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S.B. 155
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5 This act modifies occupations and professions by providing for registration rather than
6 licensing of Professional Employer Organizations. The act modifies definitions related to
7 Professional Employer Organizations and eliminates the Professional Employer
8 Organization Board. The act provides qualifications for registration and establishes
9 requirements for filing specific information with an application for registration. The act
10 provides for conversion of licensing to registration and establishes and recognizes specific
11 financial requirements, contractual relations, and rights, duties, and obligations. The act
12 modifies provisions related to unlawful conduct regarding Professional Employer
13 Organizations.
14 This act affects sections of Utah Code Annotated 1953 as follows:
15 AMENDS:
16 35A-4-202, as last amended by Chapter 265, Laws of Utah 2001
17 58-59-101, as last amended by Chapter 199, Laws of Utah 1999
18 58-59-102, as last amended by Chapter 261, Laws of Utah 2002
19 58-59-301, as last amended by Chapter 199, Laws of Utah 1999
20 58-59-302, as last amended by Chapter 261, Laws of Utah 2002
21 58-59-303, as last amended by Chapter 261, Laws of Utah 2002
22 58-59-308, as last amended by Chapter 261, Laws of Utah 2002
23 58-59-501, as last amended by Chapter 261, Laws of Utah 2002
24 58-59-503, as last amended by Chapter 199, Laws of Utah 1999
25 ENACTS:
26 58-59-303.5, Utah Code Annotated 1953
27 REPEALS AND REENACTS:
28 58-59-305, as last amended by Chapter 199, Laws of Utah 1999
29 58-59-306, as repealed and reenacted by Chapter 261, Laws of Utah 2002
30 REPEALS:
31 58-59-201, as last amended by Chapter 199, Laws of Utah 1999
32 58-59-307, as last amended by Chapter 199, Laws of Utah 1999
33 58-59-309, as enacted by Chapter 261, Laws of Utah 2002
34 58-59-310, as enacted by Chapter 261, Laws of Utah 2002
35 58-59-401, as last amended by Chapter 261, Laws of Utah 2002
36 58-59-402, as last amended by Chapter 261, Laws of Utah 2002
37 58-59-502, as last amended by Chapter 261, Laws of Utah 2002
38 Be it enacted by the Legislature of the state of Utah:
39 Section 1. Section 35A-4-202 is amended to read:
40 35A-4-202. Employing units.
41 As used in this chapter:
42 (1) (a) "Employing unit" means:
43 (i) any individual or type of organization that has or subsequent to January 1, 1935, had
44 one or more individuals performing services for it within the state including any:
45 (A) partnership;
46 (B) association;
47 (C) trust;
48 (D) estate;
49 (E) joint stock company;
50 (F) insurance company;
51 (G) limited liability company;
52 (H) limited liability partnership;
53 (I) joint venture;
54 (J) corporation, whether domestic or foreign;
55 (K) the receiver, trustee in bankruptcy, trustee or successor of any entity listed in
56 Subsections (1)(a)(i)(A) through (J);
57 (L) the legal representative of a deceased person; or
58 (M) a tribal unit; or
59 (ii) any properly and legally [
60 by Section 58-59-102 .
61 (b) The department may adopt rules specific to employee leasing companies pursuant
62 to Title 63, Chapter 46a, Utah Administrative Rulemaking Act.
63 (c) All individuals performing services within this state for any employing unit that
64 maintains two or more separate establishments within this state are considered to be
65 performing services for a single employing unit for all the purposes of this chapter.
66 (d) Each individual employed to perform or to assist in performing the work of any
67 person in the service of an employing unit is considered to be engaged by the employing unit
68 for all the purposes of this chapter whether the individual was hired or paid directly by the
69 employing unit or by the person, provided the employing unit had actual or constructive
70 knowledge of the work.
