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First Substitute H.B. 279

Representative Greg J. Curtis proposes the following substitute bill:


             1     
PROFESSIONAL EMPLOYER ORGANIZATION

             2     
LICENSING ACT AMENDMENTS

             3     
2002 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: Greg J. Curtis

             6      This act modifies the Professional Employer Organization Licensing Act. The act amends
             7      the financial filing requirements for professional employer organizations. The act provides
             8      that employees of professional employer organizations are not exempt from applicable
             9      licensure laws. The act provides standards for health benefit plans offered by professional
             10      employer organizations. The act amends the procedure for refusing to renew the license of
             11      a professional employer organization. The act amends the definition of unprofessional
             12      conduct and makes other technical changes. The act provides for an immediate effective
             13      date.
             14      This act affects sections of Utah Code Annotated 1953 as follows:
             15      AMENDS:
             16          58-59-102, as last amended by Chapter 199, Laws of Utah 1999
             17          58-59-302, as last amended by Chapter 199, Laws of Utah 1999
             18          58-59-303, as last amended by Chapter 1, Laws of Utah 2000
             19          58-59-308, as last amended by Chapter 199, Laws of Utah 1999
             20          58-59-401, as last amended by Chapters 12 and 247, Laws of Utah 1994
             21          58-59-402, as last amended by Chapter 199, Laws of Utah 1999
             22          58-59-501, as last amended by Chapter 199, Laws of Utah 1999
             23          58-59-502, as last amended by Chapter 199, Laws of Utah 1999
             24      ENACTS:
             25          58-59-309, Utah Code Annotated 1953


             26          58-59-310, Utah Code Annotated 1953
             27      REPEALS AND REENACTS:
             28          58-59-306, as last amended by Chapter 199, Laws of Utah 1999
             29      Be it enacted by the Legislature of the state of Utah:
             30          Section 1. Section 58-59-102 is amended to read:
             31           58-59-102. Definitions.
             32          In addition to the definitions in Section 58-1-102 , as used in this chapter:
             33          (1) "Adjusted net worth" means stockholder's equity determined in accordance with
             34      generally accepted accounting principles, increased by the amount of obligations subordinated to
             35      claims of general creditors with a remaining term to maturity in excess of three years, and
             36      mandatory redeemable preferred stock with a remaining term to redemption in excess of three
             37      years and decreased by assets shown on the balance sheet in the form of receivables, loans,
             38      advances or similar types of assets receivable from owners, shareholders, partners or officers of
             39      the company and decreased by intangible assets such as goodwill. The owners of the PEO may
             40      provide personal or corporate financial statements together with personal or corporate guaranty
             41      agreements to supplement the "Adjusted Net Worth of the PEO. Goodwill or intangible assets that
             42      are purchased in an arms length transactions shall not be excluded from the above calculation.
             43          (2) "Board" means the Professional Employer Organization Board created in Section
             44      58-59-201 .
             45          (3) "Change in life count" means the percentage change in the number of lives on a health
             46      plan from the beginning to the end of the run-out period.
             47          [(3)] (4) "Client" or "client company" means a person or entity that leases any or all of its
             48      regular employees from a professional employer organization.
             49          (5) "Coemployee" means a person who is an employee of a professional employer
             50      organization and of a client company.
             51          [(4)] (6) "Employment agreement" means the written agreement between a professional
             52      employer organization and each of its employees who are employed for the purpose of being
             53      [leased as regular employees] coemployees to client companies.
             54          [(5)] (7) "Engage in practice as a professional employer organization" means to hold
             55      oneself out as a professional employer organization, to [lease] coemploy an employee [to] with
             56      another person, or to receive any consideration for providing [employee leasing] professional


