OHIO LEGISLATIVE SERVICE COMMISSION
Office of Research Legislative Budget
www.lsc.ohio.gov and Drafting Office
S.B. 201 Bill Analysis
133rd General Assembly
Click here for S.B. 201’s Fiscal Note
Version: As Introduced
Primary Sponsor: Sen. Dolan
Effective Date:
Kelly Bomba, Attorney
SUMMARY
 Creates alternate employer organizations (AEOs), which are substantially similar to
professional employer organizations (PEOs), and regulates AEOs in a very similar
manner as PEOs.
 Requires an AEO to report federal taxes under the client employer’s tax identification
number (the PEO Law requires the use of the PEO’s tax identification number).
 Requires an AEO to maintain workers’ compensation coverage under its workers’
compensation policy for all worksite employees associated with the client employer (the
PEO Law allows a client employer to cover some of the worksite employees under its
workers’ compensation policy under certain circumstances).
 Specifies requirements for an AEO to satisfy to register with the Administrator of
Workers’ Compensation that are similar to the requirements a PEO must satisfy, except
an AEO must maintain positive working capital at initial or annual registration.
 Requires an AEO to provide a bond or letter of credit in an amount determined by the
Administrator to be adequate to meet the AEO’s financial obligations under the
Workers’ Compensation Law, which must be at least $1 million, regardless of whether a
deficit in working capital exists.
 Creates criminal penalties for failing to register.
 Specifies duties of AEOs and their client employers and specifies which one is the
employer of record for certain tax incentives and other programs, similar to PEOs under
current law.
 Does not allow AEOs to register multiple entities and operate them together (the PEO
Law specifically allows this for PEOs under certain circumstances).
 Does not allow an assurance organization to act on behalf of an AEO (the PEO Law
specifically allows this for PEOs).
November 4, 2019
Office of Research and Drafting LSC Legislative Budget Office
TABLE OF CONTENTS
Alternative employer organizations ............................................................................................... 2
Differences between a PEO and an AEO......................................................................................... 3
Similarities between a PEO and an AEO ......................................................................................... 5
Enforcement ................................................................................................................................ 5
Duties of an AEO.......................................................................................................................... 5
Direction and control over worksite employees ......................................................................... 6
Employer status under the Workers’ Compensation Law .......................................................... 7
AEOs and Ohio’s Unemployment Compensation Law ................................................................ 8
Determining tax credits and other economic incentives ............................................................ 8
Registration as an AEO ................................................................................................................ 9
Financial statement ................................................................................................................... 10
Security requirement ................................................................................................................ 11
Trade secrets ............................................................................................................................. 11
Working capital requirement and financial statement audits .................................................. 11
Denial or revocation of registration .......................................................................................... 12
Lease termination notice .......................................................................................................... 13
Occupational licensing laws ...................................................................................................... 14
Collective bargaining agreements ............................................................................................. 15
Other limitations on the AEO Law and AEO agreements.......................................................... 15
Reports to the Tax Commissioner ............................................................................................. 15
Other tax provisions .................................................................................................................. 16
DETAILED ANALYSIS
Alternative employer organizations
The bill creates alternate employer organizations (AEOs). AEOs are substantially similar
to professional employer organizations (PEOs), which are governed by current law.1 A PEO or
AEO is a business entity that enters into an agreement with one or more client employers to
share the responsibilities and liabilities of being an employer (including, with respect to an AEO,
providing human resource management services). A “client employer” is the business entity
that enters into the agreement with an AEO or PEO to share employer responsibility and
liability with the AEO or PEO.2
1
R.C. Chapter 4125.
2
R.C. 4133.01 and R.C. 4125.01, not in the bill.
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As Introduced
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Differences between a PEO and an AEO
Under the bill, an AEO is not, and cannot be considered to be, a PEO, and cannot hold
itself out as a PEO.3 AEOs are regulated in a very similar manner as PEOs, but under the bill
differ from continuing law PEOs with respect to requirements in the way they report federal tax
payments and the way they are permitted to provide workers’ compensation coverage for
shared employees. Additionally, the manner in which the entities register with the
Administrator of Workers’ Compensation, and the requirements for registration, vary slightly.
The following table summarizes how continuing law PEOs and AEOs created under the bill
differ.
Professional employer organization Alternate employer organization
(R.C. Chapter 4125) (R.C. Chapter 4133)
Taxes and workers’ compensation coverage
The law requires a PEO to pay wages and taxes The bill requires an AEO to process and pay wages
associated with a shared employee and report and state and federal taxes associated with a
federal taxes under the PEO’s tax identification worksite employee, irrespective of payments
number (R.C. 4125.03(A) and O.A.C. 4123-17- made by the client employer, and to report federal
15(D)(2)). taxes under the client employer’s tax identification
number. The bill requires the client employer to be
listed as the employer on a worksite employee’s
W-2, but both the AEO and client employer remain
jointly and severally liable for payment of the
wages and taxes. (R.C. 4133.03(A), (B), (C), and
(K)). See COMMENT below.
No provision. If a client employer fails to transmit payment
sufficient to cover payment of all wages and
employer-paid taxes to the AEO, the bill requires
the AEO to keep a record of the nonpayment or
under payment and a record the AEO nonetheless
paid the wages and taxes owed (R.C. 4133.03(C)).
The law requires a PEO to maintain workers’ On entering an AEO agreement with a client
compensation coverage for all employees reported employer, the bill requires an AEO to maintain
under the PEO’s tax identification number, except workers’ compensation coverage under its
that a PEO may enter into an agreement in which a workers’ compensation policy for all worksite
client employer insures shared employees under employees associated with the client employer
the client employer’s policy if both of the following (R.C. 4133.03(D)).
apply:
 The client employer’s payroll is wholly
reported under the PEO’s tax identification
3
R.C. 4133.03(J).
