This section discusses procedures relating to Staff Leasing or Professional Employer Organizations (PEO).

"Staff Leasing" is a term used by the Tax Department to denote a relationship whereby one legal entity supplies Leased employees to another legal entity on a continuing basis for a fee.

Staff leasing in Texas is governed by the Staff Leasing Services Act. This Act governs staff leasing companies in Texas and is the basis of how the Commission handles staff leasing companies. The Texas Department of Licensing and Regulation (TDLR) administers the Act including the licensing of staff leasing companies.

The Staff Leasing Services Act defines staff leasing services as, "an arrangement by which employees of a license holder are assigned to work at a client company and in which employment responsibilities are in fact shared by the license holder and the client company, the employee's assignment is intended to be of a long-term or continuing nature, rather than temporary or seasonal in nature, and a majority of the work force at a client company worksite or a specialized group within that work force consists of assigned employees of the license holder."

The term includes professional employer organization services (PEO).

The term does not include:

1. Temporary help;
2. An independent contractor;
3. The provision of services that otherwise meet the definition of “staff leasing services” by one person solely to other persons who are related to the service provider by common ownership; (see unemployment tax procedure below for Tax department requirements); or
4. A temporary common worker employer as defined by Chapter 92, link below:
   
   http://www.statutes.legis.state.tx.us/Docs/LA/htm/LA.92.htm#92.002

In the case of Item C: If the staff leasing company is related to the client companies refer to Chapter 6 – “Common Paymaster and Payroll”. The staff leasing company in question will not be considered the employer unless it obtains a staff leasing license and, even then, will be considered the employer as of the effective date of their staff leasing license. It will not be considered the employer retroactive to the effective date of the license for state unemployment tax purposes.

The Commission was at odds with the concept of staff leasing for many years. The Tax Department maintained that the client company, rather than the staff leasing company, was the employer. The Tax Department required workers' wages to be reported under the client's TWC account number. The staff leasing industry disagreed. The staff leasing industry asserted that the staff leasing company was the employer and that workers' wages should be reported under the leasing company's TWC account number. The result of the disagreement was years of litigation eventually culminating in legislation creating the Staff Leasing Services Act.

Staff leasing companies or PEO's, are not the same as temporary help agencies.

A Staff leasing company:

1. Leases employees on a Long Term or continuing basis to a client company.
   
   
2. Assigns a worker for a long duration.
   
   
3. Does not necessarily maintain their own pool of labor. A staff leasing company will approach an existing company and offer to take over their employment responsibilities. The client company will pay the staff leasing company a fee for the employees to be leased back to them.
   
   
4. Must obtain a license from TDLR.

A Temporary help agency:

1. Supplies labor on an "as needed" basis.
   
   
2. Assigns a worker for a finite duration. Labor is provided for an employee absence, temporary skill shortage, seasonal workload or special project, etc.
   
   
3. Maintains their own pool of labor. A temporary help agency does not approach an existing company with an offer to take over their employment responsibilities.
   
   
4. Is not required to register with TDLR.

Interagency Cooperation, Section 91.003 of the Staff Leasing Services Act, requires that the Texas Workforce Commission, Texas Department of Insurance, and the Office of the Attorney General cooperate with each other and TDLR in the implementation of the Act. TWC currently has a sharing agreement with TDLR only. This means that the Tax Department can directly share information with TDLR, but within reason.

Tax Department guidelines for sharing information:

1. All information sent to TLDR must be stamped confidential and pertain only to a staff leasing issue.
   
   
2. If another state agency requests information, refer them to the TWC Office of General Counsel - Open Records Unit.
   
   
3. If there is any doubt whether certain information should be released, consult your supervisor.

Currently a staff leasing license is valid for one year.

If a staff leasing company applies for a new license or to renew an established license, to operate in Texas, TDLR will conduct a background investigation of the staff leasing company and its "Controlling Persons". Controlling persons are people or entities associated with the staff leasing company. A controlling person need not be only an individual. Sometimes a controlling person is a corporation. In all circumstances, TDLR will detail who is under investigation.