             57      employer services or to expect payment of any consideration for providing [employee leasing]
             58      professional employer services.
             59          [(6) (a) "Financial responsibility" means a demonstration of a current and expected future
             60      condition of financial solvency evidencing a reasonable expectation to the board that an applicant
             61      or licensee can successfully engage in business as a professional employer organization without
             62      jeopardizing:]
             63          [(i) the interests of the employees of the professional employer organization who are leased
             64      to a client company;]
             65          [(ii) the interests of the client company; and]
             66          [(iii) the interests of the public.]
             67          [(b) Financial responsibility may be determined by an evaluation of the total history
             68      concerning the licensee or applicant for licensure, including past, present, and expected condition
             69      and record of financial solvency and business conduct.]
             70          (8) "Excess Reserves" means assets of a health benefit plan less all liabilities including
             71      accrued liabilities of the health benefit plan as shown on a financial statement of the plan prepared
             72      according to generally accepted accounting practices.
             73          (9) "Medical trend" means the medical component of the most current Consumer Price
             74      Index (CPI)12 month change as of the last month that the run-out is calculated.
             75          [(7) "Lease] (10) "Professional employer agreement" means the written agreement
             76      between a professional employer organization and a client company in accordance with which the
             77      professional employer organization [leases employees to the client company and the client
             78      company leases individuals from the professional employer organization] establishes the basis for
             79      a coemployment relationship with the client company's employees.
             80          [(8)] (11) (a) "Professional employer organization[,]" ["employee leasing company," or
             81      "leasing company"] or "PEO" means [a person] an organization who by contract[, or otherwise,]
             82      agrees to employ a majority of a client's workforce where employer responsibilities for those
             83      employees are in fact allocated between or shared by the professional employer organization and
             84      the client.
             85          (b) The employer responsibilities are considered to be allocated between or shared by the
             86      professional employer organization and the client whenever the agreement between the client and
             87      the professional employer organization expressly provides for such allocation or sharing or


             88      whenever a factual analysis of the client's business reveals such allocation or sharing.
             89          (c) The term "professional employer organization arrangement" shall be liberally construed
             90      so as to include any and all arrangements meeting the criteria for professional employer
             91      organizations regardless of the term used.
             92          (d) The following arrangements are not professional employer organization arrangements
             93      for purposes of this chapter:
             94          (i) arrangements wherein a person, whose principal business activity is not entering into
             95      professional employer organization arrangements, shares employees with a commonly owned
             96      company within the meaning of Sections 414(b) and (c) of the Internal Revenue Code of 1986, as
             97      amended, and which does not hold itself out as a professional employer organization;
             98          (ii) arrangements by which a person assumes responsibility for the product produced or
             99      service performed by that person or his agents and retains and exercises primary direction and
             100      control over the work performed by the individuals whose services are supplied under the
             101      arrangements;
             102          (iii) a temporary help arrangement, whereby an organization hires its own employees and
             103      assigns them to a client to support or supplement the client's workforce in special work situations
             104      such as employee absences, temporary skill shortages, seasonal workloads, and special
             105      assignments and projects; provided, however, that the temporary help arrangement excludes
             106      arrangements where the majority of the client's work force has been assigned by a temporary help
             107      organization for a period of more than 12 consecutive months; and
             108          (iv) any person otherwise subject to licensure under this chapter if, during any fiscal year
             109      of the person, the total gross wages paid to employees employed by the person in this state during
             110      such period under one or more professional employer organization arrangements do not exceed
             111      5% of the total gross wages paid to all employees employed by the person during the same period,
             112      and provided further, that the person does not advertise or hold itself out to the public as providing
             113      arrangements denominated as "professional employer" or "employee leasing" in this state.
             114          [(9) "Regular employee" means an individual who is an employee of a professional
             115      employer organization for the purpose of being placed by the professional employer organization
             116      as a regular full-time or regular part-time employee of a client company.]
             117          [(10)] (12) "Represent oneself as a professional employer organization" means to hold
             118      oneself out by any means as a professional employer organization.


             119          (13) "Run-out" means claims paid during the six-month period at the fiscal year end of the
             120      PEO for dates of service prior to that same six month period, less amounts reimbursed or to be
             121      reimbursed by a reinsurance carrier or reimbursements from any other source for such claims.
             122          [(11)] (14) "Temporary employee," as may be further defined by rule, means an individual
             123      who is an employee of, registered for temporary assignment by, or otherwise associated with a
             124      temporary help company that engages in the assignment of individuals as temporary full-time or
             125      part-time personnel to fill assignments with a finite ending date to another independent entity.
             126          [(12)] (15) "Temporary help company," as may be further defined by rule, means a person
             127      or entity that provides temporary employees to fill assignments with a finite ending date to another
             128      independent entity in special, unusual, seasonal, or temporary skill shortage situations.
             129          [(13)] (16) "Total adjusted liabilities" means total liabilities as stated in an audited
             130      financial statement less obligations subordinated to claims of general creditors with a remaining
             131      term to maturity in excess of three years.
             132          [(14)] (17) "Unlawful conduct" is as defined in Sections 58-1-501 and 58-59-501 .
             133          [(15)] (18) "Unprofessional conduct" is as defined in Sections 58-1-501 and 58-59-502 .
             134          Section 2. Section 58-59-302 is amended to read:
             135           58-59-302. Qualifications for licensure.
             136          Each applicant for licensure as a professional employer organization shall:
             137          (1) submit an application in a form prescribed by the division;
             138          (2) pay a fee as determined by the department under Section 63-38-3.2 ;
             139          (3) provide documentation that the applicant is properly registered with:
             140          (a) the Division of Corporations and Commercial Code;
             141          (b) [the Division of Workforce Information and Payment Services in] the Department of
             142      Workforce Services, for the purposes of Title 35A, Chapter 4, Employment Security Act;
             143          (c) the State Tax Commission; and
             144          (d) the Internal Revenue Service; [and]
             145          [(e) any other agency identified by rule that is determined by the division and the board
             146      as necessary for a person engaged in practice as a professional employer organization;]
             147          [(4) provide documentation satisfactory to the division and the board that employees leased
             148      by the professional employer organization to any client company are covered by workers'
             149      compensation insurance pursuant to Section 34A-2-103 ;]