71 (2) "Hospital" means an institution that is licensed, certified, or approved by the
72 Department of Health as a hospital.
73 (3) "Institution of higher education," for the purposes of this section, means an
74 educational institution that:
75 (a) (i) admits, as regular students only, individuals having a certificate of graduation
76 from a high school or the recognized equivalent of a certificate;
77 (ii) is legally authorized in this state to provide a program of education beyond high
78 school;
79 (iii) provides:
80 (A) an educational program for which it awards a bachelor's or higher degree;
81 (B) a program that is acceptable for full credit toward a bachelor's or higher degree;
82 (C) a program of postgraduate or postdoctoral studies; or
83 (D) a program of training to prepare students for gainful employment in a recognized
84 occupation; and
85 (iv) is a public or other nonprofit institution.
86 (b) All colleges and universities in this state are institutions of higher education for
87 purposes of this section.
88 Section 2. Section 58-59-101 is amended to read:
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91 58-59-101. Short title.
92 This chapter is known as the " Professional Employer Organization [
93 Registration Act."
94 Section 3. Section 58-59-102 is amended to read:
95 58-59-102. Definitions.
96 In addition to the definitions in Section 58-1-102 , as used in this chapter:
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113 professional employer organization.
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115 either a professional employer organization [
116 (3) "Coemployment relationship" means:
117 (a) as between coemployers, a relationship whereby the rights, duties, and obligations
118 of an employer which arise out of an employment relationship have been allocated between
119 coemployers under a professional employer agreement and this chapter, and which is intended
120 to be an ongoing relationship, rather than a temporary or project-specific relationship;
121 (b) as between each PEO and a covered employee as to which a professional employer
122 agreement applies, an employment relationship whereby the PEO is entitled to enforce those
123 rights, and obligated to perform those duties and obligations, allocated to the PEO by the
124 professional employer agreement and this chapter;
125 (c) as between each client and a covered employee to which a professional employer
126 agreement applies, an employment relationship whereby:
127 (i) the client is entitled to enforce those rights, and obligated to provide and perform
128 those employer obligations, allocated to the client by the professional employer agreement and
129 this chapter; and
130 (ii) the client is responsible for any employer right or obligation not otherwise allocated
131 by the professional employer agreement or this chapter; and
132 (d) as to those rights enforceable by an employee under state law, covered employees
133 are entitled to enforce against the PEO those rights:
134 (i) allocated to the PEO by the professional employer agreement and this chapter; or
135 (ii) shared by the PEO and the client under the professional employer agreement and
136 this chapter. All other rights, duties, and obligations enforceable by an employee under state
137 law shall continue to be enforceable against the client under state law.
138 (4) "Covered employee" means an individual having a coemployment relationship with
139 a PEO and a client who meets all of the following criteria:
140 (a) the individual has executed an employment agreement with the PEO;
141 (b) the individual is a party to a coemployment relationship with a PEO and a client;
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143 (c) the individual's coemployment relationship is pursuant to a professional employer
144 agreement subject to this chapter. Individuals who are officers, directors, shareholders,
145 partners, and managers of the client are covered employees to the extent the PEO and the client
146 have expressly agreed in the professional employer agreement that the individuals would be
147 covered employees and provided the individuals meet the criteria of this Subsection (4) and act
148 as operational managers or perform services for the client.
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153 oneself out as a professional employer organization, to coemploy an employee with another
154 person, or to receive any consideration for providing professional employer services or to
155 expect payment of any consideration for providing professional employer services.
156 (6) "Organization" means any individual, partnership, corporation, limited liability
157 company, association, or any other form of legally recognized entity.
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167 (a) for the coemployment of covered employees;
168 (b) for the allocation and sharing between the client and the PEO of employer
169 responsibilities, including hiring, firing, and disciplining, with respect to the covered
170 employees; and
171 (c) that the PEO and the client assume the responsibilities required by this chapter.
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173 organization [
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175 engaged in the business of providing professional employer [
176 services.
177 (b) An organization engaged in the business of providing professional employer
178 services is subject to registration under this chapter regardless of its use of the term
179 "professional employer organization," "PEO," "staff leasing company," "registered staff leasing
180 company," "employee leasing company," or any other name.
181 (c) The following are not considered to be professional employer organizations or
182 professional employment services for purposes of this chapter:
183 (i) arrangements wherein an organization, whose principal business activity is not
184 entering into professional employer arrangements and which does not hold itself out as a PEO,
185 shares employees with a commonly owned company within the meaning of Sections 414(b)
186 and (c) of the Internal Revenue Code of 1986, as amended;
187 (ii) arrangements by which an organization assumes responsibility for the product
188 produced or service performed by the person or the person's agents and retains and exercises
189 primary direction and control over the work performed by the individuals whose services are
190 supplied under the arrangements; or
191 (iii) providing temporary help services.
