Amend NC PEO Act.-AB

GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2025
H 3
HOUSE BILL 717
Committee Substitute Favorable 4/17/25
Third Edition Engrossed 4/30/25

Short Title: Amend NC PEO Act.-AB (Public)
Sponsors:
Referred to:
April 3, 2025
*H717-v-3*
A BILL TO BE ENTITLED 1
AN ACT ENACTING CHAN GES TO THE NORTH CAR OLINA PROFESSIONAL 2
EMPLOYER ORGANIZATION ACT, AS RECOMMENDE D BY THE DEPARTMENT 3
OF INSURANCE. 4
The General Assembly of North Carolina enacts: 5
SECTION 1. G.S. 58-89A-5 reads as rewritten: 6
"§ 58-89A-5. Definitions. 7
In this Article: 8
… 9
(3) "Audited GAAP financial statement" means a financial statement that is 10
audited by an independent certified public accountant and presented in 11
accordance with generally accepted accounting principles. 12
… 13
(17) "Tangible net worth" means the difference between total tangible assets and 14
total liabilities. For purposes of this definition, tangible assets are physical 15
assets and do not include goodwill, patents, copyrights, intellectual property, 16
trademarks, and any other non-physical asset. 17
(17)(18) "Temporary employees" means persons employed under an arrangement 18
by which an organization hires its own employees and assigns them to a client 19
company to support or supplement the client's workforce in a special work 20
situation, including: 21
… 22
(19) "Working capital" means the difference betwe en current assets and current 23
liabilities." 24
SECTION 2. G.S. 58-89A-35 reads as rewritten: 25
"§ 58-89A-35. License required; professional employer organization groups. 26
… 27
(b) Two or more professional employer organizations persons that are controlled by the 28
same ultimate parent, entity, or persons may be licensed as a professional employer organization 29
group. A professional employer organization group may satisfy the reporting and financial 30
requirements of this Article on a consolidated or combined basis. As a condition of licensure as 31
a professional employer organization group, each professional employer organization person that 32
is proposes to be a member of the a professional employer organization group shall guarantee 33
payment of a ll financial obligations of every other member. Notwithstanding the definition of 34
"person" in this Article, whenever two or more entities combine to seek issuance of a single 35
General Assembly Of North Carolina Session 2025
Page 2 House Bill 717-Third Edition
license under this Article, the requirements for group licensure under this subsection shall be met 1
before issuance of a license and any license issued will be a professional employer organization 2
group license issued pursuant to this subsection." 3
SECTION 3. G.S. 58-89A-50 reads as rewritten: 4
"§ 58-89A-50. Surety bond; letter of credit; other deposits. 5
(a) An applicant for licensure shall file with the Commissioner a surety bond, or other 6
items as set forth in subsection (f) of this section, in the amount of one hundred thousand dollars 7
($100,000) for the benefit of the Commissioner. An applicant whose current assets do not exceed 8
current liabilities or licensee who does not have positive working capital pursuant to 9
G.S. 58-89A-60(b) shall file an additional surety bond or other items set forth in subsection (f) 10
of this section equal to or in excess of current liabilities less current assets. the applicant's or 11
licensee's negative working capital. 12
…." 13
SECTION 4. G.S. 58-89A-60(g) is repealed. 14
SECTION 5. G.S. 58-89A-60, as amended by Section 4 of this act, reads as 15
rewritten: 16
"§ 58-89A-60. License application. 17
(a) Every applicant for licensure shall file with the Commissioner, on a form prescribed 18
by the Commissioner, the following information: 19
… 20
(3) A list of all officers officers, directors, and other controlling persons of the 21
applicant, their biographical information, including their education, 22
management background, and business experience, and an affidavit from each 23
attesting to his or her good moral character and management competence. 24
… 25
(6) Any other reasonable information the Commissioner deems necessary and 26
requires by rule to establish that the applicant and the officers and controlling 27
persons are of good moral character, have business integrity, have applicable 28
educational and business experience, and have financial responsibility. 29
(b) Every applicant shall file with the Commissioner an audited GAAP financial 30
statement, prepared as of a date not more than 90 120 days before the date of application that 31
demonstrates that the applicant or licensee's current assets exceed current liabilities and attached 32
has a tangible net worth of not less than fif ty thousand dollars ($50,000) and positive working 33
capital. The applicant shall attach to which is the audited financial statement a separate document 34
