Bill Text: CA AB2570 | 2009-2010 | Regular Session | Amended
Bill Title: Unemployment insurance: professional employer
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2010-11-30 - From Senate committee without further action. [AB2570 Detail]
Download: California-2009-AB2570-Amended.html
BILL NUMBER: AB 2570 AMENDED
BILL TEXT
AMENDED IN SENATE JULY 1, 2010
AMENDED IN SENATE JUNE 21, 2010
INTRODUCED BY Assembly Member Ma
FEBRUARY 19, 2010
An act to add Section 606.6 to the Unemployment Insurance Code,
relating to employment.
LEGISLATIVE COUNSEL'S DIGEST
AB 2570, as amended, Ma. Unemployment insurance: professional
employer organizations.
Existing law requires that the determination of the
employer-employee relationship be made pursuant to common-law
principles, with specified exceptions. Existing law provides that
when an individual or entity contracts to supply an employee to
perform services for a customer or client and is a leasing employer
or a temporary services employer, as defined, the individual or
entity is the employer of the employee who performs the services.
This bill would, on and after January 1, 2012, for purposes of all
unemployment insurance laws of this state, provide that a
professional services employer
organization, as defined, shall be deemed to be an employing unit for
covered employees under a professional employer agreement, as
defined. This bill would require the Employment Development
Department to administer the provisions of the bill, as specified.
This bill would impose various requirements on professional services
organizations and clients, and would also provide for an assessment,
fines, and disciplinary actions.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 606.6 is added to the Unemployment Insurance
Code, to read:
606.6. (a) For purposes of all unemployment insurance laws of
this state only, a PEO shall be deemed to be an employing unit for
employees covered under a professional services agreement for
purposes of reporting and remitting taxes required under this part
and all related provisions.
(b) For purposes of this section the following definitions shall
apply:
(1) "Client employer" means any employer who enters into a
professional employer agreement with a professional employer
organization.
(2) "Covered employee" means an employee who performs services for
a client employer who is covered by a professional employer
agreement.
(3) "Master account" means the department account of the PEO to
which personal income tax, unemployment insurance, and employment
training tax remittances are applied for both direct and all covered
employees of a PEO, and upon which personal income tax, unemployment
insurance, employment training tax, and disability insurance reports
are based.
(4) "PEO" means a person or entity or professional employer
organization that enters into a professional employer agreement with
one or more client employers to provide professional employee
services. A PEO includes entities described as a "staff leasing
companies," "permanent staff leasing companies," "registered staff
leasing companies," "employee leasing companies," and "administrative
employees," if the entity provides professional employer services to
a client employer, as defined in paragraph (7).
(5) "PEO UI-ETT subaccount" means an account linked to a PEO
master account to which unemployment insurance and employment
training tax wage information is reported and remittances are paid by
a PEO for its client employers to the state, and upon which the
client employee's experience rating is calculated.
(6) "Professional employer agreement" means a written contract
between a client employer and a professional employer organization
that provides for professional employer services. In a professional
employer agreement, the PEO shall, except for newly established
client employers, hire its initial covered employee complement from
among employees of the client employer at the time of execution of
the professional employer agreement.
(7) "Professional employer services" means services provided by
the professional employer organization to the client employer and
covered employees, which may include, but are not limited to, human
resource functions, risk management services, payroll
services, or other employee benefit services, including sponsorship
of health benefit plans, workers compensation plans as defined under
Rule 4 of Section V of the California Workers Compensation Experience
Rating Plan-1995, cafeteria plans, and retirement plans.
services, or other employee benefit services, including health
benefit plans, securing the payment of workers compensation as
required under Section 3700 for covered employees, cafeteria plans,
and retirement plans.
(8) "Registrant" means a PEO registered under this section.
(9) The following are not classified as professional employer
organizations or covered employees:
(A) Independent contractors.
(B) Temporary services employers.
(C) Leasing employers as defined in subdivision (b) of Section
606.5.
(D) Labor organizations.
(E) Third-party insurers.
