Report Title:

GET; Exemption; Professional Employment Organization

 

Description:

Exempts amounts paid to a professional employment organization on behalf of employees hired by a client company. Ensures rights of employees. (SD1)

 

HOUSE OF REPRESENTATIVES

H.B. NO.

502

TWENTY-FIRST LEGISLATURE, 2001

H.D. 2

STATE OF HAWAII

S.D. 1


 

A BILL FOR AN ACT

 

RELATING TO PROFESSIONAL EMPLOYMENT ORGANIZATIONS.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The purpose of this Act is to eliminate unfair taxation for those Hawaii businesses that may realize added efficiency and cost-effectiveness by contracting payroll and payroll-related functions. Since the contracting company renders general excise tax payments, it is appropriate to exempt the organization under such contract from further taxation on the same payroll moneys. The general excise tax would apply to the fee for the performance of the contracted services. The advantages of this rapidly growing trend on the mainland has not been well utilized in Hawaii because the taxation on payroll pass-through moneys can be substantially more than the fee for those services.

This tax exemption has precedence in Hawaii law such as in the operation of hotels, where management companies are reimbursed by hotels for similar payroll and related functions.

SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237- Professional employment organization payroll cost exemption. (a) As used in this section:

"Assigned employee" means an employee under a professional employment organization arrangement whose work is performed in the State. The term does not include an employee hired to support or supplement a client company's work force as temporary help. "Assigned employee" means the same as the term "leased employee" as defined in section 414(n) of the Internal Revenue Code, 1986, as amended.

"Client company" means a person that contracts with a professional employment organization and is assigned employees by the professional employment organization under that contract.

"Professional employment organization" means a business entity that offers to co-employ employees that are assigned to the work sites of its client companies.

"Professional employment organization services" means an arrangement by which co-employees of a professional employment organization are assigned to work at the client company and such assigned employee's assignment is intended to be of a long term or continuing nature, rather than temporary. The term does not include temporary help.

"Temporary help" means an arrangement by which an organization hires its own employees and assigns them to a client company to support or supplement the client's work force in a special situation, including:

(1) An employee absence;

(2) A temporary skill shortage;

(3) A seasonal workload; or

(4) A special assignment or project.

(b) This chapter shall not apply to amounts received by a professional employment organization from a client company that is disbursed by the professional employment organization for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits and similar employment benefits with respect to assigned employees at a client company.

(c) Where any client company of any professional employment organization utilizes the services of assigned employees or co-employs with a professional employment organization, the client company and the professional employment organization, with respect to such assigned employees, shall not be exempt from the requirements of any federal, state, or county law, including labor or employment laws, collective bargaining rights, anti-discrimination provisions, or other laws with respect to the protection and rights of employees, including chapters 377 and 378, that would apply to such assigned employees if such assigned employees had been employees of the client company instead of the co-employees of the professional employment organization. These rights shall not be abrogated by any contract or agreement between the client company and the professional employment organization, or the professional employment organization and the assigned employee, that contains terms or conditions which could not be lawfully contained in a contract or agreement directly between the client company and the assigned employees if no professional employment organization was involved. Any contrary statute, local ordinance, executive order, or regulation notwithstanding, where the laws, rights, and protections referred to in this section define or require a determination of the "employer", the employer shall be deemed to be the client company and not the professional employment organization.

(d) The client company shall be deemed to have satisfied its obligations with respect to any such assigned employees under any applicable law, including, without limitation, workers compensation laws including chapter 386, employee insurance coverage including chapters 383, 385, 392, and 393, and tax withholding and reporting laws, if and to the extent that those obligations are satisfied by the professional employment organization acting in its capacity as co-employer of such assigned employees.

(e) If, by or through any contract between the client company and any professional employment organization, or otherwise, employees are excluded from any employee rights or employee benefits required by law to be provided to employees of the client company by the client company, the exemption under this section shall not be applicable. Written notification of any violation of this section to the department of taxation by any union or the department of labor and industrial relations shall be sufficient to make this exemption inapplicable.

The verification to be performed by the department of labor and industrial relations shall be in accordance with the usual procedures followed by the department of labor and industrial relations in carrying out its enforcement powers. The results of the department of labor and industrial relations' investigation shall be reported to the department of taxation, which shall act upon the report in accordance with its usual powers and procedures.

(f) Failure of the professional employment organization to pay any tax withholding for co-employees or any federal or state taxes for which the professional employment organization is responsible shall immediately rescind the exemption under this section.

(g) The definitions and other terms in this section shall not be interpreted to supersede the terms and definitions in those chapters of the Hawaii Revised Statutes that grant authority to the department of labor and industrial relations, nor shall the terms and definitions in this section diminish in any way the powers and authority of the department of labor and industrial relations as set forth in those chapters."

SECTION 3. Section 235-61, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) As used in this section:

(1) "Wages" means wages, commissions, fees, salaries, bonuses, and every and all other kinds of remuneration for, or compensation attributable to, services performed by an employee for the employee's employer, including the cash value of all remuneration paid in any medium other than cash and the cost-of-living allowances and other payments included in gross income by section 235-7(b), but excluding income excluded from gross income by section 235-7 or other provisions of this chapter;

(2) "Employee" includes an officer or elected official, or any other employee;

(3) "Employer" means (A) the person or government for whom an individual performs or performed any service, of whatever nature, as the employee of such person or government, and (B) the person having control of the payment of the wages if the employer as heretofore defined does not have control thereof, including, a professional employment organization as defined in section 237- , and (C) any person subject to the jurisdiction of the State and paying wages on behalf of an employer as heretofore defined if the employer is not subject to the jurisdiction of the State; provided that the term employer shall not include any government that is not subject to the laws of the State except as, and to the extent that, it consents to the application of sections 235-61 to 235-67 to it."

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect July 1, 2010, and shall apply to gross income or gross proceeds received after December 31, 2001.