             150          [(5) provide evidence to the division and the board of financial responsibility, as this
             151      evidence is prescribed by rule;]
             152          [(6)] (4) submit to the division a certified audit performed by an independent certified
             153      public accountant showing at least an adjusted net worth of $50,000 or 5% of total adjusted
             154      liabilities, whichever is greater;
             155          [(7) provide evidence satisfactory to the division of the financial responsibility of any
             156      self-funded or partially self-funded insurance plan as defined by rule which meets the following
             157      requirements:]
             158          [(a) the self-funded or partially self-funded plan has purchased adequate excess loss
             159      insurance to prevent material adverse impact on the financial condition of the professional
             160      employer organization;]
             161          [(b) the plan uses a third-party administrator licensed by the state in which the third-party
             162      administrator is domiciled;]
             163          [(c) the self-funded nature of the self-funded or partially self-funded plan is disclosed to
             164      each eligible employee; and]
             165          [(d) all self-funded or partially self-funded plan assets, including participant contributions,
             166      are held in a trust account;]
             167          [(8) provide,] (5) for [a] the purpose of having criminal background [check by] checks,
             168      provide to the division, the [name] names of:
             169          (a) [any person] all individuals who [has] have control of or a controlling interest in, as
             170      defined in Section 16-10a-102 , the professional employer organization;
             171          (b) [any officer or director] all officers and directors of the professional employer
             172      organization; and
             173          (c) [any responsible manager of the professional employer organization or other person
             174      if the manager or person has] all other individuals who have signatory authority over fiduciary
             175      funds[;] held by the professional employer organization; and
             176          [(9)] (6) provide evidence [satisfactory to the division] that the responsible managers of
             177      the professional employer organization have education and experience in the conduct of business
             178      that demonstrate a reasonable expectation that the professional employer organization will be
             179      managed with the skill and expertise necessary to protect the interests of its employees, client
             180      companies, and the public[; and].


             181          [(10) provide evidence that the applicant is of good moral character.]
             182          Section 3. Section 58-59-303 is amended to read:
             183           58-59-303. Term of license -- Expiration -- Renewal.
             184          (1) The division shall issue each license under this chapter in accordance with a one-year
             185      renewal cycle established by rule. The division may by rule extend or shorten a renewal period
             186      by as much as six months to stagger the renewal cycles it administers.
             187          (2) At the time of renewal the licensee shall show satisfactory documentation [in
             188      accordance with Section 58-59-306 of each of the following renewal requirements:] of compliance
             189      with Subsections 58-59-302 (1) through (4) and Sections 58-59-306 and 58-59-310 .
             190          [(a) current evidence of financial responsibility; and]
             191          [(b) current evidence of financial responsibility in all self-funded insurance programs.]
             192          (3) Each license automatically expires on the expiration date shown on the license unless
             193      renewed by the licensee in accordance with Section 58-1-308 .
             194          Section 4. Section 58-59-306 is repealed and reenacted to read:
             195          58-59-306. Financial filing requirements.
             196          (1) A professional employer organization shall submit to the division:
             197          (a) on a quarterly basis, a statement from an independent certified public accountant, that
             198      all federal, state, and local withholding taxes, unemployment taxes, FICA taxes, workers'
             199      compensation premiums, and employee benefit plan premiums have been paid; and
             200          (b) on an annual basis, audited financial statements prepared by an independent certified
             201      public accountant, in accordance with generally accepted accounting practices, that include a
             202      review of the payment of all federal, state, and local withholding taxes, unemployment taxes, FICA
             203      taxes, workers' compensation premiums, and employee benefit plan premiums.
             204          (2) The audited financial statements required by Subsection (1) shall be adequate for the
             205      state and its political subdivisions as long as:
             206          (a) there are no qualifications given in the opinion that the CPA considers material enough
             207      to question the stability of the PEO as a going concern; and
             208          (b) the PEO complies with Subsection 58-59-302 (4).
             209          Section 5. Section 58-59-308 is amended to read:
             210           58-59-308. No guarantee.
             211          By licensing and regulating professional employer organizations under this chapter, the