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224 (9) "Professional employer services" means the service of entering into coemployment
225 relationships under this chapter in which all or a majority of the employees providing services
226 to a client or to a division or work unit of a client are covered employees.
227 (10) "Temporary help services" means services consisting of an organization:
228 (a) recruiting and hiring its own employees;
229 (b) finding other organizations that need the services of those employees;
230 (c) assigning those employees to perform work at or services for the other
231 organizations to support or supplement the other organizations' workforces, or to provide
232 assistance in special work situations such as employee absences, skill shortages, seasonal
233 workloads, or to perform special assignments or projects with a definite ending date; and
234 (d) customarily attempting to reassign the employees to other organizations when they
235 finish each assignment by a definite ending date.
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255 Section 4. Section 58-59-301 is amended to read:
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257 58-59-301. Registration required.
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259 employer organization, except as specifically provided in Section 58-1-307 [
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262 Section 5. Section 58-59-302 is amended to read:
263 58-59-302. Qualifications for registration.
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289 (2) (a) Any two or more professional employer organizations held under the common
290 control of any other person or persons acting in concert may be registered as a professional
291 employer organization group.
292 (b) A professional employer organization group may satisfy any reporting and financial
293 requirements under this chapter on a consolidated basis.
294 Section 6. Section 58-59-303 is amended to read:
295 58-59-303. Term of registration -- Expiration -- Renewal.
296 (1) The division shall issue each [
297 with a one-year renewal cycle established by rule.
298 (2) The division may by rule, in accordance with Title 63, Chapter 46a, Utah
299 Administrative Rulemaking Act, extend or shorten a renewal period by as much as six months
300 to stagger the renewal cycles it administers.
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306 Section 7. Section 58-59-303.5 is enacted to read:
307 58-59-303.5. Information to be filed by registrants.
308 (1) Each registrant shall file the following information with the division with its initial
309 application and with each renewal application:
310 (a) the name or names under which the PEO conducts business;
311 (b) the address of the principal place of business of the PEO and the address of each
312 office it maintains in the state;
313 (c) the PEO's taxpayer or employer identification number;
314 (d) a list by jurisdiction of each name under which the PEO has operated in the
315 preceding five years, including any alternative names, names of predecessors and, if known,
316 successor business entities;
317 (e) a statement of ownership, which shall include the name of all individuals that,
318 individually or acting in concert with one or more other persons, owns or controls, directly or
319 indirectly, 10% or more of the equity interests of the PEO; and
320 (f) a statement of management, which shall include the name of all officers and any
321 person who has the authority to act as a senior executive officer of the PEO.
322 (2) A professional employer organization which is domiciled outside of the state and
323 employs less than 50 employees who are employed or domiciled in the state is not required to
324 file the information required under Subsections (1)(e) and (f).
325 Section 8. Section 58-59-305 is repealed and reenacted to read:
326 58-59-305. Conversion from licensee to registrant.
327 The division shall convert the existing license of each professional employer
328 organization, which is licensed as of the effective date of this act, to a registration under this
329 chapter.
330 Section 9. Section 58-59-306 is repealed and reenacted to read:
331 58-59-306. Financial requirements, contractual relations, and allocation of rights,
332 duties, and obligations.
333 (1) Nothing contained in this chapter or in any professional employer agreement shall
334 affect, modify, or amend any collective bargaining agreement, or the rights or obligations of
335 any client, PEO, or covered employee under the federal National Labor Relations Act, the
336 federal Railway Labor Act, or similar state law.
337 (2) Nothing contained in this chapter or any professional employer agreement shall
338 affect, modify, or amend any state, local, or federal licensing, registration, or certification
339 requirement applicable to any client or covered employee.
340 (a) A covered employee who must be licensed, registered, or certified according to law
341 or regulation is considered solely an employee of the client for purposes of license, registration,
342 or certification requirement.
