New regulations on Social Security No-Match letters

Immigrations & Customs Enforcement (ICE) just published new final regulations related to employer obligations when receiving "no-match letters" from the Social Security Administration. The real issue here is, of course, not social security taxes. The real issue is the employer's obligation to determine whether it is only employing persons lawfully entitled to work in the United States - i.e. I-9 compliance.

Basically, the regulations provide a safe-harbor for employers. The employer will be protected from sanctions, if it exercises due diligence to promptly re-verify an employee's information and does not otherwise know that the employee lacks work authorization.

More to follow, once I have digested the full set of regulations.

Ohio-Does client owe workers' comp. premium if PEO fails to pay?

In a June 28, 2007 decision an Ohio Court of Appeals looked at whether the client of a PEO would be responsible for unpaid workers' compensation premiums if the PEO fails to pay its own workers' compensation insurance premium bill. State Ex Rel K.A.B.E. Ents, Inc. v. Mabe, 2007 WL 1847662 (Ohio App. 10th Dist. June 28, 2007).

Here, K.A.B.E. entered into a PEO arrangement with Reliance Resources, a PEO under Ohio law. Reliance held a workers' compensation insurance policy. Reliance Resources failed to pay the premiums due for the first six months of 2003. The Ohio Bureau of Workers' Compensation advised K.A.B.E. that it was required to report the employees as its own for this time period and that K.A.B.E. was required to pay the workers' compensation premiums for this time period.

The Court found that the PEO's failure to pay the workers' compensation premiums triggered a statutory obligation on the client company to report the employees as its own and to also pay the full amount of the unpaid workers' compensation premiums owed by the PEO on its employees. The court expressly rejected the client's argument that it should be responsible for the unpaid premiums only after it received notice that the PEO had failed to pay.

Exclusive Remedy Protection for the PEO customer

In a recent decision, the Texas court of appeals in Dallas held that the client company of a Texas licensed PEO is protected by exclusive remedy. Vega v. Silva, 223 S.W.3d 746 (Tex.App.—Dallas 2007). Link here

This decision is completely consistent with the language of the Texas PEO licensing statute and so is no surprise. This decision is the first Texas court decision squarely addressing the issue.The case is based on an auto accident in which two worksite employees of a PEO were injured on their way to work in a vehicle owned by the client company. The driver was a worksite employee.

The injured passenger brought suit against the client company and claimed that the client was not covered by exclusive remedy protection flowing from the PEO’s workers compensation insurance policy.

The Court of Appeals easily found that the Client Company was protected. “[B]oth the staff leasing company and the client company are subject to the exclusive remedy provisions of the workers’ compensation act.”

Based on evidence that the PEO was licensed in Texas, held and workers’ compensation policy and that the client company was the PEO’s customer the court held that: “We conclude that [the client company] conclusively proved the affirmative defense that the exclusive remedy provisions of the workers’ compensation act applies in this case.”

The Texas Supreme Court previously addressed the consequences of a client entering into a PEO arrangement with a PEO that does not carry workers’ compensation insurance. Tex. Workers’ Compensation Ins. Fund v. Del Industrial, Inc., 35 S.W.3d 591 (Tex. 2000). The Supreme Court’s decision in Del Industries strongly supports the conclusion that exclusive remedy protects the client company, provided the PEO holds a Texas license and carries Texas workers’ compensation insurance. Although the hints are there, Del Industries does not actually decide the question.

Client Insurance & Certificates of Insurance

Most PEOs include in their customer service agreement a clause requiring the client company to maintain GL insurance and to provide the PEO with a certificate of insurance. In addition, many PEOs also require the client to name the PEO as an additional insured. These are basic steps towards safeguarding the PEO against the risk of litigation arising out of the client's business operations.

But - PEOs cannot become complacent. It is absolutely essential that PEOs have in place a process to monitor and verify that the customer has actually provided the certificate of insurance, that the customer has renewed coverage with no lapses and that any required additional insured endorsement is in place. Too many PEOs treat this as a one-time task, to be worried about only at the time the client is signed on.

If you want to sleep at night, you must establish a smooth, well functioning business process that provides for verification and monitoring. Once the lawsuit is filed, it is too late.

In addition, PEOs must evaluate the insurance requirements for each client individually based on the nature of the client's business operations and their risk posture. For some clients, $500,000 in GL will be adequate. For others, ten times that much will not be enough. PEO management must set the insurance requirements for each client based on a review of that client.