             212      state:
             213          (1) does not guarantee any right, claim, or defense of any professional employer
             214      organization, client company, [regular employee] coemployee, or other person;
             215          (2) does not guarantee the financial responsibility or solvency of any professional
             216      employer organization; and
             217          (3) does not waive any right, claim, or defense of immunity that it may have under Title
             218      63, Chapter 30, Utah Governmental Immunity Act, or other law.
             219          Section 6. Section 58-59-309 is enacted to read:
             220          58-59-309. State licensing provisions not exempted.
             221          (1) Nothing in this chapter exempts a client of a PEO, nor a coemployee, from any state,
             222      local, or federal license or registration requirement.
             223          (2) Any individual who must be licensed, registered, or certified according to law and who
             224      is a coemployee of a PEO and a client is considered an employee of the client for purposes of that
             225      license, registration, or certification.
             226          (3) A PEO does not engage in an occupation, trade, or profession that is licensed, certified,
             227      or otherwise regulated by a governmental entity solely by entering into a professional employer
             228      arrangement with a client company or a coemployee.
             229          Section 7. Section 58-59-310 is enacted to read:
             230          58-59-310. Health benefit plans.
             231          If a PEO offers any self-funded or partially self-funded health benefit plan, the PEO shall:
             232          (1) use a third-party administrator licensed by the Utah State Insurance Department;
             233          (2) hold all self-funded or partially self-funded plan assets, including participant
             234      contributions, in a trust account;
             235          (3) provide to the division a list of the trustees of the plan; and
             236          (4) provide to the division a statement from the PEO's third-party administrator or actuary
             237      that:
             238          (a) the plan maintains stop loss insurance that:
             239          (i) has an aggregate stop loss provision; and
             240          (ii) has a specific attachment point on an individual person, per plan year, in an amount
             241      not greater than $60,000 if the plan has 500 covered coemployees, $90,000 if the plan has between
             242      501 and 1000 covered coemployees, $125,000 if the plan has over 1000 covered coemployees, and


             243      $250,000 if the plan has more than 1000 covered coemployees and the plan has in reserves 100%
             244      of the statutory liability, except that the limits of the attachment points shall increase annually by
             245      twice the percentage of the medical trend beginning with the licenses given or renewed in the year
             246      2004; and
             247          (b) the plan has at least 50% of its statutory liability held in the plan trust within two
             248      months of the license renewal date where the plan's statutory liability is calculated as the run-out
             249      multiplied by the change in life count multiplied by the medical trend.
             250          Section 8. Section 58-59-401 is amended to read:
             251           58-59-401. Grounds for denial of license and disciplinary proceedings.
             252          (1) If at time of renewal, a PEO fails to comply with the requirements of licensure for any
             253      reason, the division may put the PEO on probation until such time as the PEO comes into
             254      compliance with the licensure requirements or 90 days from the license renewal date, whichever
             255      comes first. If the PEO fails to cure any default within 90 days of the license renewal date, the
             256      division may refuse to renew the license of a licensee.
             257          (2) The division may refuse to issue a license to an applicant, [refuse to renew the license
             258      of a licensee,] revoke, suspend, restrict, or place on probation the license of a licensee, issue a
             259      public or private reprimand to a licensee, and issue cease and desist orders in accordance with
             260      Section 58-1-401 .
             261          Section 9. Section 58-59-402 is amended to read:
             262           58-59-402. Court intervention.
             263          If a professional employer organization is operating without a license [or the financial
             264      condition of a licensee is impaired to the extent of posing a significant threat to the public], the
             265      division may file a complaint in district court asking for[:] injunctive relief or any other remedy
             266      considered appropriate by the court.
             267          [(1) injunctive relief;]
             268          [(2) the appointment of a receiver;]
             269          [(3) the sale of the company to a third party;]
             270          [(4) the liquidation of the company; and]
             271          [(5) any other appropriate remedy.]
             272          Section 10. Section 58-59-501 is amended to read:
             273           58-59-501. Unlawful conduct.


