Justification for Adoption of Amendments to Professional Employer Organizations Administrative Rules

See also Justification for amendments to fees

JUSTIFICATION FOR ADMINISTRATIVE RULE ADOPTION
Professional Employer Organization
16 TAC Chapter 72, amendments to §72.10, 72.20 - 72.23, 72.25, 72.70, and 72.71, and new rules §72.72 and §72.73

The Texas Commission of Licensing and Regulation (Commission) adopts amendments to existing rules at 16 Texas Administrative Code (TAC), Chapter 72, §72.10, 72.25, and 72.71, and new rules §72.72 and §72.73 regarding the Professional Employer Organization (PEO) program, (formerly Staff Leasing Services) without changes to the rules as published in the October 4, 2013, issue of the Texas Register (38 TexReg 6825). Sections §72.20 - 72.23, and 72.70 are adopted with changes to the rules as published in the October 4, 2013, issue of the Texas Register (38 TexReg 6825). The effective date of the adoption is January 1, 2014.

The amendments and new rules implement Senate Bill (SB) 1286, 83rd Legislature, Regular Session (2013) which made changes to Texas Labor Code, Chapter 91. The amendments to the law include replacing the outdated term 'staff leasing services company' with 'professional employer organization', and also replacing related terms, such as 'assigned employee' with 'covered employee' and adding new terms 'coemployer' and 'coemployer relationship.' Some of the more substantive changes to the law include authorizing a client company to purchase workers' compensation insurance for covered employees, and for the professional employer organization to offer a self-funded health insurance plan, provided the plan is approved by the Texas Department of Insurance.

The amendments to §72.10 add definitions that clarify some new terms used in SB 1286, and define 'offer to perform' consistent with other programs regulated by the Department.

The amendments to §72.20-72.23, 72.25, and 72.71 replace 'staff leasing' with 'professional employer organization' and 'assigned employee with 'covered employee.'

The amendments to §72.70 rewrite and reorganize the sections to clarify new notice requirements in SB 1286 relating to providing notice to covered employees of the coemployment relationship between a PEO and a client.

New §72.72 is added to clarify that a PEO is responsible for providing to the Department which party in the coemployment relationship (if any) carries workers' compensation insurance.

New §72.73 is added to clarify that a PEO that offers a self-funded health insurance plan to covered employees must provide proof to the Department that the plan is approved by the Texas Department of Insurance.

The Department drafted and distributed the proposed rules to persons internal and external to the agency. The proposed rules were published in the October 4, 2013, issue of the Texas Register (38 TexReg 6825). The deadline for public comments was November 4, 2013. The Department received comments from three interested parties during the 30-day public comment period: (1) an individual representative of a PEO, (2) the National Association of Professional Employer Organizations (NAPEO) and (3) an attorney representing a PEO.

Comment: NAPEO and an individual representative of a PEO questioned the requirement in new rule §72.72 regarding notifying the Department when workers' compensation is obtained by a client.

Department Response: The Department is of the opinion that §72.72 is not needed, because it is burdensome, and there is a requirement already in the law in Texas Labor Code, §91.042(a-1).

The National Association of Professional Employer Organizations (NAPEO) made several additional comments.

Comment: Section 72.70 should be amended to allow PEO's to notify employees of the coemployment relationship (but not be required to provide the entire agreement) and §72.70(b)(3) modified receive electronic confirmations from covered employees when covered employees receive notice of coemployment. Reasons given include possible proprietary information contained in the entire agreement.

Department Response: This change seems reasonable in light of the explanation, and the Department will make the change to the first sentence of §72.70 (b)(1) and the Department will make the recommended changes to §72.70(b)(3) except for the deletion of the last sentence of §72.70(b)(3).

Comment: Section 72.10(4) should be amended to include only business organizations such that an individual may not be licensed as a PEO.

Department Response: The Department will not license individuals, and does not see the necessity for amending this rule, as it may impair its ability to prosecute unlicensed persons.

Comment: General cleanup amendments to reflect current PEO practices. (§72.20(e), 72.21(f), 72.22(a)(2) and (4), and 72.23(a)(2) and (f).

Department Response: The Department agrees that the clerical changes streamline the rules. The rules have been changed in response to this comment.

The amendments and new rules are adopted under Texas Occupations Code, Chapter 51, and Texas Labor Code, Chapter 91, both of which authorize the Commission, the Department's governing body, to adopt rules as necessary to implement these chapters and any other law establishing a program regulated by the Department.

The statutory provisions affected by the adoption are those set forth in Texas Occupations Code, Chapter 51, and Texas Labor Code, Chapter 91. No other statutes, articles, or codes are affected by the adoption.

72.10. Definitions.

The following words and terms, as used in this chapter and Texas Labor Code, Chapter 91, have the following meanings, unless the context clearly indicates otherwise.

