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Sponsor Testimony - Senate Bill 201, House Commerce and Labor Committee (November 19, 2020)

Summary

Sponsor testimony on Senate Bill 201 from State Senator Matt Dolan to the House Commerce and Labor Committee, dated November 19, 2020. The testimony states that the bill passed unanimously out of the Senate in September and creates alternative employer organizations (AEO). It states that an AEO mirrors the functions of Professional Employer Organizations (PEOs), except that an AEO must file federal payroll taxes under the tax identification number of its client instead of its own. Safeguards listed include statutory liability for payment of wages and taxes, loss of license for noncompliance, and a bond posted with the BWC in an amount sufficient to cover any unpaid taxes or wages or at least one million dollars.

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“Sponsor Testimony - Senate Bill 201, House Commerce and Labor Committee (November 19, 2020).” Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2020-11-19-commerce-labor-testimony-testimony-12161-c8e7e87fcc/, SHA-256 ae5113163c291866a21e4145b6fe3ff51a866d663296e262ad4c49f1dc2d6a5a.

Full text

                              Matt Dolan
                              State Senator, 24th District
                              Senate Building
                              Rm. 127
                              Columbus, Ohio 43215
                              Phone: 614.466.8056
                              dolan@ohiosenate.gov



                                  SB 201 Sponsor Testimony
                             House Commerce and Labor Committee
                                     November 19, 2020




Chairwoman Manning, Vice Chair Dean, Ranking Member Lepore-Hagan and members of the
House Commerce and Labor Committee, thank you for allowing me to provide testimony on Senate
Bill 201, which passed unanimously out of the Senate in September.

Senate Bill 201 creates alternative employer organizations (AEO). The AEO mirrors the functions
of PEOs (Professional Employer Organizations) with the exception that an AEO must file federal
payroll taxes under the tax identification number of its client instead of its own, which is the
traditional model.

Currently, companies can contract with a PEO to manage different human resource functions. The
company that contracts with the PEO is their client-employer and they form a co-employer
relationship. The PEO has the ability to process payroll, pay all wages and applicable state and
payroll taxes and maintain workers’ compensation coverage. This is all done under the PEOs federal
employer identification number and not their client-employers. Under this bill, an AEO will have
the ability to provide the same functions as a PEO, but under the client-employers FEIN instead of
their own.

As a result of changing which FEIN number is used, there are safeguards provided in the bill to
ensure liability and transparency for the AEO and their client-employer. The following safeguards
have been added:

   •   State law
           o An AEO will be statutorily liable for payment of wages and taxes
           o Noncompliance will lead to loss of license to operate in the state
   •   Contract
           o The bill requires an agreement between the AEO and the client-employer to include
               a provision that the AEO remains jointly and severally liable for all applicable taxes
   •   Record-keeping and administrative enforcement
           o An AEO will be required to keep a record any time a client-employer fails to pay the
               AEO in an amount sufficient to cover wages and taxes and a record that the AEO
               paid both regardless of payment to the AEO
           o  Nonpayment and noncompliance by the AEO found during a BWC audit can result
              in loss of license to operate in the state
          o AEOs also must maintain positive working capital at initial or annual registration
          o Specifies requirements for an AEO to register with the BWC that are similar to the
              requirements for PEOs
   •   BWC bond
          o AEOs will be required to post a bond with the BWC in an amount sufficient to
              cover any unpaid taxes or wages or at least one million dollars
   •   Additional guidelines
          o SB 201 prohibits an AEO from owning or co-owning another PEO or AEO
          o Also prohibits an AEO from sponsoring or acting as the employer of a health
              benefit plan

With the addition of these safeguards, the state is ensuring that AEOs assume the same
responsibilities and liabilities as PEOs. SB 201 makes a simple change that will provide more
flexibility and transparency for Ohio’s companies wishing to use an AEO for human resources
management all while using their own FEIN to do so.

Thank you, Chairwoman Manning, for allowing me to provide sponsor testimony today on SB 201.
I welcome any questions from the committee.

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