             274          Unlawful conduct includes:
             275          (1) engaging in practice as a professional employer organization without a license;
             276          (2) offering an employee a self-funded medical program, unless:
             277          (a) the program provides its benefits under an employee benefit plan that complies with
             278      29 U.S.C. Sec. 1143 et seq.; and
             279          (b) the program is maintained for the sole benefit of [eligible plan participants]
             280      participating coemployees;
             281          (3) misrepresenting that any self-funded medical program it offers is other than
             282      self-funded;
             283          (4) offering to its employees any self-funded or partially self-funded medical plan without
             284      delivering to each plan participant a summary plan description that accurately describes terms of
             285      the plan, including disclosure that the plan is self-funded or partially self-funded;
             286          (5) providing [leased employees] coemployees to any client company under any provision,
             287      term, or condition that is not contained in a clearly written agreement between the professional
             288      employer organization and client company;
             289          (6) any willful, fraudulent, or deceitful act by a licensee, caused by a licensee, or at a
             290      licensee's direction, that causes material injury to a client company or [employee leased to]
             291      coemployee of a client company;
             292          (7) failing to maintain or ensure that client companies maintain in full force and effect
             293      required workers' compensation insurance on all [leased employees] coemployees in accordance
             294      with Utah law pursuant to Section 34A-2-103;
             295          (8) failing to pay in a timely manner any federal or state income tax withholding, FICA,
             296      unemployment tax, employee insurance benefit premium, workers' compensation premium, or
             297      other obligation due and payable directly as a result of engaging in business as [an employee
             298      leasing company] a professional employer organization; and
             299          (9) failing to comply with federal law regarding any employee benefit offered to an
             300      employee.
             301          Section 11. Section 58-59-502 is amended to read:
             302           58-59-502. Unprofessional conduct.
             303          Unprofessional conduct includes:
             304          [(1) failing to establish, maintain, or demonstrate financial responsibility and management


             305      competence while licensed as a professional employer organization;]
             306          [(2) failing to maintain proper registration with any agency for which registration is
             307      required as a condition of licensure under this chapter;]
             308          [(3)] (1) failing to maintain current lease agreements and employment agreements in
             309      appropriate form and content as required under this chapter;
             310          [(4)] (2) failing to inform the division of a change in ownership, in the address of its
             311      owners or officers, or in its principal business address or change in any responsible manager of the
             312      professional employer organization who has signatory authority over company funds within ten
             313      days after the change;
             314          [(5) failing to maintain and make available, upon request, to the division and the licensee's
             315      workers' compensation insurance carrier:]
             316          [(a) the name and federal identification number of each client company;]
             317          [(b) the number and, if good cause is shown, the names of all covered employees provided
             318      to each client company; and]
             319          [(c) the total eligible wages and workers' compensation premiums due to the carrier for the
             320      employees provided to each client company;]
             321          [(6) failing within 30 days to notify the division and the licensee's workers' compensation
             322      insurance carrier of the initiation or termination of a relationship with a client company;]
             323          [(7)] (3) failing within ten days to notify the division of the failure to pay when due an
             324      amount exceeding $5,000 of any of the following obligations: any federal or state income tax,
             325      withholding tax, FICA, unemployment tax, employee insurance benefit premium, or worker
             326      compensation premium; and
             327          [(8)] (4) any of the following events unless the licensee first obtains written approval from
             328      the division for that event:
             329          (a) the sale or transfer of a majority of the [employee leasing contracts] professional
             330      employer contracts of the licensee;
             331          (b) the sale or transfer of a majority of the physical assets of the licensee;
             332          (c) the sale or transfer of more than 25% of the ownership interest of a licensee by any
             333      means including the sale, transfer, or issuance of a member interest in a limited liability company,
             334      the sale, transfer, or issuance of a member interest in a partnership, the sale, transfer, or issuance
             335      of a ownership interest in a licensee in any other manner other than the sale or transfer of publicly


             336      traded shares of a corporation affected through a public exchange or market; and
             337          (d) entering into one or more contracts, other than [employee lease] professional employer
             338      agreements with [employee leasing] clients, which commits the licensee to make future payments
             339      to any person or persons in amounts which in total exceed the equity of the business for payment
             340      of service provided to or for the licensee.
             341          Section 12. Effective date.
             342          If approved by two-thirds of all the members elected to each house, this act takes effect
             343      upon approval by the governor, or the day following the constitutional time limit of Utah
             344      Constitution Article VII, Section 8, without the governor's signature, or in the case of a veto, the
             345      date of veto override.


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