BILL ANALYSIS
AB 2570
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Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 2570 (Ma) - As Introduced: February 19, 2010
SUBJECT : Professional employer organizations: regulation.
SUMMARY : Establishes specified regulatory requirements for
professional employer organizations (PEOs). Specifically, this
bill :
1 Provides that a person or entity shall not provide, advertise
or otherwise hold itself out as providing professional
employer services unless that entity or person is registered
as a PEO with the Employment Development Department (EDD).
2)Requires the Director of EDD to prescribe rules establishing
the method for PEOs to report quarterly wages and
contributions for worksite employees and states the following:
a) The rules shall recognize the PEO as the employing unit
of its worksite employees for reporting purposes but may
require that each worksite employee of a single client by
reported under a separate and unique EDD subaccount of the
PEO to reflect the experience f the worksite employees for
a client.
b) Any EDD subaccount shall be used solely to determine
experience rates for that individual subaccount on an
annual basis.
c) Any rule promulgated shall also include administrative
requirements that permit a PEO to transmit the reporting
and payment date required collectively as a single
electronic filing with EDD.
FISCAL EFFECT : Unknown
COMMENTS : This bill represents the latest in a series of bills
sponsored by the PEO industry seeking to amend California law to
adequately reflect and regulate the PEO industry.
According to the industry, PEOs are companies that allow their
small business clients to cost-effectively outsource the
AB 2570
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management of human resources, employee benefits and health
insurance. In a PEO arrangement, the employer's (or client's)
responsibilities for its worksite employees are expressly
allocated or shared pursuant to a written agreement between the
client and the PEO. In such arrangements, the PEO typically
assumes responsibility for such things as payroll, payment of
payroll-related taxes, workers' compensation, unemployment
insurance, healthcare coverage and similar employment benefits.
According to the industry, such arrangements allow the business
owner to concentrate on managing their business, while
contracting out their human resources department. They also
contend that PEOs implement efficiencies to lower employment
costs. In many arrangements, economies of scale allowing the
PEO to act as a large purchaser can provide employees with an
expanded benefits package including life insurance, 401(k)
plans, disability insurance, discount plans, flexible spending
plans and more.
However, for several years the industry has argued that a
regulatory vacuum exists in California law with respect to PEOs.
Under existing law, Unemployment Insurance Code section 606.5
defines a "temporary services employer" and a "leasing employer"
as an employing unit that contracts with clients or customers to
supply workers and performs all of the following functions:
(1) Negotiates with clients or customers for such matters
as time, place, type of work, working conditions, quality,
and price of the services.
(2) Determines assignments or reassignments of workers,
even though workers retain the right to refuse specific
assignments.
(3) Retains the authority to assign or reassign a worker to
other clients or customers when a worker is determined
unacceptable by a specific client or customer.
(4) Assigns or reassigns the worker to perform services for
a client or customer.
(5) Sets the rate of pay of the worker, whether or not
through negotiation.
(6) Pays the worker from its own account or accounts.
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(7) Retains the right to hire and terminate workers.
According to the industry, PEOs have historically been
recognized by EDD as a "leasing employer" as defined under
Unemployment Insurance Code section 606.5. However, they
contend that both the PEO industry and EDD have recognized for
some time that the statutory definition of a PEO as a leasing
employer does not accurately reflect the business model of the
industry or the exposure to the state under the Unemployment
Insurance Code. The industry states that it has been working
with EDD for several years to discuss ways to better clarify
PEOs under the current unemployment insurance statutory model to
address both of these issues. These discussions have focused on
ensuring that the code evolves in a positive way to adequately
protect workers in the state and strengthen the integrity and
solvency of the unemployment insurance system.
In recent years, the industry has also discussed these issues
with representatives of organized labor, who have expressed a
number of concerns about the business model. However, those
discussions have not yet resulted in a legislative agreement.
Most recently, the industry has approached EDD and had
discussions about developing a process for PEOs to report
unemployment insurance contributions on a subaccount level. The
industry contends that this approach would address concerns
raised in the past about employers entering PEO arrangements in
order to reduce or "wash" their unemployment insurance
experience rating.
The industry indicates that they would like for this bill to
move forward as those discussions continue with EDD and as they
engage in further discussions with other interested
stakeholders, including organized labor.
PRIOR LEGISLATION :
AB 1560 (Committee on Labor and Employment) from last year
provided that an entity providing or advertising professional
employer services be registered with EDD. The bill was moved
forward as a vehicle for discussion but was held in the Assembly
Appropriations Committee.
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AB 2975 (Keene) from 2008 stated the intent of the Legislature
that professional employer organizations (PEOs) be regulated
with respect to unemployment insurance obligations, as
specified. The bill was moved forward as a vehicle for
discussion but was held in the Assembly Appropriations
Committee.
AB 2891 (Frommer) from 2004 stated the intent of the Legislature
that professional employer organizations (PEOs) be properly
recognized and regulated. The bill was moved forward as a
vehicle for discussions to take place with representatives of
organized labor and the Department of Industrial Relations, but
these provisions were subsequently amended out of the bill.
REGISTERED SUPPORT / OPPOSITION :
Support
National Association of Professional Employer Organizations
Opposition
None on file.
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091