FILED ON: 6/27/2018
HOUSE . . . . . . . . . . . . . . . No. 4666
The Commonwealth of Massachusetts
In the One Hundred and Ninetieth General Court
An Act relative to the recognition and registration of professional employer organizations operating in the Commonwealth of Massachusetts.
Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:
SECTION 1. Chapter 149 of the General Laws is hereby amended by adding the following 13 sections:-
Section 192. As used in this section and in sections 193 through 204, inclusive, the following words, unless the context clearly requires otherwise, shall have the following meanings:
“Client” or “client company”, a person who enters into a professional employer agreement with a professional employer organization.
“Covered employee”, an individual employed in a PEO relationship where the individual’s employment is subject to a professional employer agreement. Individuals who are officers, directors, shareholders, partners and managers of the client shall be covered employees, except to the extent the professional employer organization and the client have expressly agreed in the professional employer agreement that such individuals shall not be covered employees; provided, that such individuals meet the criteria of this paragraph and act as operational managers or perform day-to-day operational services for the client.
“Director”, the director of the department of labor standards.
“Employment agency”, as defined in section 46A of chapter 140.
“PEO group”, 2 or more professional employer organizations that are majority owned or commonly controlled by the same entity, parent or controlling person or persons.
“PEO relationship”, a co-employment relationship, in which all the rights, duties and obligations of an employer which arise out of an employment relationship have been allocated between the PEO and the client pursuant to a professional employer agreement, provided however, that a staffing agency and an employment agency shall not be a PEO. In a PEO relationship: (i) the professional employer organization shall be entitled to enforce only such employer rights and is subject to only those obligations allocated in the professional employment agreement or as specifically required pursuant to section 192 to 204, inclusive; (ii) the client shall be entitled to enforce those rights, and obligated to provide and perform those employer obligations, allocated to the client by the written professional employer agreement; (iii) the client shall be entitled to enforce any right and obligated to perform any obligation of an employer not specifically allocated to the PEO or section 192 to 204, inclusive; and (iv) neither the client nor the PEO may delegate duties and responsibilities to the other unless such delegation is provided in the professional employer agreement and the covered employees are informed about this delegation of duties and responsibilities.
“Person”, any individual, partnership, corporation, limited liability company, association or any other form of legally recognized entity.
“Professional employer agreement”, a written contract by and between a client and a professional employer organization that: (i) provides for the PEO relationship of covered employees; (ii) allocates employer rights and obligations between the client and the professional employer organization with respect to the covered employees; and (iii) allocates the responsibilities between the professional employer organization and the client; provided, however, that a professional employer agreement shall not affect, modify or amend any employee rights under federal, state, local or municipal law and in no way abrogate obligations of the client or the PEO to covered employees under such laws.
“Professional employer organization” or “PEO”, any person engaged in the business of providing professional employer services who is subject to registration and regulation pursuant to sections 192 to 204, inclusive, regardless of its use of the term or conducting business as a professional employer organization staff leasing company, registered staff leasing company, employee leasing company, administrative employer or any other name provided that the following shall not be deemed to be professional employer organizations or providing professional employment services: (i) arrangements wherein a person, whose principal business activity is not entering into professional employer arrangements and which does not hold itself out as a PEO, shares employees with a commonly owned company within the meaning of section 414(b) and section 414(c) of the Internal Revenue Code of 1986, as amended; (ii) independent contractor arrangements as governed by section 148B; or (iii) services provided by an employment agency or staffing agency.
“Professional employer services”, the service of entering into PEO relationships in which all or a majority of the employees providing services to a client or to a division or work unit of the client are covered employees.
“Registrant”, a PEO registered pursuant to section 196.
“Staffing agency”, as defined in section 159C.
“Wages”, shall include all forms of remuneration for employment.
Section 193. (a) Nothing contained in sections 192 to 204, inclusive, or in any professional employer agreement shall affect, modify or amend any collective bargaining agreement, or the rights or obligations of any client, PEO or covered employee under chapter 150A, chapter 150E, the federal National Labor Relations Act, the federal Railway Labor Act or any other applicable federal or state law.