signed by the applicant's chief executive and the chief financial officer certifying that (i) each 35
has reviewed the audited financial statement; (ii) based on each signatory's knowledge, the 36
audited financial statement does not contain any untrue or misleading statement of material fact 37
or omit a fact with respect to the period covered by the audited financial statement; and (iii) based 38
on each signatory's knowledge, the audited financial statement fairly presents in all material 39
respects the financial condition of the licensee applicant as of, and for, the period presented in 40
the audited financial statement. 41
Notwithstanding the requirements of this subsection, the Commissioner ma y, in the 42
Commissioner's discretion, accept an audited GAAP financial statement that has been prepared 43
more than 90 120 days before submission to the Commissioner if the Commissioner deems such 44
acceptance appropriate. The Commissioner may, in the Commissio ner's discretion, impose 45
conditions upon such acceptance of audited financial statements prepared more than 90 120 days 46
prior to submission. 47
The audited GAAP financial statement shall be prepared in accordance with generally 48
accepted accounting principles and audited by an independent certified public accountant 49
licensed to practice in the jurisdiction in which such accountant is located and shall be without 50
qualification as to the going concern status of the PEO. A PEO group applicant. Persons applying 51
General Assembly Of North Carolina Session 2025
House Bill 717-Third Edition Page 3
for a professional employer organization group license may submit combined or consolidated 1
audited financial statements to meet the requirements of this section, except that a PEO provided 2
that the c ombined or consolidated audited financial statement include a combining or 3
consolidating balance sheet and statement of operations of each proposed member as 4
supplemental information to the combined or consolidated audited financial statement. An 5
applicant that has not had sufficient operating history to have audited financial statements based 6
upon does not have at least 12 months of operating history must may meet the financial capacity 7
requirements of this subsection and present by filing with the Commissioner financial statements 8
that have been reviewed by a an independent certified public accountant.accountant and that have 9
been prepared as of a date not more than 90 days before the date of application. 10
(b1) The Commissioner may accept the audited financial statement of an applicant's parent 11
company, if the audited financial statement includes either a combining or consolidating balance 12
sheet, income statement, statement of changes in equity, and statement of cash flows as 13
supplemental information to the audited financial statement, the contents of which will allow the 14
Commissioner to determine the financial condition and financial responsibility of the applicant. 15
(b2) The Commissioner may accept the audited financial statement of an applicant's parent 16
company and consider the financial condition and financial responsibility of the parent in lieu of 17
the applicant, if all of the following requirements are satisfied: 18
(1) The parent executes a guaranty agreement, in a form prescribed by the 19
Commissioner, for the guaranty of all obligations related to the applicant 's 20
current and future client companies, including its obligations for payroll, 21
payroll-related taxes, workers ' compensation insurance, and employee 22
benefits. 23
(2) The applicant files with the Commissioner documentation acceptable to the 24
Commissioner evidencing the parent's control. 25
(3) The applicant submits an audited financial statement that meet s the 26
requirements of subsection (b1) of this section that allows the Commissioner 27
to determine the financial condition and financial responsibility of the parent 28
and the applicant. 29
… 30
(d) Every applicant shall furnish the Commissioner a complete set of fingerprints of each 31
officer, director, and controlling person in a form prescribed by the Commissioner. Each set of 32
fingerprints shall be certified by an authorized law enforcement officer. 33
Upon request by the Department, the State Bureau of Investigation sha ll provide to the 34
Department from the State and National Repositories of Criminal Histories the criminal history 35
of any applicant and the officer, director, and controlling person of any applicant. Along with the 36
request, the Department shall provide to the State Bureau of Investigation the fingerprints of the 37
person that is the subject of the request, a form signed by the person that is the subject of the 38
request consenting to the criminal record check and use of fingerprints and other identifying 39
information required by the State and National Repositories, and any additional information 40