There are two kinds of background checks, new staff leasing license applications and license renewals. The purpose of these background checks is to provide TDLR with information about the applicant's tax account and those tax accounts associated with the applicant company and controlling persons. Background checks are our opportunity to inform TDLR about any problems with a particular employer or person. TDLR can delay the approval or renewal of a license until a problem is resolved to TWC's satisfaction.

To conduct a background check:

1. Determine if a background check is for a new license or a renewal of an established license.
   
   
2. Enter the FEIN to determine the TWC account number for the applicant, assign an account number based on the information from TDLR. Use the name, address, telephone number and FEIN given on the background check. If the FEIN does not match what is on the EMF, inform TDLR.
   
   
3. If there is not a TWC tax account number for the applicant, assign an account number based on the information from TDLR. Use the name, address, telephone number and FEIN given on the background check.
   
   Inform TDLR that a new pending account number has been assigned to the staff leasing company. Send a letter to the leasing company requesting completion of a Status Report within 15 days. The letter should inform the staff leasing company of their potential liability under TUCA. Trace the letter for 90 days. If no response after 90 days, write an assignment to Field Tax or the appropriate out-of-state employment security agency.
   
   
4. Verify the name of the applicant against the EMF. If there is an additional name such as a corporate name or DBA, inform TDLR.
   
   If there is a difference in the corporate name it may be necessary to check Secretary of State records and make changes to the EMF. Commission records can be in error.
   
   
5. If the staff leasing company's TWC account indicates a delinquency or bankruptcy, contact the Regulatory Integrity Division (RID). Contact the Special Actions Unit (SAU) for bankruptcy issues and the Administrative Actions Unit for all other issues. RID will determine if the staff leasing company merits an "Unsatisfactory Record".
   
   Notify TDLR of the problem as appropriate. The resolution of the problem will be solely between the applicant and RID at this point.
   
   
6. Check the SON screen of the tax account to determine if the person is an owner, partner, or officer.
   
   If the screen indicates recently received information showing persons not listed as controlling persons, inform TDLR so they can investigate. Provide TDLR with the name, social security number and title.
   
   
7. Use the name, address, telephone number and social security number of the controlling person to determine association with other TWC accounts which have a delinquency or bankruptcy.
   
   
8. If a delinquent or bankrupt account is located, contact RID. Contact the SAU for bankruptcy issues and the Administrative Actions Unit for all other issues. Collections will determine if the staff leasing company merits an "Unsatisfactory Record".
   
   Notify TDLR of the problem as appropriate. The resolution of the problem will be solely between the applicant and RID at this point.
   
   
9. If the background check is for the renewal of an established staff leasing license, there is one other additional check.
   
   A licensed staff leasing company is required to submit a quarterly staff leasing client list, Form C-3020, on a quarterly basis. The TDO screen will show "Client List" if a Form C-3020 has been submitted. Check the TDO for client list(s).
   
   If a client list has not been submitted, that is a reason to give an "Unsatisfactory" on the background check. TWC will require that client lists for all quarters missing be submitted.
   
   A company applying for a brand new staff leasing company is not required to submit a client list prior to being licensed.
   
   
10. Mark the appropriate area on the Background Reply regarding the leasing company's record. Attach supporting screen prints and documentation. Screen prints are only necessary when informing TDLR of problems with a staff leasing company, controlling person, or debt owed.
    
    Stamp all documentation and screen prints "confidential". Sign and date the reply. Write the TWC tax account number on all documents.
    
    
11. Update the FTC screen denoting your actions and reply to TDLR. Be certain to note the staff leasing company’s record (i.e. satisfactory, unsatisfactory) on FTC. If an "Unsatisfactory" is given, record the exact reason(s) that result was given (i.e. amount owed, wage reports, or client lists missing). This is needed to inform the company what is required to correct their account.
    
    
12. Return the completed reply to the Status section administrative assistant. The Status Section administrative assistant will forward our reply to TDLR.
    