(b) Collective bargaining, if commenced after an agreement is entered into between a PEO and a client, shall be conducted as required by federal and state law.
(c) Nothing in sections 192 to 204, inclusive, or in any professional employer agreement shall:
(1) diminish, abolish or remove rights of covered employees to a client or obligations of such client to a covered employee existing prior to the effective date of the professional employer agreement under federal or state law;
(2) affect, modify or amend any contractual relationship or restrictive covenant between a covered employee and any client in effect at the time a professional employer agreement becomes effective or prohibit or amend any contractual relationship or restrictive covenant that is entered into subsequently between a client and a covered employee; provided, however, that a PEO shall have no responsibility or liability in connection with, or arising out of, any such existing or new contractual relationship or restrictive covenant unless the PEO has specifically agreed otherwise in writing; or
(3) affect, modify or amend any employee rights under federal, state, local or municipal law.
Section 194. (a) Nothing in sections 192 to 204, inclusive, or any professional employer agreement shall affect, modify or amend any federal, state or local licensing, registration or certification requirement applicable to any client or covered employee.
(b) A covered employee who is required to be licensed, registered or certified according to law or regulation shall be deemed solely an employee of the client for purposes of any such license, registration or certification requirement.
(c) A PEO shall not be deemed to engage in any occupation, trade, profession or other activity that is subject to licensing, registration or certification requirements, or is otherwise regulated by a government agency solely by entering into and maintaining a PEO relationship with a covered employee who is subject to such requirements or regulation.
(d) A 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. Covered employees and clients shall remain subject to regulation by the regulatory or governmental entity responsible for licensing, registration or certification of such covered employees or clients.
Section 195. (a) For purposes of the determination of tax credits and other economic incentives provided by the commonwealth or other government entity and based on employment, covered employees shall be deemed solely the client’s employees. A client shall be entitled to the benefit of any tax credit, economic incentive or other benefit arising as the result of the employment of covered employees of such client. Notwithstanding that the PEO is the reporting employer for the purposes of the federal Internal Revenue Service form W-2, the client shall continue to qualify for the benefit, incentive or credit. If the grant or amount of any benefit, incentive or credit is based on number of employees, then each client shall be treated as employing only those covered employees involved in a PEO relationship by such client. Covered employees working for other clients of the PEO shall not be counted. Each PEO shall provide, upon request by a client or by agency employment information reasonably required for administration of any tax credit or economic incentive and necessary to support any request, claim, application or other action by a client seeking any tax credit or economic incentive.
(b) With respect to a bid, contract, purchase order or agreement entered into with the commonwealth or a political subdivision thereof, a client company's status or certification under federal or state law as a small, minority-owned, disadvantaged, woman-owned business or other underutilized class of enterprise shall not be affected because the client company has entered into a PEO relationship.
Section 196. (a) Except as otherwise provided in sections 192 to 204, inclusive, no person shall provide, advertise or otherwise hold itself out as providing professional employer services in the commonwealth, unless such person is registered pursuant to this section.