(c) For purposes of the unemployment insurance laws of this state,
on and after January 1, 2012, a PEO shall register with the
department and report and remit taxes due to the state accordance
with the following requirements:
(1) The department shall create a new PEO UI-ETT subaccount upon
the effective date of a new professional employer agreement with a
client employer. The department shall transfer the client employer's
existing unemployment insurance rate and reserve account to the PEO
UI-ETT subaccount upon its creation. A client employer's experience
shall continue to accrue to the PEO UI-ETT subaccount during the
duration of the professional employer agreement based solely on the
covered employees of each client employer. To the extent that a
client employer qualifies as a new employer under this part, the
client employer's new employer status and experience rating shall not
be altered due to the initiation of a professional employer
agreement and the creation of the PEO UI-ETT subaccount. Upon the
effective date of the professional employer agreement, the PEO shall
become solely liable for reporting and remitting taxes to the PEO
UI-EIT subaccount until a professional employer agreement terminates
or the registration of a PEO is terminated by the department. The
client employer shall remain liable for any accrued but unpaid taxes
prior to the effective date of a professional employer agreement. The
creation or dissolution of a PEO UI-EIT subaccount shall not restart
the calculation of taxes for covered employees that are based on
calendar year wage totals.
(2) A PEO shall remit to the PEO master account any amounts
required to be remitted by law to the master account by the PEO for
personal income tax and unemployment insurance to the PEO's direct,
nonclient and indirect, client employees, if any. When determining
the frequency of the deposits, the aggregate amount of personal
income tax withholdings for the PEO's direct, nonclient and indirect,
client employees shall be combined.
(3) As required by law, a PEO shall file one DE-6 form for
unemployment insurance and employment training tax that is related to
the PEO's direct, nonclient and indirect, client employees, if any.
The department shall assign information and deposit amounts
attributable for the PEOs direct nonclient employees to the PEO
master account and assign information and deposit amounts
attributable to the PEOs indirect client employees to the PEOs
subaccounts. Each PEO subaccount shall reflect the unemployment
insurance experience rate and reserve account balance of each PEO
client.
(4) Upon termination of a client company, the PEO shall provide
the department with a notice of termination of the client company
that shall include the effective date of the termination of the
professional employer agreement.
(d) Nothing in this chapter shall preclude the department from
pursuing enforcement actions related to pending notices of violation
initiated against a person or entity prior to January 1, 2012.
(e) On and after June 1, 2012, no person or entity shall operate
as a PEO or advertise or otherwise hold itself out as being a
professional employer organization in the State of California unless
that person or entity is registered with the department. On and after
June 1, 2012, a PEO that operates without a being registered shall
be subject a civil penalty of one hundred dollars ($100) per day, not
to exceed a maximum of ten thousand dollars ($10,000).
Each applicant for registration shall annually provide information
as required by the department to administer this section, including,
but not limited to, both of the following:
(1) Evidence of a surety bond issued by a corporate surety entity
authorized to do business in California, an irrevocable letter of
credit, a certificate of deposit, or other securities in an amount
equivalent to any of the following:
(A) Twenty-five percent of unemployment insurance and disability
insurance tax contributions or payments in lieu of contributions for
which the PEO was liable in California in the last calendar year in
which it accrued contributions or payments in lieu of contributions
for those PEOs with more than 2,500 covered employees.
(B) Twenty percent of unemployment insurance and disability
insurance tax contributions or payments in lieu of contributions for
which the PEO was liable in California in the last calendar year in
which it accrued contributions or payments in lieu of contributions
for those PEOs with fewer than 2,500 and more than 1,500 covered
employees.
(C) Fifteen percent of unemployment insurance and disability
insurance tax contributions or payments in lieu of contributions for
which the PEO was liable in California in the last calendar year in
which it accrued contributions or payments in lieu of contributions
for those PEOs with fewer than 1,500 covered employees.
(D) In the event of a startup or new PEO in the State of
California, an applicant shall post a security of one hundred
thousand dollars ($100,000) or an estimate of 25 percent of
unemployment insurance and disability insurance tax contributions or
payments in lieu of contributions for which the PEO estimates it will
be liable for in California in the coming year, whichever is
greater.
(2) An annual assessment of two thousand dollars ($2,000)
set by the department in order to pay for the entire
costs of enforcing and administering the program, as well as issuing
the necessary registration. This assessment shall be made on a
DE-6 form during the quarter in which the application for
registration is made to fund department activities arising out of
this section.
