Employee leasing firms likely to be spared added costs

By JOHN BURNETT

Tribune-Herald staff writer

Gov. Neil Abercrombie notified the state Legislature Monday that he intends to veto a bill that would require employee leasing firms to obtain insurance bonds of at least $500,000.

Senate Bill 2424, which adds numerous requirements for the registration and regulation of professional employer organizations (PEOs) and authorizes fines for noncompliance, is one of is one of 19 measures on a potential veto list, which is required by the state Constitution.

“This bill is overly broad and will impose restrictions too difficult for all PEOs to comply with. In addition, the measure does not address licensing procedures,” Abercrombie said in a written statement.

Two Big Island senators, Gil Kahele and Malama Solomon, were co-sponsors of the measure, and all Big Island senators supported it in the final floor vote. In the House, the only Big Island representative who voted no was Faye Hanohano. The bill was supported by Department of Labor and Industrial Relations Director Dwight Takamine as well as the state’s Department of Commerce and Consumer Affairs.

PEOs provide human resource services, income tax filings and medical and disability insurance to businesses, especially small businesses, and are already required under Hawaii law to have a $250,000 insurance bond — the highest in the nation. The bill would also impose a biennial renewal fee of up to $10,000, depending on the PEO’s size, and calls for a $177,500 appropriation from the state’s general fund to fund new positions within DLIR to enforce the measure’s provisions.

The governor has until July 10 to decide whether he’ll actually veto the bill, and despite the notice, could still sign it into law or allow it to become law without his signature.

Smaller PEOs have vigorously opposed the bill, arguing that bonding and auditing requirements in the measure would put many of them out of business.

“Hats off to the governor …,” said Gil Silva, who with wife Janie operates HR Works in Hilo. “I think he did the best thing for the state of Hawaii, bringing the belief that small businesses can flourish in the state, despite what you always hear about Hawaii’s business climate.”

Mark Watson, who operates Hawaii Workplace in Waikoloa, is “excited that we think (Abercrombie is) going to go through with the veto,” but is cautious due to a PEO law enacted in 2010, which the current legislation would amend.

“They’re still requiring the onerous auditing and there’s still a $250,000 bond among the various things in there,” he said. “… They have not been enforcing that bill. The reason is (DLIR) needed another two or three people to enforce it and they needed funding and they didn’t have it. So it’s been on hold here for the last year-and-a-half, two years, while they put this bill together to close the gap.”

Watson believes the legislature and the bill’s supporters tried to enact the legislation without consulting smaller PEOs.

“Small business owners are busy running their businesses; they’re not busy watching the legislative website,” he said.

A late afternoon call to Takamine was not returned in time for this story.

In a letter to Abercrombie, William L. Wong, president of Human Resources Administration of Hawaii in Kailua-Kona, said he believes SB 2424 “would result in a per employee cost of as much as $400 per employee each year” to smaller PEOs. He said a PEO with 10,000 employees would see “only minimal per employee costs of $3.50 to $4.00” as a result of the bill.

“Larger PEOs continually attempt to buy out the competition,” he wrote, adding the bill, if enacted, “will now hurt these smaller client companies and the smaller PEOs that service them.”

The state’s two largest PEOs, ProService Hawaii and ALTRES, both support state regulation of PEOs, but differed somewhat in their approach to the new legislation.

ALTRES owner Barron Guss submitted written testimony in favor of the current bill, stating he supports “the $500,000 entry point because I believe there are conditions in which a business operator would forego a bond and simply post cash because of the administrative complexity of the bond process.”

ProService stated in written testimony: “Before enacting further legislation, we should fully implement this current law and determine its effectiveness.”

Also urging passage of the bill was the International Longshore and Warehouse Union Local 142, which wrote that “employers tend to use PEO’s as a buffer between themselves and unions representing their employees. PEO’s are also often used to muddy the waters when labor unions attempt to organize workers, raising questions of who the employer really is.”

Silva said that Abercrombie’s announcement shows that “small business pulling together can accomplish big things.”

“So many times you’ve heard that small businesses don’t get together and stand up. I think this time we proved that we do have a voice,” he said.

Email John Burnett at jburnett@hawaiitribune-herald.com.