A new law dramatically affecting employee leasing took effect on
January 1, 2012. An employee leasing company, formally known
as a professional employer organization ("PEO"), is a business
that provides human resources and staffing services to its clients.
Both PEOs and businesses utilizing PEOs should be familiar with
the Professional Employer Organization Regulatory Act because it
affects new and existing PEO-client relationships.
Under the new legislation, all PEOs must be licensed by Michigan's
Department of Licensing and Regulatory Affairs ("LARA")
by September 1, 2012. Several exemptions to the licensing
requirements are available:
A person whose principal business activity is not entering into
professional employer agreements and does not hold itself
out as a PEO does not need to obtain a PEO license.
A provider of temporary help services does not need to obtain
a PEO license.
Certain independent contractor arrangements are also
exempt from the licensure requirements.
To become licensed, a PEO must submit a completed license
application to LARA, along with the required application fee, by July
1,2012. The license application requires the following information:
The PEO's name.
The address of the principal place of business of the PEO and
the address of each office it maintains in Michigan.
The PEO's taxpayer identification number.
A list by jurisdiction of each name under which the PEO has
operated in the preceding 5 years.
A statement of ownership.
A statement of management.
An audited financial statement describing the financial
condition of the PEO.
A certification that the PEO has made an election under
section 13m of the Michigan employment security act.
PEO licenses must be renewed annually. Under the Act, LARA is
required to maintain a publicly available list of all licensed PEOs.
Limited PEO licenses are available for PEOs domiciled outside of
the State of Michigan.
The legislation also requires PEOs to maintain a minimum of
$100,000 in working capital, as reflected in the annual financial
atotcmcnta that must be submitted to LARA with the license
applications. Alternatively, a PEO may present LARA with evidence
of a bond, irrevocable letter of credit, or securities with a minimum
market value of $100,000 to secure payment of PEO taxes, wages,
and benefit payments.
Businesses utilizing PEOs should be aware of the new legislation
because it affects existing and subsequently executed contracts
between PEOs and their clients. For example, the following terms
must be included in any PEO-client agreement executed after
September 1,2012:
The responsibility of the PEO and the client to pay wages, to
withhold taxes, including unemployment taxes, and to make
employee benefit payments for covered employees.
The responsibility of the PEO and the client to hire, discipline,
and terminate employees.
The responsibility of the PEO and the client to comply with
Michigan's Worker's Disability Compensation Act.
In addition to the above-listed terms, which must be included
in all new PEO-client agreements, the law implies certain terms
and obligations into all PEO-client relationships, including those
governed by existing agreements. Unless a PEO-client agreement
expressly provides to the contrary, the following terms will be
implied into all PEO-client agreements:
The client is solely responsible for the quality, adequacy, or
safety of the goods or services produced or sold in the client's
business.
The client is solely responsible for the acts, errors, and omissions
of its employees, including the directing, supervising, training,
and controlling their work, unless acting under the express
direction and control of the PEO.
All employees will be considered the client's employees
for purposes of general liability insurance, fidelity bonds,
surety bonds, employer's liability not covered by worker's
compensation, and/or liquor liability insurance.
A client and a PEO are each considered an employer for
purposes of sponsoring retirement and welfare benefit plans
for its covered employees.
Employees whose services are subject to sales tax are
considered the client's employees for purposes of collecting
and levying sales tax on the services performed by the
employee.
Taxes assessed on a per capita or per employee basis are to be
assessed against the client.