(b) Each applicant for registration shall provide the department with the following information:
(1) the name or names under which the PEO conducts business or will conduct business;
(2) the address of the principal place of business of the PEO and the address of each office it maintains in the commonwealth;
(3) the taxpayer or employer identification number of the PEO;
(4) a list by jurisdiction of each name under which the PEO has operated in the preceding 5 years, including any alternative names, names of predecessors and, if known, successor business entities;
(5) a statement of ownership, which shall include the name and evidence of the business experience of any person that, individually or acting in concert with one or more other persons, owns or controls or will own or control if known or reasonably known at the time of registration, directly or indirectly, not less than 25 per cent of the equity interests of the PEO;
(6) a statement of management, which shall include the name and evidence of the business experience of any person who serves or will serve, if known or reasonably known at the time of registration, as president, chief executive officer or otherwise has the authority to act as senior executive officer of the PEO;
(7) A financial statement setting forth the financial condition of the PEO or PEO group. At the time of application for a new license, as part of the financial statement, the applicant shall submit an audit of the applicant, which shall be the most recent audit available and shall not be more than 13 months old; provided, that nothing in this clause shall be construed as to require the department to conduct the audit; provided, further, that a PEO or PEO group shall file on an annual basis, at the time of renewal, a succeeding audit; provided, further, that an applicant may apply for an extension with the department but any such request shall be accompanied by a letter from the auditors stating the reasons for the delay and the anticipated audit completion date; provided, further, that the financial statement shall be prepared in accordance with generally accepted accounting principles, and the audit shall be conducted by an independent certified public accountant licensed to practice in the jurisdiction in which such accountant is located, and shall be without qualification as to the going concern status of the PEO; provided, further, that a PEO group or a PEO that is part of an organizational structure in which it is majority owned or commonly controlled by an entity, parent or controlling person may submit combined or consolidated audited financial statements to meet the requirements of this section; and provided, further, that a PEO that has not had sufficient operating history to have audited financials based upon at least 12 months of operating history shall meet the financial capacity requirements in subsections (l) and (m) and shall present financial statements reviewed by a certified public accountant; and
(8) a list of clients including client name, physical address, telephone number and federal identification number.
(c) A PEO shall complete its initial registration prior to initiating operations within the commonwealth. If a PEO that is not registered in the commonwealth becomes aware that an existing client not based in the commonwealth has employees and operations in the commonwealth, the PEO shall decline to provide PEO services for those employees or notify the department within 5 business days of its knowledge of the fact and file a full business registration within 5 business days if there are more than 15 covered employees. The department may issue an interim operating permit for the period the registration applications are pending if: (i) the PEO is currently registered or licensed by another state and (ii) the department determines it to be in the best interests of the potential covered employees.
(d) Upon expiration of its registration, the registrant shall renew its registration by notifying the department of any changes in the information provided in the registrant’s most recent registration or renewal. A registrant’s existing registration shall remain in effect during the pendency of a renewal application.
(e) PEOs in a PEO group may satisfy the reporting and financial requirements established pursuant to this section on a combined or consolidated basis; provided, each member of the PEO group guarantees the financial capacity obligations pursuant to clause (7) of subsection (b) for each member of the PEO group. In the case of a PEO group that submits a combined or consolidated audited financial statement, including entities that are not PEOs or that are not in the PEO group, the controlling entity of the PEO group under the consolidated or combined statement shall guarantee the obligations of the PEOs in the PEO group.
(f) A PEO that is part of an organizational structure in which it is majority owned or commonly controlled by an entity, parent or controlling person may submit a combined or consolidated audited financial statement provided the controlling entity under the consolidated or combined statement guarantees the obligations of the PEO.
(g) The department shall maintain a list of PEOs registered pursuant to this section and shall make said list readily available to the public by electronic or other means.
(h) The department may prescribe forms necessary to promote the efficient administration of this section.
(i) Applications, documents, reports and other filings shall be submitted in a manner determined by the director, which may also include the acceptance of electronic filings and other assurance by an independent and qualified assurance organization approved by the director that provides satisfactory assurance of compliance acceptable to the director consistent with or in lieu of the requirements of subsections (b) to (g), inclusive, and subsection (k), and other requirements of sections 192 to 204, inclusive or the regulations promulgated pursuant to those sections. The director shall permit a PEO to authorize such an approved assurance organization to act on the PEO’s behalf in complying with the registration requirements pursuant to this section, including electronic filings of information and payment of registration fees. Use of such an approved assurance organization shall be optional and not mandatory for a registrant. Nothing in this subsection shall limit or change the department’s authority to register or terminate registration of a professional employer organization or to investigate or enforce this chapter.
(j) All records, reports and other information obtained from a PEO for the purposes of section 196 except to the extent necessary for the department’s proper administration of this chapter, shall be confidential and shall not be published or open to public inspection except public employees in the performance of their public duties or otherwise in accordance with federal or state law.
(k) The department shall establish by regulation any fee to be charged for initial registration, renewal or group registration.