343 (b) A PEO may not be considered to engage in any occupation, trade, profession, or
344 other activity that is subject to licensing, registration, or certification requirements, or is
345 otherwise regulated by a governmental entity solely by entering into and maintaining a
346 coemployment relationship with a covered employee who is subject to the requirements or
347 regulation.
348 (c) Unless otherwise expressly agreed to by the client in the professional employer
349 agreement, a client has the sole right to direct and control the professional or licensed activities
350 of covered employees and of the client's business.
351 (3) With respect to a bid, contract, purchase order, or agreement entered into with the
352 state or a political subdivision of the state, a client company's status or certification as a small,
353 minority-owned, disadvantaged, or woman-owned business enterprise or as a historically
354 underutilized business is not affected because the client company has entered into an agreement
355 with a registrant or uses the services of a registrant.
356 (4) (a) At least quarterly, a PEO shall have an independent certified public accountant,
357 licensed to practice in the jurisdiction in which the PEO is domiciled, review the PEO's records
358 and prepare a statement indicating whether all federal, state, and local withholding taxes,
359 unemployment taxes, FICA taxes, workers' compensation premiums, and employee benefit
360 plan premiums have been paid.
361 (b) The PEO must provide the statement to a client upon request from the client.
362 (5) (a) Except as specifically provided in this chapter, the coemployment relationship
363 between the client and the PEO, and between each coemployer and each covered employee,
364 shall be governed by the professional employer agreement.
365 (b) Nothing contained in any professional employer agreement or this chapter shall be
366 considered to:
367 (i) diminish, abolish, or remove the rights of covered employees as to clients or
368 obligations of the client as to a covered employee, existing prior to the effective date of a
369 professional employer agreement;
370 (ii) terminate an employment relationship existing prior to the effective date of a
371 professional employer agreement; or
372 (iii) create any new or additional enforceable right of a covered employee against a
373 PEO not specifically allocated to the PEO in the professional employer agreement or this
374 chapter.
375 (c) Each professional employer agreement shall include the following:
376 (i) (A) the PEO shall reserve a right of direction and control over the covered
377 employees; and
378 (B) the client may retain the right to exercise the direction and control over covered
379 employees as is necessary to conduct the client's business, to discharge any fiduciary
380 responsibility which it may have, or to comply with any applicable licensure requirements;
381 (ii) the PEO shall have responsibility to:
382 (A) pay agreed upon wages and salaries to covered employees;
383 (B) withhold, collect, report, and remit payroll-related and unemployment taxes; and
384 (C) the extent the PEO has assumed responsibility in the professional employer
385 agreement, to make payments for employee benefits for covered employees;
386 (iii) the PEO and the client shall both have a right to hire, terminate, and discipline the
387 covered employees; and
388 (iv) the responsibility to obtain workers' compensation coverage for covered
389 employees, from a carrier licensed to do business in Utah and otherwise in compliance with all
390 applicable requirements, shall be specifically allocated to the client in the professional
391 employer agreement.
392 (d) Except as specifically provided in this chapter or in the professional employer
393 agreement, in each coemployment relationship:
394 (i) the client may exercise all rights and is obligated to perform all duties and
395 responsibilities otherwise applicable to an employer in an employment relationship;
396 (ii) (A) the PEO may exercise only those rights, and is obligated to perform only those
397 duties and responsibilities, specifically required by this chapter or set forth in the professional
398 employer agreement; and
399 (B) the rights, duties, and obligations of the PEO as coemployer with respect to any
400 covered employee is limited to those arising under the professional employer agreement and
401 this chapter during the term of coemployment by the PEO of the covered employee; and
402 (iii) unless otherwise expressly agreed by the PEO and the client in a professional
403 employer agreement, the client retains the exclusive right to direct and control the covered
404 employees as is necessary to conduct the client's business, to discharge any of the client's
405 fiduciary responsibilities, or to comply with any licensure requirements applicable to the client
406 or to the covered employees.
407 (e) With respect to each professional employer agreement entered into by a PEO, the
408 PEO shall provide written notice to each covered employee affected by the agreement of the
409 general nature of the coemployment relationship between and among the PEO, the client, and
410 the covered employee.