(1) Department--Texas Department of Licensing and Regulation.

(2) Offering to Perform--Making a written or oral proposal, contracting in writing or orally to perform professional employer services, or advertising in any form through any medium that a person or business entity is a professional employer organization, or that implies in any way that a person or business entity is available to enter into a professional employer services agreement.

(3) PEO--Professional Employer Organization.

(4) Person--Any individual, partnership, corporation, or any other business entity.

(5) The Code--The Texas Labor Code, Chapter 91.

72.20. License Requirements--Full License.

(a) Any person who performs or offers to perform PEO services as defined by the Code, must be licensed with the department.

(b) To obtain an original PEO license, a person must provide the department with all of the following required information, on forms prescribed by the executive director:

(1) a completed registration form, including any applicable attachments or application forms;

(2) a completed personal information form from each controlling person as defined in Texas Labor Code §91.001(7);

(3) fingerprint cards for the applicant and any controlling persons;

(4) a completed criminal history questionnaire, as applicable;

(5) documentation from the Texas Secretary of State recognizing the person's authority to do business in this state;

(6) proof of positive working capital as described under §72.40; and

(7) the required fees.

(c) Each individual applicant and all controlling persons must pass a background investigation that includes:

(1) A comparison of the person's fingerprints by appropriate state or federal law enforcement agencies with fingerprints on file; and

(2) A criminal history check with appropriate state and federal law enforcement agencies.

(d) Falsification of a required document by the applicant is grounds for denial and/or revocation of license.

(e) Falsification of documentation provided by a controlling person disqualifies that person from serving as a controlling person.

72.21. License Renewal Requirements--Full License.

(a) In order for a PEO to continue operating in this state, a license must be renewed annually.

(b) Non-receipt of a license renewal notice from the department does not exempt a person from any requirements of this chapter.

(c) To renew a PEO license, a person must provide the department with all of the following required information, on forms prescribed by the executive director:

(1) a completed registration form, including any applicable attachments or application forms;

(2) a completed personal information form from each controlling person as defined in Texas Labor Code §91.001(7), or a form indicating there has been no change in the personal information form since the previous license application or renewal from each controlling person;

(3) fingerprint cards for any new controlling persons;

(4) a completed criminal history questionnaire, as applicable;

(5) proof of positive working capital as described under §72.40; and

(6) the required fees.

(d) Each individual applicant and all controlling persons of the PEO must submit to a background investigation as described in §72.20(c) each year at the time of renewal.

(e) Falsification of a required document by the applicant is grounds for denial and/or revocation of license.

(f) Falsification of documentation provided by a controlling person disqualifies that person from serving as a controlling person.

(g) The department may refuse to renew a registration if the applicant or a controlling person of the applicant has violated Texas Labor Code, Chapter 91, this chapter, or a rule or an order issued by the commission or executive director.

72.22. License Requirements--Limited License.

(a) To qualify for a limited license, a person at all times must:

(1) employ less than 50 covered employees in this state at any one time;

(2) not provide covered employees to clients that are based or domiciled in the state;

(3) not maintain an office in this state; and

(4) not solicit clients located or domiciled in this state.

(b) A person applying for a limited license must provide the department with all of the following required information, on forms prescribed by the executive director:

(1) a completed registration form, including any applicable attachments or application forms;

(2) a completed personal information form from each controlling person as defined in Texas Labor Code §91.001(7);

(3) a completed criminal history questionnaire, as applicable;

(4) proof of current licensure as a PEO, in good standing, if licensed in another state;

(5) documentation from the Texas Secretary of State recognizing the person's authority to do business in this state;

(6) proof of positive working capital as described under §72.40; and

(7) the required fees.

(c) Falsification of a required document by the applicant is grounds for denial and/or revocation of license.

(d) Falsification of documentation provided by a controlling person disqualifies that person from serving as a controlling person.

(e) After the person obtains the limited license, the person must continue to meet all of the requirements under subsection (a) in order to retain the limited license. Failure to continue meeting the requirements will result in loss of the limited license.

72.23. License Renewal Requirements--Limited License.

(a) In order for a limited license PEO to continue operating in this state, a limited license must be renewed annually.

(b) Non-receipt of a limited license renewal notice from the department does not exempt a person from any requirements of this chapter.

(c) To continue qualification for a limited license, a person at all times while licensed must:

(1) employ less than 50 covered employees in this state at any one time;

(2) not provide covered employees to clients that are based or domiciled in the state;

(3) not maintain an office in this state; and

(4) not solicit clients located or domiciled in this state.

(d) To renew a limited license, a person must provide the department with all of the following required information, on forms prescribed by the executive director:

(1) a completed registration form, including any applicable attachments or application forms;

(2) a completed personal information form from each controlling person as defined in Texas Labor Code §91.001(7), or a form indicating there has been no change in the personal information form since the previous license application or renewal from each controlling person;

(3) a completed criminal history questionnaire, as applicable;

(4) proof of current licensure as a PEO, in good standing, if licensed in another state;

(5) proof of positive working capital as described under §72.40; and

(6) the required fees.