(l) Except as provided by subsection (e) and (f), each PEO or collectively each PEO group shall maintain:
(1) positive working capital, as defined by generally accepted accounting principles, proof of which shall be submitted at registration as reflected in the financial statements submitted to the department with the initial registration and each annual renewal; and
(2) a surety bond in the amount of $250,000, proof of which shall be submitted at the time of registration. The surety bond required shall be in a form acceptable to the director and maintained while the license remains in effect or any obligations or liabilities of the registrant remain outstanding.
(m) A PEO or PEO group without positive working capital may provide a bond, irrevocable letter of credit or securities with a minimum market value equaling the deficiency plus $250,000. Such bond shall be held by a depository designated by the department, securing payment by the PEO of all taxes, wages, benefits or other entitlement due to or with respect to covered employees, if the PEO does not make such payments when due.
Section 197. (a) Except as specifically provided in sections 192 to 204, inclusive, and in the professional employer agreement pursuant to this section, or under any subsequent written agreement or amendment, in each PEO relationship:
(1) the client shall be entitled to exercise all rights, and shall be obligated to perform all duties and responsibilities, otherwise applicable to an employer in an employment relationship;
(2) the PEO shall be entitled to exercise only those rights, and obligated to perform only those duties and responsibilities, specifically required pursuant to sections 192 to 204, inclusive, or those set forth in the professional employer agreement. The rights, duties and obligations of the PEO with respect to any covered employee shall be limited to those arising pursuant to the professional employer agreement and those required pursuant to this chapter during the term of the PEO relationship with such covered employee; and
(3) unless otherwise expressly agreed to by the PEO and the client in a professional employer agreement, the client retains the exclusive right to direct and control the covered employees as is necessary to conduct the client's business, to discharge any of the client’s fiduciary responsibilities or to comply with any licensure requirements applicable to the client or to the covered employees.
(b) Except as specifically provided in sections 192 to 204, inclusive, the PEO relationship between the client and the PEO, the relationship between the PEO and each covered employee and the relationship between the client and each covered employee shall be governed by the professional employer agreement.
Each professional employer agreement shall include the following:
(1) the allocation of rights, duties and obligations as described in subsection (a);
(2) the extent that the PEO has assumed responsibility in the professional employer agreement; (i) where the PEO shall have responsibility to pay such wages to covered employees; (ii) to withhold, collect, report and remit payroll-related and unemployment taxes; and (iii) to make payments for employee benefits for covered employees; and
(3) that the PEO shall have a right to hire and terminate a covered employee as may be necessary to fulfill the PEO’s responsibilities pursuant to sections 192 to 204, inclusive, the professional employer agreement, or as actually delegated by the client. The client shall have a right to hire, discipline and terminate a covered employee.
(c) Upon initiation of the PEO relationship: (i) the PEO shall provide the client a notice; (ii) the client shall post said notice in a conspicuous place at the client's worksite; and (iii) depending on the customary way that the client communicates with its employees, the client shall either provide a hard copy or an electronic copy of said notice to said employees. Said notice shall contain the following information:
(1) notice of the general nature of the co-employment relationship between and among the professional employer organization, the client and such covered employees, including the rights, responsibilities and duties that the PEO and the client have with respect to the covered employees;
(2) the name and telephone number of the department;
(3) the name and telephone number of the PEO;
(4) disclosure if the benefit plan is self-funded or is not fully insured;
(5) the name of the workers’ compensation carrier and the policy number; whether the PEO or the client maintains the workers’ compensation policy and performs safety inspections at the workplace; and a phone number or contact to report injuries and hazardous worksite conditions; and
(6) a multilingual tagline on the notice provided by the department in languages required under clause (iii) of subsection (d) of section 62A of chapter 151A that includes the name and telephone number of the department and states that the notice contains important information that should be translated.
(d) Upon termination, and in accordance with applicable federal and state law, the PEO shall provide covered employees with written notice of the termination of the PEO relationship. The notice can be provided electronically if that is the customary manner in which the client and the PEO communicate with the covered employee.
(e) Except to the extent otherwise expressly provided by the applicable professional employer agreement:
(1) A client shall be solely responsible for the quality, adequacy or safety of the goods or service produced or sold in the client’s business.