411 (f) (i) Except to the extent otherwise expressly provided by the applicable professional
412 employer agreement:
413 (A) a client is solely responsible for the quality, adequacy, or safety of the goods or
414 services produced or sold in the client's business;
415 (B) a client is solely responsible for directing, supervising, training, and controlling the
416 work of the covered employees with respect to the business activities of the client and solely
417 responsible for the acts, errors, or omissions of the covered employees with regard to those
418 activities; and
419 (C) a client is not liable for the acts, errors, or omissions of a PEO, or of any covered
420 employee of the client and a PEO when the covered employee is acting under the express
421 direction and control of the PEO.
422 (ii) Nothing in this Subsection (5)(f) shall serve to limit any contractual liability or
423 obligation specifically provided in a professional employer agreement, nor shall this Subsection
424 (5)(f) in any way limit the liabilities and obligations of any PEO or client as defined elsewhere
425 in this chapter.
426 (iii) A covered employee is not, solely as the result of being a covered employee of a
427 PEO, an employee of the PEO for purposes of general liability insurance, fidelity bonds, surety
428 bonds, employer's liability which is not covered by workers' compensation, or liquor liability
429 insurance carried by the PEO, unless the covered employee is included by specific reference in
430 the professional employer agreement and applicable prearranged employment contract,
431 insurance contract, or bond.
432 (g) A registrant under this chapter is not engaged in the sale of insurance by offering,
433 marketing, selling, administering, or providing PEO services or employee benefit plans for
434 covered employees.
435 (h) (i) (A) Covered employees whose services are subject to sales tax are considered
436 the employees of the client for purposes of collecting and levying sales tax on the services
437 performed by the covered employees.
438 (B) Nothing contained in this chapter shall relieve a client of any sales tax liability with
439 respect to its goods or services.
440 (ii) No portion of a PEO fee to a client that represents pass-through amounts to be paid
441 for covered employee wages, employment-related taxes, withholding, or benefits is subject to
442 any sales or excise tax.
443 (i) (i) A client and a PEO shall each be considered an employer for purposes of
444 sponsoring retirement and welfare benefit plans for its covered employees.
445 (ii) A fully insured welfare benefit plan offered to the covered employees of a single
446 PEO is considered a single employer welfare benefit plan and may not be considered a multiple
447 employer welfare arrangement, and is exempt from the licensing requirements contained in
448 Title 31A, Insurance Code.
449 (iii) PEOs are exempt from Title 31A, Chapter 30, Individual, Small, and Group
450 Employer Health Insurance Act.
451 (iv) (A) Any PEO offering workers' compensation coverage, a health benefit plan, or
452 any other insurance plan, must comply with all federal and state laws applicable to these
453 products.
454 (B) If the PEO chooses to use a third-party administrator for the receipt and payment of
455 health benefit claims, that third-party administrator must be licensed to do business in the state
456 under Title 31A, Insurance Code.
457 (C) Anything pertaining to the insurance products referred to in this section or the use
458 of an unlicensed third-party administrator is subject to administrative penalties and forfeitures
459 under Title 31A, Insurance Code.
460 (v) If a PEO offers to its covered employees any health benefit plan which is not fully
461 insured by an authorized insurer, the plan shall:
462 (A) be established pursuant to 29 U.S.C. Sec. 1143 et seq.;
463 (B) utilize a third-party administrator licensed by the Utah State Insurance Department;
464 and
465 (C) hold all plan assets, including participant contributions, in a trust account.
466 (vi) If a PEO offers to its covered employees any health benefit plan which is not fully
467 insured by an authorized insurer, the PEO shall:
468 (A) represent that such plan is not fully insured; and
469 (B) deliver to each plan participant a summary plan description that accurately
470 describes the terms of the plan, including disclosure that the plan is self-funded or partially
471 self-funded.
472 (j) (i) The client in a coemployment relationship shall secure workers' compensation
473 benefits for the covered employees by complying with Subsection 34A-2-201 (1) or (2) and
474 commission rules under Subsection 34A-2-103 (3)(a).
475 (ii) Every authorized insurer who offers or provides Workers' Compensation Insurance
476 coverage to a PEO, its client companies, or both shall comply with Title 31A, Chapter 19a,
477 Utah Rate Regulation Act, and Chapter 21, Insurance Contracts in General, prior to the
478 issuance of an insurance policy.
