Financial Security Requirements

General Information

A company applying for a new license, or renewing its current license, must submit an audited financial statement that shows positive working capital for that company. The audited financial statement must show the company's working capital on a date not more than 15 months prior to the date the initial or renewal application is received by the Department. 

These financial requirements apply to PEO licenses (full licenses) and PEO limited licenses.

For additional information, see Labor Code § 91.014, Working Capital Requirements.

Audited Financial Statements

The audited financial statement must be prepared in accordance with generally accepted accounting principles (GAAP), be audited by an independent certified public accountant, and be without qualification as to the going concern status of the applicant.

The audited financial statement must be "without qualification." The opinion expressed must include all the information in the entire statement, not just the balance sheet.

The audited financial statement must show the company's working capital on a date not earlier than fifteen months before the date on which the application is submitted.

• For example, if a company submits its renewal application on March 1, 2024, the company may still use its audited financial statement for the period ending December 31, 2022. After March 31, 2024, however, this statement could no longer be used.

Working Capital

Working capital is determined by subtracting the company’s current liabilities from the company’s current assets as determined by generally accepted accounting principles (GAAP).

An applicant for an original or renewal license must demonstrate positive working capital in the following amounts:

(1) $50,000 if the applicant employs fewer than 250 assigned employees;
(2) $75,000 if the applicant employs at least 250 but not more than 750 assigned employees; and
(3) $100,000 if the applicant employs more than 750 assigned employees.

Negative Working Capital and Other Forms of Financial Security

If a company has negative working capital (i.e. current liabilities exceed current assets), then the company must use a surety bond, letter of credit, or guaranty to make up the deficiency.

The surety bond, letter of credit, or guarantee must be equal to the amount of the negative working capital PLUS the amount of positive working capital required by Labor Code §91.014.

The company shall use the following calculation to determine the minimum amount of the bond, letter of credit, or guaranty that is required.

Positive Working Capital (as required by §91.014) plus Amount of Negative Working Capital (i.e. current liabilities exceed current assets) = Total Amount of Bond, Letter of Credit, or Guaranty Form

If the company uses a:

• Surety bond, then the company must submit the original bond and the original power of attorney;
• Letter of credit, then the company must submit the original letter of credit; or
• Guaranty, then the company must submit the completed guaranty form with an audited financial statement for the guarantor.

Other Financial Situations

The following information addresses other, separate financial situations.

• If you are starting a new company and you don't have sufficient operating history to have an audited financial statement based on at least 12 months of operations, you may meet the working capital requirements by providing the Department with financial statements that have been reviewed (not audited) by a certified public accountant (CPA). Please enclose a cover letter from the CPA with the financial statement.

• A consolidated audited financial statement may be used as proof of working capital, provided that the individual company's assets and liabilities are clearly illustrated in the audited financial statement. Each subsidiary in a consolidated financial statement must be listed separately, including total assets and liabilities. A parent company financial statement, with no illustration of the working capital for each subsidiary, is not acceptable as proof of working capital.

• Company tax returns prepared by a CPA (or anyone else) are not accepted to document working capital.

• There is no provision in the statute to allow for a waiver of the audited financial statements or other financial requirements.

For more information, see Labor Code § 91.014, Working Capital Requirements.