RULE XVIII – PROFESSIONAL EMPLOYER ORGANIZATIONS, PROFESSIONAL EMPLOYER AGREEMENTSAND PROFESSIONAL EMPLOYER SERVICES

The following words and phrases when used in this rule shall have the meanings given to them in this section unless the context clearly indicates otherwise. (These definitions are intended to be consistent with the definitions used in Act 102 of 2012.):

• Client – Any person who enters into a Professional Employer Agreement with a Professional Employer Organization.
• Co-employer – A Professional Employer Organization or Client.
• Co-employment Relationship A relationship which is intended to be an ongoing relationship rather than temporary or project specific one, wherein the rights, duties and obligations of an employer which arise out of an employment relationship have been allocated between Co-employers pursuant to a Professional Employer Agreement and Act 102 of 2012.
• Covered Employee – An individual co-employed by a Professional Employer Organization and a client who meets the following criteria:
  – The individual has received written notice of co-employment with the Professional Employer Organization.- The individual’s Co-employment Relationship is pursuant to a Professional Employer Agreement subject to Act 102 of 2012.
• Department – The Department of Labor & Industry of the Commonwealth.
• Direct Hire Employee – An individual who is an employee of either the Client or the PEO within the meaning of the Act of June 2, 1915 (P.L. 736, No. 338) known as the Workers’ Compensation Act, and who is not a Covered Employee.
• Master Policy Basis – An agreement under which a single workers’ compensation policy issued to the Professional Employer Organization provides coverage for more than one Client and may provide coverage to the Professional Employer Organization with respect to its Direct Hire Employees. Two or more Clients that are insured under the same policy solely because they are under common ownership are considered a single Client for purposes of this definition.
• Multiple Coordinated Policy Basis – An agreement under which a separate workers’ compensation policy is issued to the Professional Employer Organization on behalf of each Client or group of affiliated Clients with payment obligations and certain policy communications related to such workers’ compensation policy coordinated through the Professional Employer Organization.
• Person – Any individual, partnership, corporation, limited liability company, association or any other form of legally recognized entity.
• Professional Employer Agreement – A contract by and between a Client and a Professional Employer Organization that provides:
  – for the co-employment of Covered Employees;
  – for the allocation of employer rights and obligations between the Client and the Professional Employer Organization with respect to the Covered Employees; and
  – that the Professional Employer Organization and the Client assume the responsibilities required under Act 102 of 2012.
• Professional Employer Organization or PEO – Any person engaged in the business of providing Professional Employer Services.
• Professional Employer Services – The business of entering into Co-employment Relationships under Act 102 of 2012.

Under Professional Employer Agreements one business provides workers to another business entity under an agreement wherein all or substantially all of the employees of the Client are thereafter employed by the PEO and leased back to the original employer through a Professional Employer Agreement. The Professional Employer Agreement is long term in nature and is specifically not an arrangement to provide temporary help services to fill seasonal or temporary staffing shortages.

Act 102 of 2012 provides that both the PEO and the Client shall be an employer for Covered Employees assigned to the Client for purposes of Act 102 of 2012 and the Act of June 2, 1915 (P.L. 736, No. 338),known as the Workers’ Compensation Act.

The responsibility to provide workers’ compensation coverage for Covered Employees shall be specifically allocated in the Professional Employer Agreement to either the Client or the Professional Employer Organization.

1. When the responsibility to provide workers compensation coverage is allocated to the PEO, the PEO must provide coverage for all Covered Employees assigned to the Client.
2. When the responsibility to provide workers compensation coverage is allocated to the Client, the Client must provide coverage for all of its Covered Employees and Direct Hire Employees.

PEOs and Clients may qualify to self-insure their respective obligations under the Workers’ Compensation Act. In addition, there are three available options for Clients and PEOs that have entered into Professional Employer Agreements to insure their statutory obligations under the Workers’ Compensation Act as Co-employers for their Covered Employees. These options are as described following:

1. Option One – The PEO provides workers’ compensation insurance for Covered Employees of the Client by purchasing a Multiple Coordinated Policy (MCP) to insure such Covered Employees.Under this option, a separate workers’ compensation insurance policy is issued to the PEO on behalf of the Client. These policies insure the Client’s Covered Employees without leaving uninsured gaps or creating overlaps in coverage with other insurance policies. Each policy written on a Multiple Coordinated Policy basis shall be issued to the PEO as the primary named insured and must identify both the PEO and the Client as insureds. The named insured must be of the form “PEO Name L/C/F Client Name.” The Pennsylvania Multiple Coordinated Policy Endorsement (W C37 03 11) must be added to each such policy, specifying which Covered Employees are insured by that policy.– The insurer must assign risk classifications to each Client based on the totality of the Client’s Pennsylvania operations regardless of whether workers engaged therein are provided under one or more Professional Employer Agreements or are Direct Hire Employees of that Client.– Policies written on an MCP Basis by the same insurer for a PEO as named insured may be combinable by agreement between the PEO and the insurer for purposes of premium discount, retrospective rating, schedule rating and other approved pricing programs. Such approved pricing programs may be based on the combined total standard premium and losses of all Multiple Coordinated Policies issued to the PEO as the primary named insured.

   — If the Client has any employees that are not Covered Employees of the PEO (whether Direct Hire Employees or Covered Employees obtained from another PEO), workers’ compensation coverage for these other employees must be provided under a separate policy or policies. Attach the Professional Employer Organization (PEO) Client Exclusion Endorsement (W C 0003 22 A) to exclude coverage for liability to employees leased from the PEO named in the endorsement.