(e) Falsification of a required document by the applicant is grounds for denial of the application and/or revocation of a license.

(f) Falsification of documentation provided by a controlling person disqualifies that person from serving as a controlling person.

(g) The person must continue to meet all of the requirements under subsection (a) in order to retain the limited license. Failure to continue meeting the requirements will result in loss of the limited license.

72.25. Use of Assurance Organization by Applicant or License Holder.

(a) The department shall accept an approved assurance organization's written certification as evidence that an applicant or license holder has met and continues to meet the criteria and obligations set forth in this chapter and the Code. The department retains the right to independently verify any information or certification provided by the assurance organization, including the ability to verify information contained in the assurance organization's databases.

(b) An applicant or licensee wishing to utilize the services of an assurance organization shall execute, and the assurance organization shall submit to the department, together with any fees, the appropriate application form prescribed by the executive director which includes a certification by the assurance organization that the license holder or applicant is in compliance with the assurance organization's standards which meet the requirements of the Code and the rules and a certification by the licensee or applicant that the applicant is in full compliance with all requirements of the Code and the rules, together with the license holder or applicant's authorization for the department to accept information provided by the assurance organization on behalf of the applicant or licensee.

(c) Two or more applicants or license holders using the services of an approved assurance organization and desiring to apply or renew as a group, may do so provided that the applicants or license holders apply or renew on a form prescribed by the executive director and demonstrate that they have at least two of the following criteria in common:

(1) financial statement;

(2) controlling person;

(3) insurance coverage; or

(4) ownership.

(d) Though qualified applicants may apply as a group, the department will issue licenses only to qualified applicants having unique federal employment identification numbers.

(e) An approved assurance organization shall notify the department in writing no later than 10 days after it receives a complaint, or becomes aware of information indicating that an applicant or license holder utilizing its services is not in compliance with its obligations under this chapter or the Code. The notification shall include the originals or a certified copy of all such information in the assurance organization's possession.

(f) An approved assurance organization shall notify the department in writing no later than 10 days after the assurance organization has made a determination that an accredited PEO has violated any of the standards of accreditation of the assurance organization.

(g) Should the department elect to take action against any bond made available to it by an assurance organization because of a license holder or applicant's violation of this chapter or the Code as determined by the department, the department shall provide the assurance organization thirty (30) days written notice prior to taking action against the bond. This notification requirement shall neither affect the department's enforcement procedures nor affect the department's ability to take appropriate disciplinary action against a licensee or applicant.

72.70. Responsibilities of Licensee--General.

(a) Notices to Clients.

(1) A licensee must notify its clients of the name, mailing address, and telephone number of the department. The notice also must contain a statement that unresolved complaints concerning a licensee or questions concerning the regulation of PEO's may be addressed to the department.

(2) The notice required by this subsection must be made a part of all agreements between licensees and clients. The notification shall appear in a typeface no smaller than the body of the contract and shall be printed in bold face, all capital letters or contrasting color of ink to set it out from the surrounding written material.

(b) Notices to Covered Employees.

(1) A licensee must provide written notice of a professional employer services agreement to each covered employee that sets forth the general nature of the coemployment relationship, the name, mailing address, website www.tdlr.texas.gov, and telephone number of the department, and a statement that unresolved complaints concerning a licensee or questions concerning the regulation of PEO services may be addressed to the department.

(2) A licensee must notify each covered employee that, pursuant to §91.032(c) of the Code, a client company is solely obligated to pay any wages for which:

(A) an obligation to pay is created by an agreement, contract, plan, or policy between the client company and the covered employee; and

(B) the PEO has not contracted to pay.

(3) A licensee shall have each covered employee either sign a document or electronically acknowledge that the covered employee has received the notice required by §72.70(b)(1) and other notices set forth in this subsection. The signed document or electronic record must be kept on file for two years after employment is terminated. The signed document or electronic record may be included as part of the professional employer services agreement or other agreement with the covered employee or may be a separate document.

(c) Notwithstanding subsection (b)(2), a PEO may process payments for wages that it has not contracted to pay at the request or direction of its clients.

(d) A licensee must update the information provided to the department as part of the original or renewal license application within 45 days after any change to the information.

72.71. Responsibility of Licensee--Records.

(a) Upon notification, the licensee shall allow the executive director or his designee to audit records required by the Code and any records required by this chapter.