(2) A client shall be solely responsible for directing, supervising, training and controlling the work of the covered employees with respect to the business activities of the client and solely responsible for the acts, errors or omissions of the covered employees with regard to such activities.
(3) A client shall be solely responsible for the payment of any wages to covered employees and to make payments for employee benefits for covered employees.
(4) A client shall be solely responsible for safety, risk and hazard control at the worksite and compliance with related state and federal laws.
(5) Upon termination of the PEO relationship, the client shall be solely responsible for providing employees with information regarding the handling of claims and benefits.
(6) A client shall not be liable for the acts, errors or omissions of a PEO, or of any covered employee of the client and a PEO, when such covered employee is acting under the express direction and control of the PEO.
(7) A PEO shall not be liable for the acts, errors or omissions of a client, or of any covered employee of the client, when such covered employee is acting under the express direction and control of the client.
(8) Nothing in this subsection shall serve to limit any contractual liability or obligation specifically provided in the written professional employer agreement.
(9) A covered employee is not, solely as the result of being a covered employee of a PEO, an employee of the PEO for purposes of general liability insurance, fidelity bonds, surety bonds, employer’s liability which is not covered by workers’ compensation or liquor liability insurance carried by the PEO unless the covered employees are included by specific reference in the professional employer agreement and applicable prearranged employment contract, insurance contract or bond.
(10) Nothing in this section shall in any way limit the liabilities and obligations of any PEO or client to covered employees as required by this chapter.
(11) The client shall be solely responsible for notifying the PEO of all covered employees. Where the client has failed to notify the PEO, the client will be deemed to be the sole employer of the employee.
(12) The client shall retain all records in compliance with state and federal law, including, but not limited to section 52C of this chapter and section 15 of chapter 151.
Section 198. (a) Any tax assessed or assessment or mandated expenditure on a per capita or per employee basis shall be assessed against the client for covered employees and against the PEO for its employees who are not covered employees involved in a PEO relationship with a client. Benefits or monetary consideration that meet the requirements of mandates imposed on a client and that are received by covered employees through the PEO either through payroll or through benefit plans sponsored by the PEO shall be credited against the client’s obligation to fulfill such mandates.
(b) In the case of a tax or an assessment imposed or calculated upon the basis of total payroll, the PEO shall be eligible to apply any small business allowance or exemption available to the client for the covered employees for purpose of computing the tax.
Section 199. (a) A client or a PEO shall each be deemed an employer under the laws of this state for purposes of sponsoring welfare benefit plans for its covered employees.
(b) A fully-insured employee welfare benefit plan as defined in 29 U.S. Code § 1002 offered to the covered employees of a single PEO shall be treated for purposes of state law as a single-employer plan.
(c) For purposes of chapter 176J a PEO shall be considered the employer of all of its covered employees and all covered employees of one or more clients participating in a health benefit plan sponsored by a single PEO shall be considered employees of that PEO.
(d) If a PEO offers to its covered employees any health benefit plan which is not fully-insured by an authorized insurer, the plan shall:
(1) utilize a third-party administrator licensed to do business in this commonwealth;
(2) hold all plan assets, including participant contributions, in a trust account consistent with the requirements of section 403 of the Employee Retirement Income Security Act of 1974, or “ERISA”; and
(3) provide sound reserves for such plan as determined using generally accepted actuarial standards of practice and consistent with the prudence and loyalty standards of care for ERISA fiduciaries.
(e) A PEO shall not be engaged in the sale of insurance or in acting as a third party administrator by offering, marketing, selling, administering or providing professional employer services which include services and employee benefit plans for covered employees.
Section 200. (a) Workers’ compensation coverage shall be provided pursuant to section 14A of chapter 152 and regulations promulgated pursuant to said chapter 152.
(b) PEOs and clients shall comply with employer posting notices pursuant to sections 21 and 22 of said chapter 152.
(c) To the extent the PEO has assumed responsibility in the professional employer agreement, the PEO shall maintain responsibility for the management of workers’ compensation claims.
