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. (SD1)

 

THE SENATE

S.B. NO.

588

TWENTY-FIRST LEGISLATURE, 2001

S.D. 1

STATE OF HAWAII

 


 

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 workforce 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 or entity 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 the 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 workforce 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 are disbursed by the professional employment organization for employee wages, salaries, payroll taxes, insurance premiums, and employee 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 the 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 the assigned employees if the 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 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.

(d) The client company shall be deemed to have satisfied its obligations with respect to any 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 the 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.

(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."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2001.