Conf. Comm. Rep. No. 156-12 S.B. No. 2424, S.D. 2, H.D. 2, C.D. 1
(Professional Employer Organizations; Fees and Expenses; Bond Requirements; Appropriation) AS AMENDED, PASS FINAL READING.
The purpose of this bill is to strengthen existing professional employer organization (PEO) law. The bill adds 10 new sections to the HRS chapter on PEOs (§§373L-A through 373L-J). It also creates some NEW FEES. Some highlights of the bill:
• Adds powers and duties to the director of labor and industrial relations regarding the registration and regulation of professional employer organizations.
• Establishes new unspecified fees of (application fee, tiered biennial renewal fee, restoration fee). The director is authorized to establish other fees, and amend any existing fees, via administrative rulemaking (i.e. no legislative oversight required).
• Repeals HRS chapter 373K relating to PEOs, but moves the general excise tax exemption provisions to chapter 373L, HRS.
• Establishes the PEO special fund, composed of fees and fines collected under new sections created by this bill.
• Requires a PEO to report sanctions and judgments against the PEO to the DLIR within 30 days and to inform DLIR of its address information; authorizes various penalties for noncompliance.
• Allows DLIR’s director to deny, suspend, revoke, or deny renewal of registration of any PEO under certain circumstances; allows for hearings when DLIR’s director refuses to issue or renew a PEO registration.
• States that the agreement between a PEO and its client company shall state that the PEO shall be deemed the employer for purposes of unemployment insurance, workers’ comp, TDI, and prepaid health care coverage.
• Provides for a minimum $1000 fine if a PEO fails to comply with any provision in chapter 373L or any rule or final order of the director.
• Provides for judicial review of the director’s final decision and order in a contested case.
• Provides for a payroll cost exemption (exempts payments from a client for wages, salaries, payroll taxes, insurance premiums, etc. from the GET, with some exceptions).
The bill also makes some housekeeping and other changes to current law, such as:
• States that failure to renew registration is a forfeiture of registration.
• Requires the director to accept electronic filings, to the extent practicable.
• Amends definitions and bond level requirements (e.g., bond of at least $500,000 is required for PEOs with 100 or more employees).
The bill also appropriates funds to DLIR (amount left blank).
The bill passed out of FIN unamended.
The current HD2 draft adopts numerous amendments recommended by DLIR, many of which deal with bonding requirements and DLIR bringing actions on the bonds to recover damages caused by a PEO’s noncompliance. It also changes the defective date to July 1, 3000.
The previous SD2 draft essentially accomplished the same purpose, but had different fee amounts, was in need of technical amendments, and a July 1, 2050 effective date.

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