Texas Business Certificate

An application for a new PEO license must include a copy of a document from the Texas Secretary of State that recognizes the business entity. This document must be issued in exactly the same business name as the applicant for the PEO license and can be in the form of a Certificate of Authority or Certificate of Incorporation. 

For more information regarding the Texas business certificate, contact the Texas Secretary of State at https://www.sos.state.tx.us/corp/index.shtml.

Federal ID Numbers

If a PEO’s federal ID number is changing, the PEO must apply for a new license and meet all the requirements of a new license application.

Designated Agents for Service of Process

A designated agent for service of process is required for initial and renewal applications. A person (individual or entity) may be a designated agent if the person has a physical address in Texas. A P.O. Box is not acceptable.

Adding or Deleting Controlling Persons

A PEO must take the following steps to add or delete a controlling person to or from a PEO license or a PEO limited license:

1. Send a letter to the Department indicating the name of the controlling person(s) who should be added or deleted;
2. For PEO licenses (full licenses), submit the fingerprint submission for each new controlling person(s) following the directions of the FAST Fingerprint Pass Application. (The fingerprint submission is not required for a PEO limited license.); and
3. Submit a personal information form for each new controlling person(s).

There is no fee to add or delete a controlling person.

License Required for Each Name

A separate license is required for each name under which the PEO is offering or performing services. A license holder may not conduct business under more than one name unless the license holder has obtained a separate license for each name. The number of locations is not a factor.

License Transfer Prohibited

A PEO is prohibited from transferring or attempting to transfer a license issued under this chapter. See Labor Code § 91.020, Grounds for Disciplinary Action.

Maintaining Proof of Positive Working Capital

A PEO must maintain proof of positive working capital, or the form of financial security used to satisfy a deficiency in the PEO's positive working capital, until:

• two years after the licensee ceases to do business in this state;
• two years after the licensee’s license expires; or
• when the Executive Director receives satisfactory proof from the licensee and determines that the licensee has discharged or otherwise adequately met all its obligations under Texas Labor Code, Chapter 91, and the rules under Chapter 72.

If the form of financial security used to satisfy a deficiency is canceled or lapses during the term of the licensee’s license, the licensee may not continue operations after the effective date of the cancellation or lapse, unless and until the licensee files with the executive director a valid form of financial security that meets the requirements provided by Texas Labor Code, Chapter 91, and the rules under Chapter 72 and that provides coverage after that date.

Cancellation or lapse of the financial security used to satisfy a deficiency does not affect the licensee’s liability before or after the effective date of the cancellation or lapse.

For more information, see Labor Code § 91.014, Working Capital Requirements; and Rule 72.40, Proof of Positive Working Capital.

Recordkeeping

The rules set out the recordkeeping requirements for PEOs.

• See Rule 72.70. Responsibilities of Licensee-General
• See Rule 72.71, Responsibility of Licensee-Records

Selling a Company

The Department applies a fairly simple rule to the sale of PEOs and determining when a new license is needed: If the Federal ID number of the license holder changes, a new license is needed. The license number is tied to the Federal ID number.

If a PEO will need a new license, then the license must be issued before the sale happens, otherwise the PEO will be operating without a license. The new controlling persons will need to be disclosed, but not until AFTER the sale. The newly licensed PEO has 45 days after the sale is complete to inform the Department of the new controlling persons.

Payroll Issues

If a company is only providing payroll services to another entity, then the company is not considered to be providing personnel employment services, and the company is not required to obtain a PEO license.

A company providing professional employer services must be licensed if the company’s employees are shared with the company’s client companies and employment responsibilities are in fact shared by the company and its client companies. See Labor Code § 91.001(14), Definitions.

Unemployment Tax Issues

The Texas Workforce Commission (TWC) is the agency to contact about unemployment tax issues involving PEOs.

For more information regarding unemployment taxes, contact TWC at https://www.twc.texas.gov/programs/unemployment-tax

Franchise Tax Issues

The Texas Comptroller of Public Accounts (Comptroller) is the agency to contact regarding franchise tax issues involving PEOs.

The Comptroller has published Franchise Tax Frequently Asked Questions (FAQs) involving Professional Employer Organizations on its website.

For more information regarding franchise taxes, contact the Comptroller at https://comptroller.texas.gov/taxes/franchise/