required by the State Bureau of Investigation. The person's fingerprints shall be used by the State 41
Bureau of Investigation for a search of the State's criminal history rec ord file, and the State 42
Bureau of Investigation may forward a set of fingerprints to the Federal Bureau of Investigation 43
for a national criminal history record check. The Department shall keep all information obtained 44
pursuant to this subsection confidenti al. The State Bureau of Investigation may charge a fee to 45
offset the cost incurred by it to conduct a criminal record check under this section. The fee shall 46
not exceed the actual cost of locating, editing, researching, and retrieving the information. 47
In the event that an applicant has secured a professional employer organization license in 48
another state in which the professional employer organization's controlling persons have 49
completed a criminal background investigation within 12 months of this applicati on, a certified 50
copy of the report from the appropriate authority of that state may satisfy the requirement of this 51
General Assembly Of North Carolina Session 2025
Page 4 House Bill 717-Third Edition
subsection. This subsection also applies to a change in a the officers, directors, and other 1
controlling party persons of a professional employer organization. organizations and professional 2
employer organization groups licensed under this Article. For purposes of investigation under 3
this subsection, the Commissioner shall have all the power conferred by G.S. 58-2-50 and other 4
applicable provisions of this Chapter. 5
… 6
(g1) The Commissioner may deny the license of an applicant under this Article if the 7
Commissioner finds any of the following: 8
(1) That an officer, director, or other controlling person has: 9
a. Not met the requirements of G.S. 58-89A-40. 10
b. Made any untrue material statement or omitted any material 11
information regarding their background or experience. 12
c. Violated, or failed to comply with, any professional employer services 13
law or any rule or order of the Commissioner or of any oth er State 14
official responsible for the regulation of any aspect of the applicant 's 15
business. 16
d. Obtained or attempted to obtain the license through misrepresentation 17
or fraud. 18
e. Been convicted of a felony. 19
f. Been found in a final judgment or administrative proceeding to have 20
committed fraud or an unfair trade practice. 21
g. Been an officer, director, or other controlling person in another 22
professional employer organization that has had its license or 23
registration suspended, terminated, or revoked by any state. 24
(2) That the applicant is not current with respect to all of its obligations for 25
payroll, payroll -related taxes, workers ' compensation insurance, and 26
employee benefits and the applicant has failed to satisfy the Commissioner as 27
to the reasons why. 28
(3) That the applicant does not possess: 29
a. A tangible accounting net worth of not less than fifty thousand dollars 30
($50,000). 31
b. Positive working capital, or in lieu of positive working capital, 32
substitute security as provided under G.S. 58-89A-50(a). 33
(4) That the applicant has not provided evidence satisfactory to the Commissioner 34
of financial responsibility. 35
(5) That the applicant has failed to satisfy the requirements of G.S. 58-89A-50. 36
(6) That a ground upon which the Commissioner could take disciplinary action 37
against a licensee or other person subject to licensure requirements pursuant 38
to G.S. 58-89A-155 applies to the applicant. 39
(h) If the Commissioner finds that the applicant has not fully met the requirements for 40
licensure, the Commissioner shall refuse to issue the license and shall notify the applicant in 41
writing of the denial, stating the grounds for the denial. The application may also be denied for 42
any reason for which a license may be suspended or terminated under G.S. 58-89A-155. To 43
obtain a review to determine the reasonableness of the Commissioner's denial, the applicant shall 44
make written demand upon the Commissioner within 30 days after notice is given under 45
G.S. 150B-38(c). The review shall be completed without undue delay, and the applicant shall be 46
notified promptly in writing as to the outcome of the review. If the applicant disagrees with the 47
outcome of the review and seeks a hearing, under Article 3A of Chapter 150B of the General 48
Statutes, on the outcome of the review, the applicant shall make a written demand upon the 49
Commissioner for the hearing within 30 days after notice of the outcome of the review is given 50
under G.S. 150B-38(c). 51
General Assembly Of North Carolina Session 2025
House Bill 717-Third Edition Page 5
(i) Removal, demotion, or discharge of a an officer, director, or other controlling person 1
