Bills would regulate PEOs

by Steve Korris |
Feb. 4, 2008, 8:00am

CHARLESTON – West Virginia legislators will decide in their current session whether to regulate a new kind of business that takes over employment rights and responsibilities from other businesses in exchange for a fee.

Sen. Evan Jenkins and Delegate James Morgan, both of Cabell County, have introduced bills to license "professional employer organizations," or staff leasing companies.

Such companies hire and fire employees, pay wages, withhold taxes, maintain benefit plans and impose discipline.

A single company can fill these roles for a number of other businesses.

Professional employer organizations, or PEOs, don't produce any goods or provide any services except to relieve other businesses of employment burdens.

That leaves them in a gray area with potential for confusion about worker rights, health benefits, unemployment compensation and workers' compensation.

An advocacy group, the National Association of Professional Employer Organizations, endorses state regulation.

According to the group, 29 states regulate these businesses.

Morgan introduced his bill to start discussion, not because he claims any expertise.

"If you have read the bill and understand it, congratulations," he joked in an interview.

The bill would require a license from the state insurance commissioner. An applicant would have to show that it holds $100,000 in working capital.

The bill would allow the insurance commissioner to grant a license to a professional employer organization from any other state with similar regulations.

The bill declares that these businesses increase the opportunities of employers to satisfy their personnel requirements while providing workers with benefits that might not otherwise be available to them.

It states that an agreement between a PEO and a client should preserve all rights that employees would enjoy in a traditional employment relationship.

It would uphold the right of a client to discipline or fire an employee, but it would allow a PEO to drop a client who refuses to discipline or fire a worker at the PEO's request.

It would provide that for purposes of insurance and bonding, a client must treat a PEO employee as an employee of the client.

The most delicate part of the bill concerns workers' compensation.

With West Virginia on the verge of free competition in workers' comp, potential insurers have wondered whether they must cover PEOs or their clients.

The bill offers a choice: either the PEO or the client can take responsibility. If a PEO takes responsibility, however, the client remains ultimately liable.

The bill would allow a PEO to obtain a single policy for all of its clients.

If any confusion persists about workers compensation, the insurance commissioner would propose rules for adoption by the Industrial Council.

The bill puts off for a year the most delicate topic of all -– health insurance. It would require a report on that from the insurance commissioner for the 2009 legislative session.

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