Wisconsin’s small business owners who have come to depend on professional employer organizations (PEOs) can applaud a recent decision by Wisconsin Commissioner of Insurance Jorge Gomez. Gomez has decided to hold off implementing new, overly restrictive rules governing how PEOs secure workers’ compensation coverage. Hundreds of Wisconsin businesses and their PEOs can now breathe a sigh of relief from the danger of significant harm that could have been caused by the overzealous actions of a single state regulatory agency.
At issue was a proposed rule limiting how PEOs could secure workers’ comp coverage. The proposed rule was so onerous and unworkable that some insurance carriers were unwilling to continue to insure PEOs operating in Wisconsin. The rule was hastily proposed while state policy makers were developing statutory solutions for the new industry.
PEOs are innovative employment solutions to the payroll, benefit, risk management and human resource challenges of smaller businesses. PEOs are one of the fastest-growing new business service industries in America. Today, 28 states, including Midwestern states such as Minnesota, Illinois and Indiana, have embraced the new employment outsourcing industry by codifying comprehensive PEO licensing statutes.
Statutory certainty would provide PEOs, their small business clients and state regulators with a definitive roadmap to address both business operation and legal issues. Without statutory certainty, state regulators are left to their own devices – and views – about how an important new human resources outsourcing industry should operate.
Wisconsin is a clear example of how an ill-conceived regulatory approach could have posed significant harm to PEOs and their clients. It should be pointed out that workers’ compensation coverage is merely one of the many services PEOs provide their business clients, most of which are small, entrepreneurial firms. The average PEO client has just 15 workers.
PEOs assume a wide variety of significant employer responsibilities for these small businesses, including the delivery of risk management services. They also pay the wages of worksite employees, manage payroll tax payments and compliance, improve compliance and offer training on human resource management issues, and sponsor many employee benefit programs including health care and retirement savings plans.
Prior to Gomez’ action, lawmakers were working with the Workers’ Compensation Advisory Council on draft legislation for the PEO industry, including how PEOs secure workers’ compensation coverage. The commissioner’s decision to hold off implementing the restrictive rule until 2008 provides the state’s elected lawmakers the opportunity to conclude their work with the Advisory Council to enact in statute the policies for the growing new PEO industry.
The PEO industry’s trade association, the National Association of Professional Employer Organizations (NAPEO), and its Wisconsin members have been working with the Advisory Council and Wisconsin lawmakers toward a statutory framework. The industry will promote passage of a PEO registration bill during the next legislative session beginning in January.
A PEO registration bill would establish practices for the operation, regulation, and registration of PEOs by the appropriate state agency, thus creating a transparency and clarity about their operations.
In other states, NAPEO has been able to unite many interests in support of PEO registration legislation, which codifies the definition, rights and responsibilities of PEOs and provides important protections to small businesses. NAPEO has a track record of working closely with state lawmakers and regulators to develop reasonable, effective regulations for the industry.
With passage of a PEO registration bill, Wisconsin can join a majority of states that have successfully adopted such bills, from industrialized states such as New York to more rural states such as Oklahoma and southern states like Florida and Arizona. That makes sense for Wisconsin and the growing PEO industry, the small businesses they serve and the workers they employ.
Commissioner Gomez’s action allowing elected officials of the state the time to develop meaningful policies was the right action and the correct way rules for the state should be established.
Milan Yager is executive vice president of the National Association of Professional Employer Organizations in Alexandria, Va.
