in the professional
88 employer agreement that the [individuals would be covered employees and provided the
89 individuals meet] individual is a covered employee; and
90 (ii) the individual:
91 (A) meets the criteria of [this] Subsection [(4)] (5)(a); and [act]
92 (B) (I) acts as an operational [managers] manager; or [perform]
93 (II) performs services for the client.
94 (6) (a) "Employment related economic incentive" means:
95 (i) (A) a credit against or exemption from taxes due the state or a political subdivision
96 of the state; or
97 (B) an economic inducement, including a loan or a grant; and
98 (ii) if the credit, exemption, or economic inducement:
99 (A) is offered by the state or a political subdivision of the state; and
100 (B) has an eligibility requirement that relates in whole or in part on employment
101 including:
102 (I) the number of employees; or
103 (II) the nature of the employment.
104 [(5)] (7) "Engage in practice as a professional employer organization" means to:
105 (a) hold oneself out as a professional employer organization[, to];
106 (b) coemploy an employee with another person[, or to];
107 (c) receive any consideration for providing professional employer services; or [to]
108 (d) expect payment of any consideration for providing professional employer services.
109 [(6)] (8) "Organization" means any individual, partnership, corporation, limited
110 liability company, association, or any other form of legally recognized entity.
111 [(7)] (9) "Professional employer agreement" means a written contract by and between a
112 client and a PEO that provides:
113 (a) for the coemployment of covered employees;

114 (b) for the allocation and sharing between the client and the PEO of employer
115 responsibilities[,] with respect to the covered employees including hiring, firing, and
116 disciplining[, with respect to the covered employees]; and
117 (c) that the PEO and the client assume the responsibilities required by this chapter.
118 [(8) (a)] (10) (a) "Professional employer organization" or "PEO" means any
119 organization engaged in the business of providing professional employer services.
120 [(b) An organization engaged in the business of providing professional employer
121 services is subject to registration under this chapter regardless of its use of the term
122 "professional employer organization," "PEO," "staff leasing company," "registered staff leasing
123 company," "employee leasing company," or any other name.]
124 [(c)] (b) The following are not considered to be professional employer organizations or
125 professional employment services for purposes of this chapter:
126 (i) arrangements [wherein] where an organization[, whose principal business activity is
127 not entering into professional employer arrangements and which does not hold itself out as a
128 PEO,] shares employees with a commonly owned company within the meaning of Sections
129 414(b) and (c) of the Internal Revenue Code of 1986, as amended[;], if the organization:
130 (A) does not have as a principal business activity entering into professional employer
131 arrangements; and
132 (B) does not hold itself out as a PEO;
133 (ii) arrangements by which an organization:
134 (A) assumes responsibility for the product produced or service performed by the person
135 or the person's agents; and
136 (B) retains and exercises primary direction and control over the work performed by the
137 individuals whose services are supplied under the arrangements; or
138 (iii) providing temporary help services.
139 [(9)] (11) "Professional employer services" means the service of entering into
140 coemployment relationships under this chapter in which all or a majority of the employees
141 providing services to a client or to a division or work unit of a client are covered employees.

142 [(10)] (12) "Temporary help services" means services consisting of an organization:
143 (a) recruiting and hiring its own employees;
144 (b) finding other organizations that need the services of those employees;
145 (c) assigning those employees to perform work at or services for the other
146 organizations:
147 (i) to support or supplement the other organizations' workforces[, or];
148 (ii) to provide assistance in special work situations such as employee absences, skill
149 shortages, or seasonal workloads[,]; or
150 (iii) to perform special assignments or projects with a definite ending date; and
151 (d) customarily attempting to reassign the employees to other organizations when they
152 finish each assignment by a definite ending date.
153 [(11)] (13) "Unlawful conduct" is as defined in Sections 58-1-501 and 58-59-501 .
154 Section 2. Section 58-59-302 is amended to read:
155 58-59-302. Registration process.
156 (1) [Each registrant] A person engaged in practice as a professional employer
157 organization shall register under this chapter. A person registering or renewing a registration
158 as a professional employer organization shall:
159 (a) (i) submit an application in a form prescribed by the division; [and] or
160 (ii) file a certification in accordance with Subsection (2); and
161 (b) pay a fee as determined by the department under Section 63-38-3.2 .
162 (2) (a) A person may comply with Subsection (1) by filing with the division:
163 (i) a certification that an assurance organization certifies the qualifications of the PEO;
164 (ii) the information required by Subsections 58-59-303.5 (1)(a) through (c); and
165 (iii) any changes to the information required by Subsection (2)(a)(ii) within 30 days of
166 the day on which the information changes.
167 (b) A PEO that meets the requirements of Subsection (1) by complying with this
168 Subsection (2) is not required:
169 (i) to renew its registration until the day on which the assurance organization no longer