(d) The professional employer agreement shall specify the allocation of responsibilities between the PEO and the client for workplace safety, risk and hazard control including the responsibility for disclosing information about workplace injuries and illness required by the federal Occupational Safety and Health Act and for performing workplace safety inspections of all premises where covered employees are employed.
(e) Where the PEO has workers’ compensation coverage and has executed an alternate employer endorsement naming the client as an additional insured, both the client and the PEO shall be considered the employer for purpose of coverage under said chapter 152.
(f) Where the client has workers’ compensation coverage and has executed an alternate employer endorsement naming the PEO as an additional insured, both the client and the PEO shall be considered the employer for the purpose of coverage under said chapter 152.
Section 201. (a) For purposes of chapter 151A, covered employees of a PEO shall be considered the employees of the client, and the PEO shall be responsible for the payment of contributions, penalties and interest on wages paid by the PEO to its covered employees during the term of the applicable professional employer agreement.
(b) The PEO shall report and pay all required contributions to the unemployment compensation fund using the state employer account number and the experience rate of the client company pursuant to chapter 151A and the regulations promulgated pursuant to said chapter.
Section 202. Except as otherwise provided in this chapter, for the purposes of federal, state or local laws relating to employee count, including but not limited to paid and unpaid leave, health and transportation benefits and protection under fair employment laws, the employee count shall include all of the client company’s employees, including the client’s employees who are covered employees under the PEO relationship between the client and the PEO.
Section 203. (a) A person shall not knowingly and intentionally:
(1) offer or provide professional employer services or use the names PEO, professional employer organization, staff leasing, employee leasing, administrative employer or other title representing professional employer services without registering with the department pursuant to section 196;
(2) provide false or fraudulent information to the department in conjunction with any registration, renewal or in any report required pursuant to sections 192 through 204, inclusive;
(3) enter into a PEO relationship and split a client workforce for the sole purpose of avoiding compliance with federal, state or municipal laws; or
(4) make a material misrepresentation to the department, to other governmental agencies or to covered employees.
(b) Disciplinary action may be taken by the department for violation of sections 192 through 204, inclusive, including for:
(1) the conviction of a PEO or a controlling person of a PEO of a crime that relates to the operation of a PEO or the ability of the licensee or a controlling person of a licensee to operate a PEO;
(2) knowingly making a material misrepresentation to the department, or other governmental agency; or
(3) a willful violation of sections 192 through204, inclusive, or any related order or regulation.
(c) Any individual may file a complaint with the department against a PEO, PEO group, controlling person of a PEO, person offering professional employer services, or client. The complaint shall be filed in writing, with the department, in a form prescribed by the director.
(1) Upon receipt of a complaint, the department shall proceed to review and investigate the complaint to determine if further action is warranted.
(2) If the director, after investigation, has cause to believe that there have been violations of this chapter, the director may refer the complaint to the office of the attorney general.
(d) Upon finding, after notice and opportunity for hearing, that a PEO, PEO group, controlling person of a PEO, person offering professional employer services, or client has violated 1 or more provisions of this chapter, including the failure to furnish records and requested information to the department and its inspectors, or has hindered or interfered with any authorized inspector while in the performance of their duties, subject to any appeal, the director may:
(1) deny an application for a license;
(2) revoke, suspend, restrict or refuse to renew a license;
(3) impose an administrative penalty in an amount not to exceed $1,000 for each material violation;
(4) place the licensee on probation for the period and subject to conditions that the department specifies; or
(5) issue a cease and desist order.
Section 204. Wages shall be paid in accordance with section 148 of this chapter and any minimum wage and overtime requirements as provided for in chapter 151. A PEO who fails to pay wages, to the extent the PEO has assumed responsibility in the professional employer agreement or subsequent written agreement and as required under this chapter, shall be subject to penalties under this chapter.
SECTION 2. Each professional employment organization as defined by section 192 of chapter 149 of the General Laws operating within the commonwealth as of the effective date of this act shall complete its initial registration not later than 180 days after the effective date of this act. Initial registration shall be valid for 1 year after the date of issuance.
SECTION 3. The department of labor standards shall promulgate regulations to effectuate the purposes of this act.