in response to an order of the Commissioner of the alleged unsuitability of that person is an 2
affirmative defense to any claim by that individual based on the removal, demotion, or discharge. 3
…." 4
SECTION 6. G.S. 58-89A-70 reads as rewritten: 5
"§ 58-89A-70. License issuance and maintenance. 6
… 7
(c) By obtaining licensure under this Article, the officers, directors, and other controlling 8
persons of a licensee certify, under penalty of law, their compliance with the requirements of 9
licensure and of operation as a professional employer organization pursuant to this Article. 10
(d) Within 120 days after the end of each fiscal year, each licensee shall file w ith the 11
Commissioner all of the following information: 12
(1) Evidence of "financial responsibility" as set forth in G.S. 58 -89A-60(b).An 13
audited financial statement of the licensee or, if allowed by the Commissioner, 14
an audited financial statement of the licensee's parent. The audited financial 15
statement shall be in the form required by G.S. 58-89A-60(b), (b1), or (b2), as 16
appropriate. 17
… 18
(4) An attestation, executed by the chief financial officer and the chief executive 19
officer of the licensee, that the licensee is current with respect to all of its 20
obligations for payroll, payroll -related taxes, workers ' compensation 21
insurance, and employee b enefits. If any of the obligations listed in this 22
subdivision are in dispute with a client and the disputed amount is material 23
when considered in the context of the licensee's most recent audited financial 24
statement, then the licensee shall disclose the nature of the dispute causing the 25
obligations to be unpaid and the amount of money in controversy. 26
(4)(5) Any other reasonable information the Commissioner determines is needed for 27
the review of a licensee. 28
(e) In order to maintain licensure, each licensee m ay be required to file with the 29
Commissioner no later than 45 60 days after the end of each quarter of the fiscal year: 30
(1) A financial statement for the preceding quarter that is not audited but is set 31
forth in a format similar to the annual audited GAAP financial statement; and 32
(2) An attestation, executed by the chief financial officer and the chief executive 33
officer of the licensee, that the licensee is current with respect to all of its 34
obligations for payroll, payroll -related taxes, workers' compensat ion 35
insurance, and employee benefits. If any of the obligations listed in this 36
subdivision are in dispute with a client and the disputed amount is material 37
when considered in the context of the licensee's most recent audited financial 38
statement, then the licensee shall disclose the nature of the dispute causing the 39
obligations to be unpaid and the amount of money in controversy. attestation 40
in the form required by subdivision (4) of subsection (d) of this section." 41
SECTION 7. G.S. 58-89A-75 reads as rewritten: 42
"§ 58-89A-75. De minimis registration. 43
(a) A person who seeks to offer limited professional employer services in this State shall 44
be eligible for de minimis registration status upon compliance with this section and may operate 45
as a de minimis registrant in this State upon notification pursuant to t his section. A person shall 46
satisfy the requirements for a de minimis registration only if the professional employer 47
organization: 48
(1) Does not maintain a physical professional employer organization office 49
located in this State; 50
(2) Is not domiciled in this State; 51
General Assembly Of North Carolina Session 2025
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(2)(3) Does not employ salespersons who reside or direct their sales activities in this 1
State; 2
(3)(4) Does not employ directly or in common control with another person, as 3
defined in G.S. 58-89A-5(12), more than 50 assigned employees in this State; 4
(4)(5) Does not advertise through any media outlet physically located in this 5
State;State, provided, however, that this subdivision shall not prohibit a person 6
from advertising through publications, trade journals, directories, radio, 7
television, or the internet if such advertising is not expressly directed toward 8
employers in this State. 9
(5)(6) Is a licensed or registered professional employer organization in at least one 10
other state of the United States; and 11
(6)(7) Is operated by and under the control of persons of good moral character. 12
A professional employer organization operating under a de minimis registration shall be subject 13
to all of the responsibilities and authority of a licensee under this Article except for 14
G.S. 58-89A-50, 58-89A-60 and 58-89A-70(c), (d), and (e). 15
…." 16
SECTION 8. This act is effective when it becomes law and applies to applications 17
for license issuance or renewal submitted on or after that date. 18