170 certifies the qualifications of the PEO; and
171 (ii) to provide the information in Subsections 58-59-303.5 (1)(d) through (f).
172 (c) If a PEO that meets the requirements of Subsection (1) by complying with
173 Subsection (2) receives a new or renewed certification by the assurance organization, the PEO
174 shall file with the division a new certification within 30 days from the day on which the PEO
175 receives the new or renewed certification from the assurance organization.
176 (d) This Subsection (2) does not modify the division's authority or responsibility to
177 accept, renew, or terminate a registration.
178 (e) (i) If a PEO authorizes an assurance organization to act on behalf of the PEO for
179 purposes of registration under this Subsection (2), the division shall accept the assurance
180 organization's filing of the information required by Subsection (2)(a)(ii), (2)(a)(iii), or (2)(b) if
181 the information otherwise complies with this Subsection (2) and division rules.
182 (ii) Notwithstanding Subsection (2)(e)(i), if the assurance organization fails to make a
183 required filing under this Subsection (2), the PEO's registration may be not accepted, not
184 renewed, or terminated.
185 [(2)] (3) (a) Any two or more professional employer organizations held under the
186 common control of any other person or persons acting in concert may be registered as a
187 professional employer organization group.
188 (b) A professional employer organization group may satisfy any reporting and financial
189 requirements under this chapter on a consolidated basis.
190 (4) An organization engaged in the business of providing professional employer
191 services is subject to registration under this chapter regardless of its use of the term:
192 (a) "professional employer organization";
193 (b) "PEO";
194 (c) "staff leasing company";
195 (d) "registered staff leasing company";
196 (e) "employee leasing company"; or
197 (f) any other name.

198 Section 3. Section 58-59-302.5 is enacted to read:
199 58-59-302.5. Assurance organization.
200 (1) The division shall designate one or more assurance organizations by rule:
201 (a) consistent with this section; and
202 (b) made in accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking
203 Act.
204 (2) The division shall require that an assurance organization designated by the division
205 be licensed by one or more states other than Utah to certify the qualifications of a PEO.
206 (3) The qualifications certified by an assurance organization designated by the division
207 shall include at a minimum that a PEO:
208 (a) ensure that each controlling person of the PEO:
209 (i) be competent to manage a PEO;
210 (ii) be responsible in the controlling person's finances; and
211 (iii) not have a history of or be engaged in unlawful activities;
212 (b) have a history that is verifiable that the PEO:
213 (i) complies with regulatory requirements; and
214 (ii) engages in financially responsible conduct;
215 (c) has or is able to obtain audited financial statements;
216 (d) has an adjusted net worth equal to or in excess of the greater of:
217 (i) $100,000; or
218 (ii) 5% of total adjusted liabilities;
219 (e) has liquid assets that are sufficient to pay short-term liabilities as demonstrated by a
220 ratio determined by dividing current assets by current liabilities or a similar formula;
221 (f) has on its books adequate financial reserves for all local, state, and federal
222 self-insurance and any insurance policy or plan in which the final cost of coverage is affected
223 by claim losses;
224 (g) operates in conformity with all applicable laws and regulations including those laws
225 and regulations in addition to this chapter;

