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.