Draft legislation affecting Texas PEOs

The Texas legislature is considering legislation that would modify the licensing of Professional Employer Organization - PEO - firms under the Texas Staff Leasing Licensing Act. See House Bill 2249 - Search by bill number (HB 2249) at the Texas Legislature website

The proposed legislation would only make a small number of changes:

• Change the current "net worth" requirement to one of "working capital", while leaving the dollar amounts in place. Under existing law, most PEOs must show $100,000 in net worth, under this proposal the requirement would become $100,000 in working capital.
  
• Require the submission of audited financial statements. This would do away with the current law permitting financial statements that were merely reviewed or compiled by an outside CPA.
• The proposed legislation would delay the effective date of the change to working capital and audited financial statements to December 31, 2010. The other portions of the proposed legislation would go into effect, if passed, on September 1, 2009.
  
• Allow for optional / voluntary electronic filing of reports, forms and license renewals or applications via an approved "Assurance Organization." For PEOs with multi-state operations, this is beneficial as this option will help reduce the paperwork burden of keeping in compliance in multiple states.
  
• Add a clear provision that state tax credits or similar benefits to employers, will go to clients based on the Client's total employment of both co-employed staff and direct staff. This avoids the risk that participation in a PEO arrangement would bar a client from participating in certain state government programs such as tax credits.

The proposed legislation is pretty straightforward. The shift to states requiring Professional Employer Organizations to submit audited financial statements has been accelerating for some time, so it should be no surprise that Texas is now considering this change. Similarly, as more and more PEOs move to multi-state operations, the idea of electronic filing via an assurance organization, is likewise an idea that makes sense. For now, PEOs can consider ESAC as the source for this electronic filing and reporting, assuming it is approved as an Assurance Organization. Note that this approval is not automatic, as ESAC is not written into the statute. Those not interested in participating in ESAC are free to submit all filings in the traditional manner, or band together with like minded folks and establish an alternative organizations that meets the requirements specified in the statute.

Will it pass? Only time will tell. Much depends on the general climate of the Texas Legislature, including whether the Legislature becomes bogged down in addressed the economic climate.