(b) All licensees shall maintain the following documents for two (2) years following the termination of a professional employer services agreement:

(1) insurance coverage documents which may be required for filing with the Texas Department of Insurance, or insurance coverage documents which the licensee may be required to retain by the Texas Department of Insurance;

(2) all documents pertaining to insurance claims;

(3) workers compensation coverage documents;

(4) all documents pertaining to workers' compensation claims;

(5) professional employer services agreements between the license holder and client companies;

(6) employee tax records that may be required to be retained by or filed with the Texas Workforce Commission;

(7) employee tax records that may be required to be retained by or filed with the Internal Revenue Service; and

(8) employee tax records that may be required to be retained by or filed with the county or state.

(c) This section does not require a licensee to obtain documents that it would not otherwise obtain in the course of business and does not require a licensee to obtain documents from any other person or entity. This section requires licensees to maintain copies of documents actually received in the course of business or required to be maintained by the governmental entities listed in this section.

72.73. Self-funded Health Benefit Plans.

A PEO that offers a self-funded health insurance plan shall deliver to the department the following, within 45 days of receiving approval from the Texas Department of Insurance:

(1) a copy of the written approval to offer the plan from the Texas Department of Insurance; and

(2) a copy of proof that the PEO has appointed the commissioner of the Texas Department of Insurance as its resident agent for purposes of service of process in this state.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State, on December 12, 2013.

William H. Kuntz, Jr.
Executive Director
Texas Department of Licensing and Regulation


16 TAC Chapter 72, amendments to §72.80

The Texas Commission of Licensing and Regulation (Commission) adopts amendments to an existing rule at 16 Texas Administrative Code (TAC), Chapter 72, §72.80 regarding the Professional Employer Organization program, without changes to the rule as published in the October 4, 2013, issue of the Texas Register (38 TexReg 6828). The effective date of the adoption is January 1, 2014.

The adoption implements Texas Occupations Code, §51.202 which requires the Commission to set fees in amounts reasonable and necessary to cover the costs of administering programs under the Texas Department of Licensing and Regulation's (Department) jurisdiction.

The General Appropriations Act (GAA), 83rd Legislature reduced the amount of revenue that the Department is required to collect above the amounts appropriated to the Department. Additionally, Article VIII, Section 2 of the GAA requires that the Department's revenue cover the cost of the Department's appropriations and other direct and indirect costs. As a result, the fees currently in place are above the amounts that will be required for the Department to cover its costs. The decrease will not adversely affect the administration and enforcement of the program.

The amendments to §72.80 reduce the license and renewal fees as part of the Department's annual fee review. Also, the wording for issuance of the duplicate or revised license fee has been changed to 'Revised/Duplicate License/Certificate/Permit/Registration' to be consistent with the same fee in other Department programs.

The Department drafted and distributed the proposed rule to persons internal and external to the agency. The proposed rule was published in the October 4, 2013, issue of the Texas Register (38 TexReg 6828). The deadline for public comments was November 4, 2013. The Department did not receive any comments on the proposed rule during the 30-day public comment period.

The amendments are adopted under Texas Occupations Code, Chapter 51 and Texas Labor Code, Chapter 91, which authorize the Commission, the Department's governing body, to adopt rules as necessary to implement this chapter and any other law establishing a program regulated by the Department, in particular Texas Occupations Code, §51.202.

The statutory provisions affected by the adoption are those set forth in Texas Occupations Code, Chapter 51 and Texas Labor Code, Chapter 91. No other statutes, articles, or codes are affected by the adoption.

72.80. Fees.

(a) Application Fees.

(1) All application fees are non-refundable.

(2) The application fee is a required fee that is separate from the required license fee.

(3) The original application fee is $150.

(4) The renewal application fee is $150.

(5) The limited license original application fee is $150.

(6) The limited license renewal application fee is $150.

(b) License Fees.

(1) The license fee is a required fee that is separate from the required application fee.

(2) The original license fee is:

(A) $150 for 0 to 249 assigned employees;

(B) $300 for 250 to 750 assigned employees; and,

(C) $550 for more than 750 assigned employees.

(3) The renewal license fee is:

(A) For 0 to 249 assigned employees, $250 for licenses expiring before February 1, 2014; $150 for licenses expiring on or after February 1, 2014;

(B) For 250 to 750 assigned employees, $500 for licenses expiring before February 1, 2014; $300 for licenses expiring on or after February 1, 2014; and,

(C) For more than 750 assigned employees, $750 for licenses expiring before February 1, 2014; $550 for licenses expiring on or after February 1, 2014.

(4) The limited license original license fee is $150.

(5) The limited license renewal license fee is $750 for licenses expiring before February 1, 2014; $150 for licenses expiring on or after February 1, 2014.

(c) Late renewal fees for licenses and limited licenses issued under this chapter are provided under §60..83 of this title (relating to Late Renewal Fees).

(d) Revised/Duplicate License/Certificate/Permit/Registration--$25.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State, on December 12, 2013.

William H. Kuntz, Jr.
Executive Director
Texas Department of Licensing and Regulation

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