(3) A statement of ownership, which shall include the name and
evidence of business experience of any person that, individually, or
acting in concert with one or more other persons, owns or controls,
directly or indirectly, 5 percent or more of the equity interests of
the PEO. No person that has been convicted of a felony related to the
operation of a PEO or had the registration of a PEO that he or she
owned or controlled revoked, shall own or control, directly or
indirectly, a PEO doing business in this state.
(f) The PEO shall provide written notice to each covered employee
affected by the agreement of the general nature of the relationship
created by the agreement between the PEO, the client, and the covered
employee. This notice shall include the name of the employer to be
used for purposes of filing a claim for unemployment insurance
benefits. This notice shall be provided annually to all covered
employees.
(g) The department shall, to the extent practical, require
electronic filings in conformity with the Uniform Electronic
Transactions Act (UETA) (Title 2.5 (commencing with Section 1633.1)
of Part 2 of Division 3 of the Civil Code), or other relevant state
laws for all required filings and tax remittances.
(h) No more than 14 days after the effective date of a new
professional employer agreement with a client employer, a registered
PEO shall notify the department of the name and employer
identification number (EIN) of the client employer and the social
security numbers for each California covered employee covered under
the professional employer agreement. Upon notification, the
department shall create a new subaccount of the professional employer
organization's department account and transfer the existing
experience rate and reserve balance to this subaccount.
(i) No more than 14 days after the termination of a professional
employer agreement with a client employer or dissolution of a PEO or
revocation of a PEO's registration, a registered PEO shall notify the
department and provide the name and EIN of that client employer or
client employers in the event of a dissolution or revocation, the
effective date of termination, dissolution, or revocation, if
applicable, and the social security numbers for all covered employees
who had been subject to the professional employer agreement on the
effective date of termination, dissolution, or revocation. Upon
notification, the department shall transfer the existing experience
rate and reserve balance of the former client employer and its former
covered employees that were previously reported under a unique
subaccount of the PEO to the former client employer's department
account.
(j) If a professional employer organization fails to remit any tax
payments, including personal income tax, unemployment insurance, or
employment training tax payments that are due with respect to wages
actually paid to covered employees under the unemployment insurance
laws of this state, the director may issue a notice of assessment in
accordance with Sections 1126, 1127, and 1206.
(1) Upon issuance of a notice of assessment, the procedures
outlined in Sections 1222 to 1224, inclusive, shall apply. In the
event that a PEO fails to petition for reassessment or pay the amount
assessed in accordance with Sections 1222 to 1224, inclusive, the
department may require that the client companies of the assessed PEO
be treated as separate and individual employing units of covered
employees subject to the PEO's professional employer agreements for
purposes of the unemployment insurance laws of this state and rescind
the PEOs registration to conduct business in the state. If clients
become individual employing units under paragraph (2), those clients
shall be liable for any unpaid tax liability directly attributable to
its individual employees and future tax liability in the course of
its status as an individual employing unit.
(2) In the event the department revokes the registration of a PEO
and begins to treat the PEO's former client employers as individual
employing units, the department shall attach the surety bond required
in subdivision (e) until that liability has been remitted to the
department or may use the surety bond to meet the obligation of the
PEO. Upon satisfaction of the liability, the department shall release
the bond or any unused portion.
(k) The director may promulgate all rules and regulations
necessary for the administration of this section. The regulations may
include provisions for revocation of the registration of a PEO for
failure to comply with the provisions of this section, provided that,
except for the requirements contained in subdivision (j), that the
regulations shall allow a PEO to cure the noncompliance within 30
days of receiving a notice from the department.
(l) All records, reports, and other information containing
proprietary information obtained from a PEO under this section, or
containing personal information such as the social security numbers
of covered employees, except to the extent necessary for the proper
administration of this section, shall be confidential and shall not
be published or open to public inspection other than to public
employees in the performance of their public duties.
(m) Except as specifically provided herein, nothing in this
section shall be deemed to affect or alter any other law in this
state.
(n) This section shall become operative on January 1, 2012.
