ESAC Standards & Procedures

1. “Adjusted Net Worth” is defined to include stockholders’ equity determined in accordance with generally accepted accounting principles, increased by the amount of obligations subordinated to claims of general creditors (subordinated debt) with a remaining term to maturity in excess of three years, and mandatory redeemable preferred stock with a remaining term to redemption in excess of three years.
2. An “Affiliate” of another Entity is an “Affiliate” for purposes of these standards if  (i) at least 50% of the equity of one Entity, determined on the basis of either voting power or value, is owned, directly or indirectly, by the other Entity; (ii) if the same persons who have ownership in each Entity own, directly or indirectly, at least 50% of the equity of each Entity, determined on the basis of either voting power or value; or (iii) the same person(s), whether by office held, contract or otherwise, control or direct or have the ability to control or direct material aspects of the affairs of each Entity. An Affiliate shall also include, with respect to an ESAC-accredited PEO, another PEO if (i) such ESAC-accredited PEO owns, directly or indirectly, any equity interest in such other PEO; (ii) such other PEO owns directly or indirectly, any equity interest in such ESAC-accredited PEO or (iii) any person owns, directly or indirectly, any equity interest in such ESAC-accredited PEO and in such other PEO. Notwithstanding the foregoing sentence, ESAC may, in its sole discretion, disregard any ownership that would otherwise result in another PEO being an Affiliate of an ESAC-accredited PEO if ESAC determines in its sole discretion that treating such other PEO as an Affiliate is not necessary for the furtherance of ESAC stated purposes. The determination of whether an Entity is an Affiliate of another Entity may be made by ESAC in its sole discretion.
   In the above definition, the term "person" shall be construed to mean and include an individual, a trust, estate, limited liability company, partnership, association, company or corporation.
3. A “Captive“ shall mean an entity that insures a risk of the accredited PEO, whether directly or indirectly through the use of a fronting company or similar arrangement, without regard to whether any portion of such risk is reinsured, if the accredited PEO or an affiliate thereof has an ownership interest in such entity. A publicly-traded company in which the PEO or an affiliate thereof owns less than one percent (1%) shall not be considered a Captive.
4. A “Certified Actuary” is an actuary who is independent of the PEO, is a member of the American Academy of Actuaries and complies with any other requirements of state law.
5. A “Certified Public Accountant” is a public accountant who is independent of the PEO, as prescribed by the Code of Ethics of the American Institute of Certified Public Accountants (“AICPA”), duly licensed by the state as a “CPA” and who also is a member in good standing of the AICPA.
6. A “Controlling Person” is defined as:
1. Any individual owning or directly or indirectly controlling 10% or more of the voting stock of a PEO or the PEO’s ultimate parent, if the PEO or its ultimate parent is a closely held company, or 20% or more of the voting stock of a PEO or of the PEO’s ultimate parent, if the PEO or its ultimate parent is a publicly traded company. For these purposes, “voting stock” shall include stock which is convertible to voting stock or has voting rights upon occurrence of some condition or event and shall include other forms of equity that possess voting rights with respect to the Entity.
2. Any officer or manager of the PEO with apparent authority to obligate the PEO with respect to a material matter, including by rebuttable presumption the Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer, and Chief Marketing Officer, or any equivalent position by whatever name used. Having been delegated the authority to sign checks on behalf of the PEO shall not alone be considered “authority to obligate the PEO.”
3. Any director of the PEO; provided however, an individual who is a director, but neither an officer or employee, of a publicly traded PEO Entity that maintains an annual average aggregate market value in excess of $100 million, shall not be considered a Controlling Person solely by reason of this paragraph 5.c.
4. Any person with apparent authority to obligate an Entity with respect to a material matter if that Entity owns more than 50% of the voting stock of the PEO, including by rebuttable presumption the Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer, and Chief Marketing Officer of such Entity, or any equivalent position by whatever title used.
5. Any individual who is a Controlling Person or the equivalent thereof pursuant to any state licensing or registration law to which the PEO is subject.
6. Any other individual who has by contract or otherwise or in fact exercises the authority or power to control the operation or direction of the PEO or to obligate the PEO with respect to a material contractual matter such as entering into a service contract with a client company.
7. In the case of any publicly traded Entity that owns 20 percent or more of the stock of the PEO, provided that such Entity maintains an annual average aggregate market value in excess of $100 million, such Entity may satisfy its Controlling Person requirements by virtue of ownership by disclosing the names of such Entity’s officers and directors and putting forth one duly authorized and appointed officer as the Controlling Person representing the publicly traded Entity.
8. The determination of whether a person is a Controlling Person shall be made by ESAC based on information provided by the applicant or accredited PEO or otherwise obtained by ESAC, whose determination shall be conclusive and final.
7. “Current Ratio” is defined as Current Assets divided by Current Liabilities in accordance with generally accepted accounting principles. Cash and Cash Equivalents excludes any restricted cash or cash equivalent that will remain restricted for at least one year.
8.  “Quick Ratio” is defined as the total of Cash and Cash Equivalents, Accounts Receivable-Trade, Unbilled Revenue, and Affiliated Party Trade and Loan Receivables divided by the total of Accrued Salaries and Wages, Payroll Taxes Payable, Other Payroll Deductions, Unearned Revenue, Group Insurance Liabilities Payable, and Workers’ Compensation Liabilities Payable.
   