2. Option Two – The Client provides workers’ compensation insurance for its Covered Employees.If the Client is responsible for providing workers’ compensation insurance coverage for it Covered Employees, it may purchase a standard workers’ compensation policy insuring its Covered Employees and its Direct Hire Employees, if any.– When the Client secures coverage for its leased workers through a policy in its name, include the Professional Employer Organization (PEO) Extension Endorsement (WC 00 03 20 B),which specifies that the Client’s policy will apply to injuries to Covered Employees obtained from the PEO named in the endorsement as though the PEO were an insured under the policy and that the insurer will not ask the PEO’s insurer to share in a loss(es) covered by the endorsement.– The insurer must assign risk classifications to each Client based on the totality of the Client’s Pennsylvania operations regardless of whether workers engaged therein are provided under one or more Professional Employer Agreements or are Direct Hire Employees of the Client.
3. Option Three – The PEO provided workers’ compensation insurance coverage for its Clients’ Covered Employees by purchasing a Master Policy to insure such Covered Employees.Act 102 of 2012 requires the following conditions to be met in order for a PEO to insure Covered Employees of its Clients on a Master Policy Basis:a. The insurer underwriting the Master Policy must report separate experience data to the PCRB for each Client insured by the Master Policy in a format complying with all requirements of the approved Pennsylvania Statistical Plan.b. The insurer must assign risk classifications to each Client based on the totality of the Client’s Pennsylvania operations regardless of whether workers engaged therein are provided under one or more Professional Employer Agreements or are Direct Hire Employees of the Client.

   c. If and when applicable, the insurer must assign separate experience modifications, Merit Rating adjustments, construction classification premium adjustments and/or Certified Safety Committee Program credits to the exposures of each Client covered by a Master Policy based on the Client’s entire Pennsylvania operations.

   (1) If the Client has any employees that are not Covered Employees of the PEO (whether Direct Hire Employees or Covered Employees obtained from another                  PEO), workers ’compensation coverage for these other employees must be provided under a separate policy or policies. Attach the Professional Employer                    Organization (PEO) Client Exclusion Endorsement (WC 0003 22 A) to exclude coverage for liability to employees leased from the PEO named in the                              endorsement.

   Use of Master Policies is subject to prior approval by the PCRB of the issuing carrier’s policy issuance and data reporting procedures as satisfactorily complying with the requirements of Act102 of 2012.

A client retains the statutory obligation to provide workers’ compensation coverage for employees that are not Covered Employees pursuant to a Professional Employer Agreement.

In providing such coverage, the Client may either self-insure those exposures or the Client may purchase a standard workers’ compensation policy through a licensed insurance company.

A PEO retains the statutory obligation to provide workers’ compensation coverage for its own Direct Hire Employees that are not Covered Employees pursuant to a Professional Employer Agreement.

In providing such coverage, the PEO may either self-insure those exposures or the PEO may purchase a standard workers’ compensation policy through a licensed insurance company.

The Professional Employer Organization (PEO) Exclusion Endorsement (WC 00 03 21 A), which deletes coverage for workers leased to Clients named in the endorsement, must be attached to the PEO’s own policy so that it insures only the PEO’s Direct Hire Employees.

1. Cancellation by the Professional Employer Organization (PEO)

   a. If the PEO terminates the Professional Employer Agreement with the Client, termination of workers’ compensation coverage for Covered Employees by the insurer shall be effective the sooner of:

   — Sixty (60) days after written notice of the intent to terminate workers’ compensation coverage has been given by the PEO to the Client.

   — Fifteen (15) days after written notice of intent to terminate workers’ compensation coverage by the insurer for non-payment of premium has been given by the PEO to the Client.

   — The date upon which workers’ compensation coverage for covered employees is transferred to the Client’s own workers’ compensation policy or is otherwise replaced.

   b. All requirements of the PEO in regard to the notification of Clients concerning workers’ compensation coverage provided under a policy issued to the PEO for Covered Employees of the PEO continue to apply after written notice is given pursuant to the above.

   c. The Client shall pay for all workers’ compensation coverage provided by the insurer, including reasonable administrative expenses, subsequent to the termination of the Professional Employer Agreement by the PEO.

   d. If workers’ compensation coverage is provided through a workers’ compensation policy issues to the PEO on behalf of the Client who has been given notice of termination pursuant to the above, the PEO is required to notify the affected insurer of the notification.

2. Cancellation by the Client

   If the Professional Employer Agreement is terminated by the Client, the Client assumes the statutory obligation to provide workers’ compensation for its employees as of the date terminations requested. The Client may secure coverage for its Covered Employees through another Professional Employer Agreement with a different PEO, through an approved self-insurance program or with a single policy covering all of the Covered Employees of the Client and the Client’s Direct Hire Employees.

3. Notification Requirements

   If the Professional Employer Agreement provides for the PEO to provide workers’ compensation insurance for Covered Employees, the PEO shall notify the insurance carrier of record of any cancellation, non-renewal or termination of a Professional Employer Agreement under which the PEO assumed the obligation to provide workers’ compensation insurance for Covered Employees within ten (10) days following the date the notification of cancellation or termination is provided to the Client. The insurance carrier of record shall notify the licensed rating organization of any cancellation, non-renewal or termination of workers’ compensation coverage for Covered Employees by the PEO’s insurer or any change in insurers for the Covered Employees within ten (10) days of the effective date of cancellation, termination or change of insurers.