BILL REQ. #:  H-3317.2 

Read first time 01/18/2006.   Referred to Committee on Commerce & Labor.

     AN ACT Relating to professional employer organizations; adding a new chapter to Title 18 RCW; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature finds that:
     (1) Professional employer organizations provide a valuable service to commerce and the citizens of this state by increasing the opportunities of employers to develop cost-effective methods of satisfying their personnel requirements and providing employees with access to certain employment benefits which might otherwise not be available to them;
     (2) Professional employer organizations operating in this state should be properly recognized; and
     (3) Any allocation of the employer duties and responsibilities pursuant to this chapter shall preserve all rights to which covered employees would be entitled under a traditional employment relationship.

NEW SECTION.  Sec. 2   As used in this chapter:
     (1) "Administrative fee" means the fee charged to a client by a professional employer organization for professional employer services. However, the administrative fee shall not be deemed to include any amount of a fee by the professional employer organization that is for wages and salaries, benefits, workers' compensation, payroll taxes, withholding, or other assessments paid by the professional employer organization to or on behalf of covered employees under the professional employer agreement.
     (2) "Client" means any person who enters into a professional employer agreement with a professional employer organization.
     (3) "Coemployer" means either a professional employer organization or a client.
     (4) "Coemployment relationship" means a relationship which is intended to be an ongoing relationship rather than a temporary or project-specific one, wherein the rights, duties, and obligations of an employer which arise out of an employment relationship have been allocated between coemployers pursuant to a professional employer agreement and this chapter. In such a coemployment relationship:
     (a) The professional employer organization is entitled to enforce only such employer rights and is subject to only those obligations specifically allocated to the professional employer organization by the professional employer agreement or this chapter;
     (b) The client is entitled to enforce those rights and obligated to provide and perform those employer obligations allocated to such client by the professional employer agreement and this chapter; and
     (c) The client is entitled to enforce any right and obligated to perform any obligation of an employer not specifically allocated to the professional employer organization by the professional employer agreement or this chapter.
     (5) "Covered employee" means an individual having a coemployment relationship with a professional employer organization and a client who meets all of the following criteria: (a) The individual has received written notice of coemployment with the professional employer organization, and (b) the individual's coemployment relationship is pursuant to a professional employer agreement subject to this chapter. Individuals who are officers, directors, shareholders, partners, and managers of the client are covered employees to the extent the professional employer organization and the client have expressly agreed in the professional employer agreement that such individuals would be covered employees and provided such individuals meet the criteria of this subsection and act as operational managers or perform day-to-day operational services for the client.
     (6) "Person" means any individual, partnership, corporation, limited liability company, association, or any other form of legally recognized entity.
     (7) "Professional employer agreement" means a written contract by and between a client and a professional employer organization that provides:
     (a) For the coemployment of covered employees;
     (b) For the allocation of employer rights and obligations between the client and the professional employer organization with respect to the covered employees; and
     (c) That the professional employer organization and the client assume the responsibilities required by this chapter.
     (8) "Professional employer organization" means any person engaged in the business of providing professional employer services. A person engaged in the business of providing professional employer services is subject to this chapter regardless of its use of the term or conducting business as a "professional employer organization," "PEO," "staff leasing company," "registered staff leasing company," "employee leasing company," "administrative employer," or any other name.
     The following shall not be deemed to be professional employer organizations or the providing of professional employer services for purposes of this chapter:
     (a) Arrangements wherein a person, whose principal business activity is not entering into professional employer arrangements and which does not hold itself out as a professional employer organization, shares employees with a commonly owned company within the meaning of section 414(b) and (c) of the Internal Revenue Code of 1986, as amended;
     (b) Independent contractor arrangements by which a person assumes responsibility for the product produced or service performed by such person or his or her agents and retains and exercises primary direction and control over the work performed by the individuals whose services are supplied under such arrangements; or
     (c) Providing temporary help services.
     (9) "Professional employer services" means the service of entering into coemployment relationships under this chapter in which all or a majority of the employees providing services to a client or to a division or work unit of a client are covered employees.
     (10) "Temporary help services" means services consisting of a person:
     (a) Recruiting and hiring its own employees;
     (b) Finding other organizations that need the services of those employees;
     (c) Assigning those employees to perform work at or services for the other organizations to support or supplement the other organizations' work forces, or to provide assistance in special work situations such as, but not limited to, employee absences, skill shortages, seasonal workloads, or to perform special assignments or projects; and
     (d) Customarily attempting to reassign the employees to other organizations when they finish each assignment.

