GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1999

H	1 

HOUSE BILL 1247

Short Title:  Professional Employer Organizations.	(Public)

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Sponsors: Representative Cansler.

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Referred to:  Small Business.

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April 15, 1999

A BILL TO BE ENTITLED
AN ACT RECOGNIZING PROFESSIONAL EMPLOYER ORGANIZATIONS AND ESTABLISHING MINIMUM STANDARDS FOR SUCH ORGANIZATIONS.
The General Assembly of North Carolina enacts:
Section 1. Chapter 95 of the General Statutes is amended by adding a new Article to read:
“ARTICLE 5C.
"Professional Employer Organizations.
"§ 95-47.60. Definitions.
The following definitions apply in this Article:
(1)	Administrative fee. – A fee charged a client by a  professional employer organization that is above the fees charged and applied to mandatory state and federal taxes, wages for assigned workers, and premiums and contributions for benefits provided to assigned workers.
(2)	Assigned worker. – A person who has an employment relationship with both a professional employer organization and a client.
(3)	Client. – A person who contracts with a professional employer organization to obtain employment services through a professional employer arrangement.
(4)	Person. – An individual, corporation, partnership, firm, association, or other entity.
(5)	Professional employer arrangement. –  An arrangement where a professional employer organization assigns workers to perform services for a client on an ongoing basis and the professional employer organization and client share the responsibilities for the assigned workers.  The term shall not include:
a.	An arrangement where a person, whose principal business activity does not include entering into professional employer arrangements, shares employees with a commonly owned company, as defined in the Internal Revenue Code, and does not hold himself or herself out as a professional employer organization.
b.	An arrangement in which a person assumes full responsibility for the product or service performed by him or her or his or her agents and retains and exercises direction and control over any person whose services are supplied under the arrangement and, the person or his or her agents perform a specified function for the client that is separate and divisible from the client's primary business.
c.	A temporary help arrangement wherein an organization hires its own employees and deploys them to a client to support or supplement the client's employees.
d.	Any person otherwise subject to the provisions of this Article if, during any fiscal year, the total gross wages paid to his or her employees in this State pursuant to a professional employer arrangement do not exceed five percent (5%) of the total gross wages paid to all employees employed by the person in this State during the fiscal year under all arrangements described in this subsection and the person does not advertise or hold himself or herself out as providing professional employer arrangements.
(6)	Professional employer organization. –  Any person who provides employee services pursuant to a professional employer arrangement or who represents himself or herself as providing services pursuant to a professional employer arrangement.
(7)	Temporary employee. –  A worker employed by an organization that hires its own employees and deploys them to a client to support or supplement the client's full-time workforce.
"§ 95-47.61. Exemptions.
(a)	The provisions of this Article shall not apply to:
(1)	Labor organizations as defined by the National Labor Relations Act.
(2)	Any program or agency of the United States or this State.
(3)	Any arrangement or person described in G.S. 95-47.60(5)a. through d.
(4)	The terms of any existing collective bargaining agreement.
(b)	Notwithstanding the provisions of this section, a client who is a party to a collective bargaining agreement shall not be prohibited from contracting with a professional employer organization if the union consents to the contract.
"§ 95-47.62.  Minimum standards.
(a)	Each professional employer organization in this State shall:
(1)	Execute a written contract with clients of the professional employer organization describing each party's responsibilities and duties, including the type of services that shall be rendered by the professional employer organization.  The contract shall also provide that the professional employer organization: (i) reserves the right to direct and control the workers assigned to the client, but the client shall maintain such direction and control as is necessary to conduct the client's business; (ii) assumes responsibility for withholding and remitting payroll-related taxes and employee benefits from its accounts for the duration of the contract; and (iii) retains the authority to hire, terminate, discipline, and reassign workers that have been assigned to the client.
(2)	Provide assigned workers written notice of the nature of the relationship between the professional employer organization and the client.
(3)	For the duration of the contract with the client, pay wages and collect, report, and pay employment taxes for assigned workers from its accounts, pay unemployment taxes as required by the laws of this State, and secure any required workers' compensation coverage for assigned workers in its name or the client's name.
(b)	A professional employer organization shall be considered an employer for purposes of withholding assigned workers' state income taxes and sponsoring and maintaining their benefits and welfare plans.  Both a professional employer organization and client shall be considered the employer for purposes of coverage under the North Carolina Workers' Compensation Act, and both  shall be entitled to the rights and remedies provided under that Act without regard to which of them secured and provided coverage for assigned workers under the Act.
(c)	Subject to any contrary provisions contained in the contract between the professional employer organization and client, the professional employer arrangement shall be interpreted for purposes of insurance, bonding, and sales taxes on services as follows:
(1)	A professional employer organization shall not be liable for the acts, errors, or omissions of a client or an assigned worker who is acting under the direction and control of a client. A client shall not be liable for the acts, errors, or omissions of a professional employer organization or an assigned worker who is acting under the direction and control of the professional employer organization. Nothing in this subdivision shall limit any liability by the professional employer organization or client that was expressly agreed upon in the contract between the professional employer organization and client or is otherwise provided in this Article.
(2)	Assigned workers shall not be deemed employees of the professional employer organization for purposes of general liability insurance, automobile insurance, fidelity bonds, surety bonds, employer's liability that is not covered by workers' compensation, or liquor liability insurance carried by the professional employer organization unless the assigned workers are expressly included in the applicable contract between the professional employer organization and client, insurance contract, or bond.
(3)	If a tax on services similar to the State sales tax is enacted by the General Assembly, the administration fee, as defined in this Article, shall be the only revenue subject to the tax.
(d)	The sale of professional employer services in accordance with the provisions of this Article shall not constitute the sale of insurance within the meaning of the laws of this State.
"§ 95-47.63.  Unemployment compensation insurance.
(a)	Unemployment insurance for workers assigned by a professional employer organization to a nonprofit organization, as defined by the laws of this State, shall be paid by the nonprofit organization; unemployment insurance for workers assigned to a governmental entity shall be paid by the governmental entity; and unemployment insurance for workers assigned to a client other than a nonprofit organization or governmental entity shall be paid in accordance with the provisions of this Article.
(b)	During the time that a professional employer agreement is in effect, a professional employer organization shall be liable, in accordance with the laws of this State, for the payment of contributions, penalties, and interest on wages paid to assigned workers.  A professional employer organization shall report and pay all contributions under its state employer account number and contribution rate.
(c)	The provisions of this section shall not apply to a person who provides temporary employees to a client if the person is deemed the employer for the payment of contributions on wages paid to temporary workers.
(d)	If a client ceases to pay wages to assigned workers, the client shall be subject to the termination of its employer account and experience rating records in the same manner as any other employer in accordance with the provisions of the laws of this State, but if the client subsequently becomes subject to the provisions of this Article because the client resumes paying wages, the client shall be assigned the appropriate experience rate.
(e)	The provisions of this section, except as provided in subsection (a) of this section, shall not apply to nonprofit organizations and governmental entities.
"§ 95-47.64. Effect of professional employer arrangements on laws regulating clients and assigned workers.
Nothing in this Article shall exempt a client or an assigned worker from any other applicable federal, state, or local licensure or registration requirements. Any assigned worker or temporary employee who is required to be licensed, registered, or certified in this State to perform certain services shall be deemed an employee of the client for purposes of the licensure, registration, or certification. A professional employer organization shall not be deemed to be engaged in an occupation, trade, or profession that is licensed, certified, or otherwise regulated by the State or a political subdivision of the State because the professional employer organization has entered into a professional employer arrangement.” 
Section 2. This act is effective when it becomes law.