    
13. Put a copy of the Background Check request and reply in the Doc Log & Destroy basket and give a copy to your unit supervisor.
    
    Note: Staff leasing companies registered with TDLR are subject to yearly background checks. TDLR refers to these yearly background checks as "Renewals".

Under current state law, a staff leasing company must be licensed with TDLR before it is recognized as the employer of leased employees. If the staff leasing company does not have a license, their client is responsible for reporting employees under their own TWC account number.

To ascertain the licensing status of a staff leasing company:

1. Read the FTC screen comments under the staff leasing company's TWC account.
   
   
2. If there is not a comment on FTC, ask the Status staff leasing contact about the staff leasing company's license. The Status contact can inquire with TDLR regarding the license. Do not call TDLR about the license.

If a staff leasing company loses or does not hold a license:

1. Send written notice to the staff leasing company that they cannot report client wages unless they obtain a valid license.
   
   
2. Leave client accounts active until the staff leasing company receives a license.
   
   
3. Reactivate client accounts which have been suspended and send written notification that the staff leasing company does not hold a license. The effective date a client becomes responsible for reporting its employees is the day after the staff leasing company loses its license.

By statute, a staff leasing company which holds a license from TDLR, is the employer of leased employees. Because they are legally the employer, the staff leasing company may report leased employees' wages under the staff leasing company's TWC account.

When a staff leasing company holds a valid license:

Update the FTC screen under the staff leasing company account to document the license. The comment should include the staff leasing license number issued by TDLR.

Suspend client accounts (business continued - employment discontinued) only if the client requests suspension of their account. Some staff leasing companies may report only a portion of a client's wages. A staff leasing company cannot close the tax account for a client unless the proper authorization form, Written Authorization (Form C-42), has been submitted giving the staff leasing company the authority to do so.

A Staff leasing company should not be treated as the successor (total or partial) to one of their clients. It is permissible, however, for one staff leasing company to acquire another staff leasing company. In this situation, the successor staff leasing company can be considered the successor.

A Client List (Form C-3020) is a quarterly form sent to staff leasing companies. The form, which is required by the Staff Leasing Services Act, solicits the name, address, number of employees, and total quarterly payroll amount from the staff leasing company, for each of their clients.

Status and Labor Market and Career Information (LMCI) use Client Lists to record the activities of staff leasing companies. LMCI sends licensed staff leasing companies Form C-3020 each quarter. Each staff leasing company is required to complete and return the form on or before the end of the month following the close of the quarter. Staff leasing client lists are considered to be proprietary tax documents and therefore not to be released to the public.

Completed forms are returned directly to LMCI. LMCI gathers information from the forms and sends copies to the Status Section. The Status Operations Unit (SOU) forwards the forms to Records Management Center (RMC) for filming and subsequent processing to the Transaction Log (TDO). After filming and processing, the forms are destroyed. Forms C-3020 are described on TDO as "Client List".

# 1 – Combined for company that sent C-1 or registered on the Internet but is not licensed.

# 2 – To a company denied a staff leasing license.

# 3 – To a client of an unlicensed staff leasing company or its license has expired.

# 5 – To a company no longer a client of a staff leasing company.

# 7 – To client of a licensed staff leasing company.

# 8 – To determine the liability of a company applying for a staff leasing license.

# 9 – To close account of client of licensed staff leasing company.

# 11 –Payrolling or Common Paymaster not accepted because a company is exempt from staff leasing license.

# 12 – Payrolling or Common Paymaster not accepted Alternative letter.

#14 – To Staff Leasing Company – license expired.

# 16 – To successor of licensed staff leasing company.

# 17 – Requesting past due client list from licensed staff leasing company.

# 18 – C-13 to client to determine who is their staff leasing company.

# 20 – Unlicensed staff leasing company registered online or by C-1.

# 21 – Common Paymaster nor Payrolling permitted, must have staff leasing license.

Note: When sending documents to TDLR include a copy of the Status Report (C-1) or UTR registration summary. Stamp CONFIDENTIAL on all documents sent to TDLR.