226 (h) does not engage in deceptive trade practices or misrepresentations of an employer's
227 obligation or liability;
228 (i) has a written professional employer agreement with each client;
229 (j) has or is willing to obtain a written acknowledgment, as part of an existing form or
230 separately, from each covered employee stating that the covered employee understands and
231 accepts the nature, terms, and conditions of the coemployment relationship;
232 (k) establishes and maintains a coemployment relationship by assuming key employer
233 attributes with respect to covered employees as demonstrated by the professional employer
234 agreement and employment forms, policies, and procedures;
235 (l) provides all covered employees with a written copy of the PEO's employment
236 policies and procedures;
237 (m) ensures that all covered employees are covered in a regulatory compliant manner
238 by workers' compensation insurance;
239 (n) does not knowingly use the coemployment relationship to assist a client to evade or
240 avoid the client's obligations under:
241 (i) the National Labor Relations Act, 29 U.S.C. Sec. 151 et seq.;
242 (ii) the federal Railway Labor Act, 45 U.S.C. Sec. 151 et seq.; or
243 (iii) any collective bargaining agreement;
244 (o) except through a licensed insurance agent, does not:
245 (i) represent or imply that it can sell insurance;
246 (ii) attempt to sell insurance; or
247 (iii) sell insurance;
248 (p) markets and provides, or is willing to market and provide professional employer
249 organization services under a separate and distinct trade name from any affiliated PEO that is
250 not certified by the assurance organization;
251 (q) does not allow any person not certified by the assurance organization to use the
252 PEO's trade name in the sale or delivery of the PEO's professional employer organization
253 services;

254 (r) does not guarantee, participate in, transfer between, or otherwise share liabilities
255 with any other PEO that is not certified by the assurance organization:
256 (i) in the employment of covered employees; or
257 (ii) in any employee benefit or insurance policy or plan that is not fully insured and
258 fully funded; and
259 (s) has the ability to provide a regulatory agency or insurance carrier upon request with:
260 (i) a client's name, address, and tax identification number;
261 (ii) payroll data by:
262 (A) client;
263 (B) (I) client SIC Code of the 1987 Standard Industrial Classification Manual of the
264 federal Executive Office of the President, Office of Management and Budget; or
265 (II) client classification under the 2002 North American Industry Classification System
266 of the federal Executive Office of the President, Office of Management and Budget; and
267 (C) workers' compensation classification;
268 (iii) the names of covered employees by:
269 (A) the worksite of a client; and
270 (B) workers' compensation classification; and
271 (iv) workers' compensation certificates of insurance.
272 Section 4. Section 58-59-303.5 is amended to read:
273 58-59-303.5. Information to be filed by PEO.
274 (1) [Each registrant] A person engaged in practice as a professional employer
275 organization shall file the following information with the division with its initial application
276 and with each renewal application:
277 (a) the name or names under which the PEO conducts business;
278 (b) the address of the principal place of business of the PEO and the address of each
279 office it maintains in the state;
280 (c) the PEO's taxpayer or employer identification number;
281 (d) a list by jurisdiction of each name under which the PEO has operated in the

282 preceding five years, including any alternative names, names of predecessors, and, if known,
283 successor business entities;
284 (e) a statement of ownership, which shall include the name of all individuals that,
285 individually or acting in concert with one or more other persons, owns or controls, directly or
286 indirectly, 10% or more of the equity interests of the PEO; and
287 (f) a statement of management, which shall include the name of all officers and any
288 person who has the authority to act as a senior executive officer of the PEO.
289 (2) (a) A [professional employer organization which] PEO that is domiciled outside of
290 the state and employs less than 50 employees who are employed or domiciled in the state is not
291 required to file the information required under Subsections (1)(e) and (f).
292 (b) A PEO that complies with Subsection 58-59-302 (2) is not required to file the
293 information required under Subsections (1)(d) through (f).
294 Section 5. Section 58-59-306 is amended to read:
295 58-59-306. Financial requirements, contractual relations, and allocation of rights,
296 duties, and obligations -- Taxes and fees.
297 (1) Nothing contained in this chapter or in any professional employer agreement shall
298 affect, modify, or amend:
299 (a) any collective bargaining agreement[,]; or
300 (b) the rights or obligations of any client, PEO, or covered employee under:
301 (i) the federal National Labor Relations Act, 29 U.S.C. Sec. 151 et seq.;
302 (ii) the federal Railway Labor Act, 45 U.S.C. Sec. 151 et seq.; or
303 (iii) similar state law.
304 (2) Nothing contained in this chapter or any professional employer agreement shall
305 affect, modify, or amend any state, local, or federal licensing, registration, or certification
306 requirement applicable to any client or covered employee.
307 (a) A covered employee who must be licensed, registered, or certified according to law
308 or regulation is considered solely an employee of the client for purposes of license, registration,
309 or certification requirement.

