Legislators Mull Professional Employer Organizations

Regulating employee leasing companies and professional employer organizations can be a formidable task. Elected officials of West Virginia's Government Organization Subcommittee C is learning just how difficult it can be. Mannix Porterfield, a reporter with the Register-Herald, provides us with an insight into examining the operations of these companies.

This article makes a strong case why business owners and executives should seek professional advice when considering the selection of an Employee Leasing, HR Outsourcing, or Professional Employer Organization for their company.

Legislators Mull Professional Employer Organizations

By Mannix Porterfield
Register - Herald

An emergency rule is coming in mid-June to govern how Professional Employer Organizations align with workers’ compensation coverage, but other issues affecting them don’t end there. In fact, based on Sunday’s discussion by Government Organization Subcommittee C, lawmakers had best plan on looking at PEOs during interims for the rest of the year. Taxes, labor laws and unemployment compensation are all matters the panel plans to look at, Sen. Evan Jenkins, D-Cabell, a co-chairman, assured members. Until last year, there was no regulation of the growing business, and it was the PEO industry itself that called on lawmakers for some standards.

“They are worried, in part, about the image an unscrupulous entity that would act like a PEO but not really be a PEO, and come in and spoil what an appropriately formed and structured PEO may do,” Jenkins said. Insurance Commissioner Jane Cline told the panel her office intends to file an emergency workers’ compensation rule governing PEOs with the secretary of state’s office next month. “The issue of health insurance coverage seems to be a big concern,” Cline said. Cline recalled “a disastrous situation” that occurred with a PEO in North Carolina when the company slipped into bankruptcy, leaving a number of employees in the lurch.

About 14 states have some type of legislation on the books similar to West Virginia’s new law. “Are there places that have a track record of PEOs that we could somehow follow and not have to re-invent the wheel?” asked Sen. Ron Stollings, D-Boone, a doctor. Cline said the industry is interested in the Legislature providing some levels of regulation. “There are legitimate ones doing legitimate things out there,” the insurance commissioner said. “They’re concerned about the ones who might be doing it in a rogue manner.” Committee counsel Brenda Thompson said legislation “varies so greatly” in states that have enacted such legislation, “and it’s really a new creature.”

A lawsuit in Nevada over a PEO law has traveled through four courts already and remains unsettled after eight years of litigation, she pointed out. “This is pretty heavy stuff we’re going into,” Stollings said. “I wish someone had plowed a furrow for us to follow.”

PEOs function as a go-between for a business and its employees, such as in the operation of a firm offering temporary secretarial help, Jenkins explained afterward. “So that company writes one check to the PEO, who would cover all aspects of the employees,” the senator said. “It’s almost like having a dual employer situation. The PEO promotes itself as relieving that employer of the many traditional employer-employee management responsibilities.” A company may retain its right to discipline and fire its workers, but the PEO is the actual entity writing the checks, paying taxes on wages and covering the benefits, he said.

“As we studied this last year, we kept peeling back layers of what these PEOs did,” Jenkins said. “We realized it’s a very complex system.” Last year’s measure merely requires PEOs to register with Cline’s office to lay the groundwork for getting workers’ compensation coverage. “We were wanting to make sure employers weren’t dodging their workers’ compensation responsibilities by using a PEO, and a worker, if injured on the job, wouldn’t find himself in a Catch-22,” Jenkins said.