   Quick Ratio Components:
1. “Cash & Cash Equivalents” is defined as currency on hand, demand deposits with banks or other financial institutions, savings accounts, certificates of deposit, or other highly liquid investments with original maturities of 90 days or less, excluding any restricted cash or cash equivalent that will remain restricted for at least 90 days.
   Any liability that is fully secured or collateralized by restricted cash or cash equivalent that is excluded from the Cash & Cash Equivalents (as defined above) may be excluded as a liability from the computation of either the Current Ratio or Quick Ratio. If restricted cash or cash equivalent is used as security or collateral for liabilities excluded from the computation of the Current Ratio or Quick Ratio and other liabilities, the amount of restricted cash or cash equivalent used in the computation must be first reduced by the full amount of the other liabilities. An accredited PEO must provide documentation acceptable to ESAC with respect to any exclusion of a liability from the computation of either the Current Ratio or Quick Ratio.
   
2. “Accounts Receivable-Trade” is defined as amounts due from clients in the normal course of business, less trade receivables in excess of 30 days past due and any other known uncollectible accounts except for allowances already made to the Accounts Receivable for doubtful accounts.
3. “Unbilled Revenue” is defined as fees for worksite employees related to the period from the last pay period ending date through the financial statement date, which have not yet been billed.
4. “Affiliated Party Trade Receivables” is defined as Affiliate trade receivables due within 90 days and incurred in the ordinary course of business with terms of payment similar to that of non-related clients and which, as of the reporting date, are not past due or otherwise in default.
5. “Affiliated Party Loan Receivables” is defined as Affiliate loan receivables due within 90 days and: (1) evidenced by a promissory note or similar instrument bearing a reasonable rate of interest, (2) amortized in substantially equal payments of principal and interest over not more than 60 months from the date of original advance, and (3) not past due or otherwise in default as of the reporting date.
6. “Accrued Salaries and Wages” is defined as salaries and wages due to worksite employees for work performed through the balance sheet date and which have not yet been paid.
7. “Payroll Taxes Payable” is defined as all payroll taxes withheld from worksite employees’ gross wages and the accrued portion of the PEO’s share of payroll taxes.
8. “Other Payroll Deductions” is defined as deductions withheld from worksite employee wages (e.g. garnishments, levies, savings accounts, all insurance and retirement benefit plan contributions, etc.) aside from taxes.
9. “Unearned Revenue” is defined as payments received from clients prior to delivery of services or the invoice date, including any client cash security deposits.
10. “Group Insurance Liabilities Payable” is defined as accrued or payable premiums, claims and administrative costs for group insurance benefit plans less any worksite employee contributions included in Other Payroll Deductions, excluding those amounts not due within 90 days.
11. “Workers’ Compensation Liabilities Payable” is defined as accrued or payable workers’ compensation premiums, claims and administrative costs, excluding those amounts not due within 90 days.
12. “Other Liabilities” is defined as all other accrued liabilities not included above (such as trade payables or loan payments) due and payable in the next 90 days.
9. “Fully Insured” insurance policy means, for purposes of determining compliance with these standards, any policy of insurance for which all benefits under the policy are guaranteed by an insurance company licensed to conduct business in the state or states in which such benefits are provided.
10. “Fully Funded” insurance policy means, for purposes of determining compliance with these standards, a type of Fully Insured insurance policy pursuant to which total premium cost is fully paid by the PEO in advance of the period for which coverage is provided and the PEO bears no risk of loss based upon actual claims experience.
11. “Loss sensitive” insurance policy means, for purposes of determining compliance with these standards, a type of Fully Insured insurance policy for which the final premium is determined after the end of the policy period based on actual claims experience and pursuant to which the licensed insurance company agrees to share contractually a portion of the financial risk with the PEO.
12. “Self Insured” or “Partially Self Insured” plan of insurance means for purposes of determining compliance with these standards, any plan of insurance under which all or any portion of the benefits to which insureds and beneficiaries are entitled are not payable under a Fully Insured insurance policy.
13. “Total Adjusted Liabilities” equals, for purposes of determining minimum equity standards, total liabilities as stated in the financial statements less obligations subordinated to claims of general creditors with a remaining term to maturity in excess of three years.
14. “Ultimate Liability” shall mean the total maximum liability of an accredited PEO or PEO Group from the source of liability being considered. For purposes of these Standards, primary sources of PEO liability include the payment of wages, payroll taxes, workers’ compensation and group life and health insurance premiums and/or claims, contributions to employee welfare and retirement plans, and general trade payables. Ultimate Liability shall include both (i) amounts currently due and payable as of the reporting date, and (ii) all amounts due and payable in the future for obligations incurred as of the reporting date. Generally Accepted Accounting Principles and generally accepted actuarial standards shall be used in determining Ultimate Liability, including in the case of insurance claims, appropriate consideration of incurred but not reported insurance claims, claims development, and effects of inflation on claims cost.
15. “Worksite Employee” is defined as any individual whose employment status with the PEO has been recognized by completion of Internal Revenue Service Form W-4, who is treated as an employee of the PEO on its payroll records, and who provides services for a client of the PEO pursuant to a PEO service contract.