310 (b) A PEO may not be considered to engage in any occupation, trade, profession, or
311 other activity that is subject to licensing, registration, or certification requirements, or is
312 otherwise regulated by a governmental entity solely by entering into and maintaining a
313 coemployment relationship with a covered employee who is subject to the requirements or
314 regulation.
315 (c) Unless otherwise expressly agreed to by the client in the professional employer
316 agreement, a client has the sole right to direct and control the professional or licensed activities
317 of covered employees and of the client's business.
318 [(3) With respect to a bid, contract, purchase order, or agreement entered into with the
319 state or a political subdivision of the state, a client company's status or certification as a small,
320 minority-owned, disadvantaged, or woman-owned business enterprise or as a historically
321 underutilized business is not affected because the client company has entered into an agreement
322 with a registrant or uses the services of a registrant.]
323 [(4)] (3) (a) At least quarterly, a PEO shall have an independent certified public
324 accountant, licensed to practice in the jurisdiction in which the PEO is domiciled, review the
325 PEO's records and prepare a statement indicating whether all federal, state, and local
326 withholding taxes, unemployment taxes, FICA taxes, workers' compensation premiums, and
327 employee benefit plan premiums have been paid.
328 (b) The PEO must provide the statement to a client upon request from the client.
329 [(5)] (4) (a) Except as specifically provided in this chapter, the coemployment
330 relationship between the client and the PEO, and between each coemployer and each covered
331 employee, shall be governed by the professional employer agreement.
332 (b) Nothing contained in any professional employer agreement or this chapter shall be
333 considered to:
334 (i) diminish, abolish, or remove the rights of covered employees as to clients or
335 obligations of the client as to a covered employee, existing prior to the effective date of a
336 professional employer agreement;
337 (ii) terminate an employment relationship existing prior to the effective date of a

338 professional employer agreement; or
339 (iii) create any new or additional enforceable right of a covered employee against a
340 PEO not specifically allocated to the PEO in the professional employer agreement or this
341 chapter.
342 (c) Each professional employer agreement shall include the following:
343 (i) (A) the PEO shall reserve a right of direction and control over the covered
344 employees; and
345 (B) the client may retain the right to exercise the direction and control over covered
346 employees as is necessary to:
347 (I) conduct the client's business[, to];
348 (II) discharge any fiduciary responsibility which it may have[,]; or [to]
349 (III) comply with any applicable licensure requirements;
350 (ii) the PEO shall have responsibility to:
351 (A) pay agreed upon wages and salaries to covered employees;
352 (B) withhold, collect, report, and remit payroll-related and unemployment taxes; and
353 (C) the extent the PEO has assumed responsibility in the professional employer
354 agreement, to make payments for employee benefits for covered employees;
355 (iii) the PEO and the client shall both have a right to hire, terminate, and discipline the
356 covered employees; and
357 (iv) the responsibility to obtain workers' compensation coverage for covered
358 employees, from a carrier licensed to do business in Utah and otherwise in compliance with all
359 applicable requirements, shall be specifically allocated to the client in the professional
360 employer agreement.
361 (d) Except as specifically provided in this chapter or in the professional employer
362 agreement, in each coemployment relationship:
363 (i) the client may exercise all rights and is obligated to perform all duties and
364 responsibilities otherwise applicable to an employer in an employment relationship;
365 (ii) (A) the PEO may exercise only those rights, and is obligated to perform only those

366 duties and responsibilities, specifically required by this chapter or set forth in the professional
367 employer agreement; and
368 (B) the rights, duties, and obligations of the PEO as coemployer with respect to any
369 covered employee is limited to those arising under the professional employer agreement and
370 this chapter during the term of coemployment by the PEO of the covered employee; and
371 (iii) unless otherwise expressly agreed by the PEO and the client in a professional
372 employer agreement, the client retains the exclusive right to direct and control the covered
373 employees as is necessary to:
374 (A) conduct the client's business, to discharge any of the client's fiduciary
375 responsibilities[,]; or [to]
376 (B) comply with any licensure requirements applicable to the client or to the covered
377 employees.
378 (e) With respect to each professional employer agreement entered into by a PEO, the
379 PEO shall provide written notice to each covered employee affected by the agreement of the
380 gener