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Connecticut Passes Landmark Bill to Regulate Professional Employer Organizations in the State

Saturday October 04, 2008

Connecticut has always recognized PEOs, but the existing law did not require them secure a license from the state, file audited financial statements every year, or maintain a minimum of working capital. Under the new law, PEOs must be licensed by the Department of Labor before March 1, 2009.

“PEOs pressed for these requirements to further protect their clients and their employees with a responsible regulatory framework,” said Robert M. Lynn, president of Connecticut-based PEO Total Team Solutions. As Chairman of the New England Government Affairs Committee, Lynn spent two years heading the National Association of Professional Employer Organization’s (NAPEO) efforts to tighten PEO standards much like they are in 32 other states. “I now have a set of rules that will allow me to continue to build my company here in Connecticut so that we can efficiently provide the small and mid-sized business community with cost effective human resource outsourcing solutions such as employee benefits, payroll services and human resource administration,” added Lynn.

Many businesses, particularly those with a limited number of employees, need help managing increasingly complex employee related matters such as health benefits, workers’ compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. Outsourcing these managerial burdens to a PEO enables business owners to devote their limited resources to their core competencies.

Speaker of the House Jim Amann (D-Milford) played a key role in passage of the act. “For companies using or considering a PEO, PEOs today represent more resourcefulness than ever before,” said Amann. “Potential customers and their advisors should understand how the industry has changed and what new standards of criteria should be used when considering a PEO. PEOs register by providing required information to the Department of Labor, including reviewed financial statements accompanied by a letter from an independent CPA attesting that the PEO has satisfied minimum net worth requirements. The law also has certain bonding and reporting requirements verifying the PEO’s timely payment of all federal and state payroll taxes.”

In a PEO arrangement, services are seamless to employees in a shared employment, or co-employment relationship. It is merely a contractual allocation and sharing of employer responsibilities between the PEO and the small business owner. PEOs use their own tax ID to submit payroll records and file taxes, offer benefits, and secure workers’ compensation insurance. They also assume liability for the client’s employment practices, employee handbooks and compliance with all federal and state labor regulations.

The PEO industry has matured to a $63 billion industry serving an estimated 300,000 small to mid-sized businesses and 2 million to 3 million workers. With double digit annual growth rates, NAPEO has nearly 400 PEO members operating in all 50 states offering a wide array of employment services and benefits.

National Association of Professional Employer Organizations (NAPEO)

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