NEW SECTION.  Sec. 3   (1) Nothing contained in this chapter or in any professional employer agreement shall affect, modify, or amend any collective bargaining agreement, or the rights or obligations of any client, professional employer organization, or covered employee under the federal national labor relations act or the federal railway labor act.
     (2) Nothing in this chapter or in any professional employer agreement shall:
     (a) 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;
     (b) 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. Nor shall it prohibit or amend any contractual relationship or restrictive covenant that is entered into subsequently between a client and a covered employee. A professional employer organization 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 professional employer organization has specifically agreed otherwise in writing;
     (c) Create any new or additional enforceable right of a covered employee against a professional employer organization that is not specifically provided by the professional employer agreement or this chapter.
     (3) Nothing contained in this chapter or any professional employer agreement shall affect, modify, or amend any state, local, or federal licensing, registration, or certification requirement applicable to any client or covered employee.
     (a) A covered employee who must be licensed, registered, or certified according to law or regulation is deemed solely an employee of the client for purposes of any such license, registration, or certification requirement.
     (b) A professional employer organization 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 governmental entity, solely by entering into and maintaining a coemployment relationship with a covered employee who is subject to such requirements or regulation.
     (c) 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. Such 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.
     (4) For purposes of determination of tax credits and other economic incentives provided by this state or other government entity and based on employment, covered employees shall be deemed employees solely of the client. 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. If the grant or amount of any such incentives is based on number of employees, then each client shall be treated as employing only those covered employees coemployed by the client. Covered employees working for other clients of the professional employer organization shall not be counted. Each professional employer organization shall provide, upon request by a client or an agency or department of this state, employment information reasonably required by any agency or department of this state responsible for administration of any such tax credit or economic incentive and necessary to support any request, claim, application, or other action by a client seeking any such tax credit or economic incentive.
     (5) With respect to a bid, contract, purchase order, or agreement entered into with the state or a political subdivision of the state, a client company's status or certification as a small, minority-owned, or woman-owned business enterprise or as a historically underutilized business is not affected because the client company has entered into an agreement with a professional employer organization or uses the services of a professional employer organization.

NEW SECTION.  Sec. 4   (1) Except as specifically provided in this chapter or in the professional employer agreement, in each coemployment relationship:
     (a) 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;
     (b) The professional employer organization shall be entitled to exercise only those rights, and obligated to perform only those duties and responsibilities, specifically required by this chapter or set forth in the professional employer agreement. The rights, duties, and obligations of the professional employer organization as coemployer with respect to any covered employee shall be limited to those arising pursuant to the professional employer agreement and this chapter during the term of coemployment by the professional employer organization of such covered employee; and
     (c) Unless otherwise expressly agreed by the professional employer organization 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.
     (2) Except as specifically provided in this chapter, the coemployment relationship between the client and the professional employer organization, and between each coemployer and each covered employee, shall be governed by the professional employer agreement. Each professional employer agreement shall include the following:
     (a) The allocation of rights, duties, and obligations as described in subsection (1) of this section;
     (b) That the professional employer organization shall have responsibility to pay wages to covered employees; to withhold, collect, report, and remit payroll-related and unemployment taxes; and, to the extent the professional employer organization has assumed responsibility in the professional employer agreement, to make payments for employee benefits for covered employees. As used in this section, the term "wages" does not include any obligation between a client and a covered employee for payments beyond or in addition to the covered employee's salary, draw, or regular rate of pay, such as bonuses, commissions, severance pay, deferred compensation, profit sharing, or vacation, sick, or other paid time-off pay, unless the professional employer organization has expressly agreed to assume liability for such payments in the professional employer agreement;
     (c) That the professional employer organization shall have a right to hire, discipline, and terminate a covered employee, as may be necessary to fulfill the professional employer organization's responsibilities under this chapter and the professional employer agreement. The client shall have a right to hire, discipline, and terminate a covered employee.
     (3) With respect to each professional employer agreement entered into by a professional employer organization, such professional employer organization shall provide written notice to each covered employee affected by such agreement of the general nature of the coemployment relationship between and among the professional employer organization, the client, and such covered employee.
     (4) Except to the extent otherwise expressly provided by the applicable professional employer agreement:
     (a) A client shall be solely responsible for the quality, adequacy, or safety of the goods or services produced or sold in the client's business.
     (b) 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.
     (c) A client shall not be liable for the acts, errors, or omissions of a professional employer organization or of any covered employee of the client and a professional employer organization when such covered employee is acting under the express direction and control of the professional employer organization.
     (d) A professional employer organization 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.
     (e) Nothing in this subsection shall serve to limit any contractual liability or obligation specifically provided in the written professional employer agreement.
     (f) A covered employee is not, solely as the result of being a covered employee of a professional employer organization, an employee of the professional employer organization for purposes of general liability insurance, fidelity bonds, surety bonds, employer's liability which is not covered by liability insurance carried by the professional employer organization unless the covered employees are included by specific reference in the professional employer agreement and applicable prearranged employment contract, insurance contract, or bond.
     (5) A professional employer organization under this chapter is not 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.
     (6)(a) Covered employees whose services are subject to sales tax shall be deemed the employees of the client for purposes of collecting and levying sales tax on the services performed by the covered employee. Nothing contained in this chapter shall relieve a client of any sales tax liability with respect to its goods or services.
     (b) Any tax upon professional employer services or any business license or other fee, including but not limited to chapter 82.04 RCW, which is based upon gross receipts shall be limited to the administrative fee of the professional employer organization.
     (c) Any tax assessed on a per capita or per employee basis shall be assessed against the client for covered employees and against the professional employer organization for its employees who are not covered employees coemployed with a client.
     (d) In the case of tax imposed or calculated upon the basis of total payroll, the professional employer organization shall be eligible to apply any small business allowance or exemption available to the client for the covered employees for the purpose of computing the tax.

NEW SECTION.  Sec. 5   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 6   This act takes effect July 1, 2006.

NEW SECTION.  Sec. 7   Sections 1 through 6 of this act constitute a new chapter in Title 18 RCW.