On January 1, 2012, the Nebraska Professional Employer Organization Registration Act (the “Act”) became effective. With the effectiveness of the Act, Nebraska joins more than 30 other states that regulate professional employer organizations (“PEOs”). Essentially, a PEO employs workers and leases them to become part of a client’s workforce through a contractual allocation and sharing of employer responsibilities. Clients generally pay the PEO for the workers’ wages, plus a fee for the PEO administering the payroll, paying employment-related taxes, securing workers’ compensation coverage, providing benefits, and assuming other management duties.

The Act requires PEOs to register with and provide certain information to the Nebraska Department of Labor. Each PEO must renew its registration within 180 days after the end of each fiscal year of the PEO. The Act requires the PEO to maintain a set level of net worth or, alternatively, post a bond for security. This requirement should help alleviate concerns from a state and client perspective that a PEO might become insolvent and fail to pay workers’ wages, taxes, contributions to employee benefit plans, or workers’ compensation premiums. The Act also requires that the PEO hold and account for client funds separately.

In addition, the Act imposes certain contractual obligations on the parties involved. Any agreement setting forth the employee leasing arrangement between a PEO and its client must now include the following:

• A provision that the PEO shall have responsibility to pay wages to covered employees; to withhold, collect, report, and remit payroll-related and unemployment taxes; and, to the extent the PEO has assumed responsibility in the professional employer agreement, to make payments for employee benefits for covered employees.

• A provision that the PEO shall have a right to hire, discipline, and terminate a covered employee as may be necessary to fulfill the PEO’s responsibilities under the Act and the professional employer agreement. The client shall also have a right to hire, discipline, and terminate a covered employee.

• A provision specifying who retains the responsibility to obtain workers’ compensation coverage for covered employees. It should be noted that if the PEO assumes this responsibility, the client is not relieved of its obligations under the Nebraska Workers’ Compensation Act. If the PEO fails to obtain workers’ compensation insurance for which it has assumed responsibility, the client will still be held responsible. Regardless of which party assumes the obligation for obtaining coverage, the exclusive remedy protection of workers’ compensation will be extended to both the PEO and the client.

The Act also requires greater disclosures to workers of their relationship with the PEO and its client. Each PEO must provide written notice to each of its employees affected by an agreement when entered into with a client. The PEO must also provide a client, the client’s worksite, notice of the general nature of the co-employment relationship between and among the PEO, the client, and any covered employees. The client must similarly post any notice required by the state relating to unemployment compensation and the minimum wage. Not all instances in which workers perform services for an entity that does not employ them will be covered by the Act; excluded are instances in which commonly owned companies share employees, independent contractor arrangements, and temporary staffing services.

If you have questions or would like further information about employee leasing arrangements or the impact the Act may have on your business, please contact one of the attorneys in our Employment, Labor, and Benefits Practice Group.

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