479 (iii) The exclusive remedy provisions of Sections 34A-2-105 and 34A-3-102 apply to
480 both the client company and the PEO in a coemployer relationship under this section.
481 (k) (i) For purposes of Title 35A, Chapter 4, Employment Security Act, covered
482 employees of a registered PEO are considered the employees of the PEO, which shall be
483 responsible for the payment of contributions, penalties, and interest on wages paid by the PEO
484 to its covered employees during the term of the applicable professional employer agreement.
485 (ii) The PEO shall report and pay all required contributions to the unemployment
486 compensation fund using its state employer account number and the contribution rate of the
487 PEO.
488 (iii) On the termination of a contract between a PEO and a client or the failure by a
489 PEO to submit reports or make tax payments as required by this chapter, the client shall be
490 treated as a new employer without a previous experience record unless that client is otherwise
491 eligible for an experience rating.
492 Section 10. Section 58-59-308 is amended to read:
493 58-59-308. No guarantee.
494 By [
495 chapter, the state:
496 (1) does not guarantee any right, claim, or defense of any professional employer
497 organization, client company, coemployee, or other person;
498 (2) does not guarantee the financial responsibility or solvency of any professional
499 employer organization; and
500 (3) does not waive any right, claim, or defense of immunity that it may have under
501 Title 63, Chapter 30, Utah Governmental Immunity Act, or other law.
502 Section 11. Section 58-59-501 is amended to read:
503
504 58-59-501. Unlawful conduct.
505 Unlawful conduct includes:
506 (1) engaging in practice as a professional employer organization without a [
507 registration;
508 (2) offering an employee a self-funded medical program, unless:
509 (a) the program provides its benefits under an employee benefit plan that complies with
510 29 U.S.C. Sec. 1143 et seq.; and
511 (b) the program is maintained for the sole benefit of participating coemployees;
512 (3) misrepresenting that any self-funded medical program it offers is other than
513 self-funded;
514 (4) offering to its employees any self-funded or partially self-funded medical plan
515 without delivering to each plan participant a summary plan description that accurately
516 describes terms of the plan, including disclosure that the plan is self-funded or partially
517 self-funded;
518 (5) diversion of funds paid by a client to the professional employer organization,
519 designated as payment for payroll or any related payroll taxes or employee benefits or
520 insurance, to any other purpose or use other than designated. In cases where a client has
521 defaulted on the professional employer agreement or otherwise failed to pay the PEO, the PEO
522 may allocate the deficient payment to the portions of the invoice it determines and not be in
523 violation of this section;
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525 condition that is not contained in a clearly written agreement between the professional
526 employer organization and client company;
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529 company or coemployee of a client company;
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533 (8) failing to pay in a timely manner any federal or state income tax withholding,
534 FICA, unemployment tax, employee insurance benefit premium, workers' compensation
535 premium, or other obligation due and payable directly as a result of engaging in business as a
536 professional employer organization; and
537 (9) failing to comply with federal law regarding any employee benefit offered to an
538 employee.
539 Section 12. Section 58-59-503 is amended to read:
540 58-59-503. Penalty for unlawful conduct.
541 (1) Any person who violates Subsections 58-59-501 (1) through [
542 third degree felony.
543 (2) Any person who violates Subsections 58-59-501 [
544 class A misdemeanor.
545 (3) Any person who has engaged in unlawful conduct may be assessed the costs
546 associated with the investigations, disciplinary proceedings, court proceedings, or other actions
547 to enforce the provisions of this [
548 Section 13. Repealer.
549 This act repeals:
550 Section 58-59-201, Board.
551 Section 58-59-307, Records and reports protected.
552 Section 58-59-309, State licensing provisions not exempted.
553 Section 58-59-310, Health benefit plans.
554 Section 58-59-401, Grounds for denial of license or renewal -- Disciplinary
555 proceedings.
556 Section 58-59-402, Court intervention.
557 Section 58-59-502, Unprofessional conduct.
Legislative Review Note
as of 2-11-03 10:40 AM
A limited legal review of this legislation raises no obvious constitutional or statutory concerns.