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As Introduced
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Professional employer organization Alternate employer organization
(R.C. Chapter 4125) (R.C. Chapter 4133)
number for federal tax purposes;
 The client employer’s payroll is wholly
reported under the client employer’s policy
number for worker’s compensation
purposes (O.A.C. 4123-17-15(D)(2) and (7)).
Registration with the Administrator of Workers’ Compensation
As a condition of registering or renewing a The bill requires an AEO to maintain positive
registration, the law requires a PEO with a deficit working capital at initial or annual registration, as
in its working capital to provide a bond, reflected in the required financial statements
irrevocable letter of credit, or securities with a submitted to BWC. As a condition of registering or
minimum market value in an amount sufficient to renewing a registration, the bill requires an AEO to
cover the deficit. Additionally, the Administrator, provide a bond or letter of credit in an amount
with advice and consent of the Bureau of Workers’ determined by the Administrator to be adequate
Compensation (BWC) Board of Directors, may to meet the AEO’s financial obligations under the
adopt rules to require a PEO to provide security in Workers’ Compensation Law, which must be at
the form of a bond or letter of credit assignable to least $1 million (regardless of whether a deficit in
BWC not to exceed an amount equal to the working capital exists). (R.C. 4133.07(B)(8) and
premiums and assessments incurred for the most (D)(1) and 4133.08).
recent policy year, before any discounts or
dividends, to meet the PEO’s financial obligations
under the Workers’ Compensation Law.
(R.C. 4125.05(B)(8) and (D)(1) and 4125.051).
The law allows two or more PEOs that are majority The bill does not appear to allow AEOs to register
owned or commonly controlled by the same entity multiple entities and operate them together
to register and operate as a single entity referred (R.C. 4133.07(A)).
to as a professional employer organization
reporting entity, provided the PEOs satisfy rules
defined by the Financial Accounting Standards
Board and generally accepted accounting
principles (R.C. 4125.01(F), 4125.02, and
4125.05(A)).
The law allows a PEO or PEO reporting entity to The bill is silent as to whether an assurance
have an assurance organization act on its behalf in organization may act on behalf of an AEO.
complying with the law (R.C. 4125.01(A) and
4125.02)).
The law specifies that a PEO agreement must have No provision.
a duration of not less than 12 month
(R.C. 4125.01(E)).
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As Introduced
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Similarities between a PEO and an AEO
As discussed above, AEOs under the bill are substantially the same as continuing law
PEOs. The following analysis, as applicable to AEOs under the bill, is the same as continuing law
governing PEOs unless otherwise noted.
Enforcement
The bill requires the Administrator to adopt rules in accordance with Ohio’s
Administrative Procedure Act4 to administer and enforce the AEO Law. The bill allows the
Administrator to adopt rules for the acceptance of electronic filings in accordance with the
Uniform Electronic Transactions Act5 for applications, documents, reports, and other filings
required by the AEO Law.6
Additionally, the bill requires the Administrator to maintain a list of AEOs registered
under the bill that is readily available to the public by electronic or other means.7
Duties of an AEO
The bill requires an AEO with whom a worksite employee is employed to perform
specified duties. A “worksite employee” is an individual assigned to a client employer on a
permanent basis, not as a temporary supplement to the client employer’s workforce, and who
is employed by both an AEO and a client employer pursuant to an AEO agreement (the written
agreement between a client employer and an AEO to provide human resource management
services and to share employer responsibilities and liabilities).8 The PEO Law refers to these
employees as “shared employees.”9
The bill requires an AEO to do all of the following:
1. Process and pay all wages and applicable state and federal payroll taxes associated with
the worksite employee, irrespective of payments made by the client employer, pursuant
to the terms and conditions of compensation in the AEO agreement;
2. Pay all related payroll taxes associated with a worksite employee independent of the
terms and conditions contained in the AEO agreement;
3. Maintain workers’ compensation coverage, pay all workers’ compensation premiums,
and manage all workers’ compensation claims, filings, and related procedures
associated with a worksite employee in compliance with the Workers’ Compensation
Law,10 except that when worksite employees include family farm officers, ordained
4
R.C. Chapter 119.
5
R.C. Chapter 1306.
6
R.C. 4133.02, with conforming changes in R.C. 4121.12, 4121.121, and 4123.341.
7
R.C. 4133.07(K).
8
R.C. 4133.01.
9
R.C. 4125.01, not in the bill.
10
R.C. Chapters 4121 and 4123.
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ministers, or corporate officers of the client employer, payroll reports must include the
entire amount of payroll associated with those persons;
4. Provide written notice to each worksite employee it assigns to perform services to a
client employer of the relationship between and the responsibilities of the AEO and the
client employer;
5. Maintain complete records separately listing the manual classifications of each client
employer and the payroll reported to each manual classification for each client
employer for each payroll reporting period during the time period covered in the AEO
agreement;
6. Maintain a record of workers’ compensation claims for each client employer;
7. Make periodic reports, as determined by the Administrator, of client employers and
total workforce to the Administrator;
8. Report individual client employer payroll, claims, and classification data under a
separate and unique subaccount to the Administrator;
9. Within 14 days after receiving notice from BWC that a refund or rebate will be applied
to workers’ compensation premiums, provide a copy of that notice to any client
employer to whom that notice is relevant.11
The bill requires an AEO with whom a worksite employee is employed to provide a list of
all of the following information to the client employer on the written request of the client
employer:
1. All workers’ compensation claims, premiums, and payroll associated with that client
employer;
2. Compensation and benefits paid and reserves established for each workers’
compensation claim;
3. Any other information available to the AEO from BWC reg