SB 877
Enacts new provisions of law relating to professional employer organizations
LR Number:
Last Action:
4/19/2016 - SCS Voted Do Pass S Small Business, Insurance and Industry Committee (5583S.04C)
Journal Page:
Calendar Position:
Effective Date:
August 28, 2016

Current Bill Summary

SCS/SB 877 - This act establishes regulations and registration requirements relating to professional employer organizations (PEO's).

Under this act, no person is permitted to provide, advertise, or otherwise hold itself out as providing professional employer services unless such person is registered with the Department of Insurance, Financial Institutions, and Professional Registration under the provisions of this act.

A PEO is eligible for limited registration if it is domiciled outside the state, licensed as a PEO in another state, does not maintain an office in this state or directly solicit clients in this state, and does not have more than 50 employees employed or domiciled in this state on any given day. PEO's may further register as a PEO Group.

The Department shall maintain a list of PEO's registered in this state. The Department may prescribe forms to be used for registration but shall permit the acceptance of electronic filings by either the PEO or an independent qualified assurance organization authorized by the PEO to act on the PEO's behalf.

PEO's shall pay an initial registration fee not to exceed $500 with an annual renewal fee not exceed $250. PEO's seeking limited registration shall pay an initial and annual registration fee not to exceed $250. The Department shall determine a fee to be paid by PEO groups. No fee shall exceed the amount reasonably necessary for the administration of the act.

Each PEO or PEO group shall maintain either positive working capital or provide a bond, irrevocable letter of credit, or securities with a minimum market value equaling the deficiency plus one hundred thousand dollars to the department. PEO's seeking limited registration are not required to meet these stipulations.

The act establishes the conditions under which a client and a PEO may enter into a professional employment agreement as well as the rights and responsibilities of each party.

Persons may be sanctioned by the Department for providing professional employer services without registering with the Department, or for providing false or fraudulent information to the Department in conjunction with any registration, renewal, or report required by this act. Such sanctions may include revocation of license or the imposition of an administrative penalty of not more than $1,000, among other potential penalties.

For purposes of this act, covered employees shall be considered employees solely of the client and not the PEO. Moreover, the client shall have the sole right of direction and control of the professional or licensed activities of covered employees and of the client's business.

With respect to a bid, contract, purchase order, or agreement entered into with the state or a political subdivision of the state, a client's status or certification as a minority-owned or woman-owned business enterprise shall not be affected because such client has entered into an agreement with a PEO or uses the services of a PEO.

For purposes of workers' compensation laws both the client and the PEO shall be considered an employer, however the responsibility to obtain workers' compensation coverage for covered employees shall be specifically allocated in the professional employer agreement. The act specifies that coverage shall be all in the residual or all in the voluntary markets.

The act modifies the definition of "lessor employing unit" for the purposes of unemployment law provisions to include PEO's.

The act creates new provisions of law relating to large deductible agreements. Specifically, insurers that issue certain workers' compensation policies are required to:

1. Require full collateralization of the outstanding obligations owed under a large deductible agreement; and

2. Limit the size of a policyholder's obligations under a large deductible agreement to no greater than 20% of the total net worth of the policyholder at each policy inception as determined by an audited financial statement as of the most recently available fiscal year end;

Any insurer determined to be in a financially hazardous condition by the Director of the Department of Insurance, Financial Institutions and Professional Registration is prohibited from issuing or renewing a policy that includes a large deductible agreement.

The provisions of this act relating to large deductible agreements do not apply to any large deductible agreement issued or renewed by an insurer on or after January 1, 2017.

This act is substantially similar to HB 1703 (2016) and HB 2203 (2014).