ESAC Standards & Procedures

Operational Requirements Standards

  1. An ESAC-accredited PEO and its Controlling Persons shall operate in conformity with all applicable laws and regulations, including but not limited to state licensing and registration laws and regulations relative to PEO activities, shall not engage in any deceptive trade practices, shall not engage in misrepresentations of employer obligations and liabilities, and shall have a history free of such misrepresentations, illegal activities, violation of laws, acts of moral turpitude, and violations of PEO licensing and/or registration laws and related regulations. In reviewing such history, the Board may give consideration to mitigating circumstances and the severity of the offense.
  2. An ESAC-accredited PEO shall participate in the PEO Client Assurance Program administered by ESAC by executing a PEO Participation Agreement (Exhibit A, as may be amended from time to time), except for publicly traded companies with a minimum net worth of not less than the greater of (i) $5 million or (ii) 5% of total liabilities, which may elect to be accredited without participating in the PEO Client Assurance Program.
  3. An ESAC-accredited PEO participating in the PEO Client Assurance Program must offer the coverage provided by the program to each existing and new client by providing and encouraging each client to execute a Client Participation Agreement (Exhibit A of Exhibit A) with ESAC and the Employer Services Trust. Such written offering and encouragement to enroll shall be made to all existing clients within 90 days of the effective date of the PEO’s participation and shall be made to all new clients within 30 days of the effective date of the service agreement.
  4. An ESAC-accredited PEO shall assume contractually and in fact, as demonstrated by its client service agreement and worksite employee forms, policies, and procedures, the following employer attributes as it relates to its worksite employees:
    1. Responsibility, as required by law, for payment of worksite employee wages;

    2. Responsibility for withholding, reporting and paying all applicable payroll and employment taxes with respect to worksite employee wages;

    3. Responsibility for any worksite employee benefits that may be required by the service contract or by law, including ensuring that all worksite employees are covered by workers’ compensation insurance or its equivalent as permitted by state law;

    4. Shared responsibility with the client to hire, discipline and fire worksite employees and the contractual right to exercise such authority independent of the client, as required to comply with state and federal employment laws;

    5. Responsibility for maintaining worksite employee records as required by law;

    6. The reservation of a right of direction and control, while providing for the client’s right to direct the day-to-day conduct of the work;

    7. The reservation of a right to resolve and decide worksite employee grievances and disputes, subject to the terms of any collective bargaining agreements which may exist; and

    8. Shared responsibility for worksite safety and risk management, and a right to inspect the worksite to ascertain the nature and adequacy of work and safety conditions, while recognizing that the client maintains effective ownership of the worksite and work equipment.

    With respect to compliance with 4) a., b. and c., above, an ESAC-accredited PEO shall perform these duties as the responsible employer without regard to the receipt or adequacy of payment from the client for such services, however the provision for performance without regard to client payment does not have to be contained in the client service agreement except in jurisdictions where required by law or regulation.
  5. The terms of an ESAC-accredited PEO’s service agreement with each client shall be in writing.
  6. An ESAC-accredited PEO shall obtain from all worksite employees a written acknowledgment that they understand the nature of their employment relationship with the PEO and voluntarily accept such employment. Such acknowledgment may be included as part of another document or form executed by all worksite employees, or it may be a separate document used exclusively for this purpose.
  7. An ESAC-accredited PEO shall provide all worksite employees with written employment policies and procedures, although such policies and procedures may be supplemented with, or modified, to reflect specific policies and procedures applicable at each client worksite.
  8. 8) An ESAC-accredited PEO that maintains a self insured employee welfare benefit plan (e.g. group health insurance), if permitted by state and federal law, must meet the following minimum requirements:
    1. The plan shall comply with all applicable insurance and employee welfare benefit plan laws;

    2. The plan must have adequate excess loss insurance coverage if necessary to prevent material adverse impact on the financial condition of the PEO;

    3. The plan must use a third party claims administrator (“TPA”) licensed as required by state law;

    4. The self-funded nature of the plan must be adequately disclosed to each eligible worksite employee;

    5. Adequate financial reserves for the plan must be maintained in compliance with Financial Responsibility Standard number 6; and

    6. Plan assets, including participant contributions, must be held in trust for the exclusive benefit of participants and beneficiaries. The trust requirement is applicable to any self insured employee welfare benefit plan maintained by the PEO, whether funded through a cafeteria plan or not; provided that a flexible spending account maintained pursuant to a cafeteria plan shall not be considered a self insured employee welfare benefit plan for the purpose of this trust requirement.
  9. An ESAC-accredited PEO shall maintain workers’ compensation coverage for every worksite employee in accordance with state law. Such coverage shall be obtained from carriers or through plans of insurance admitted or otherwise approved by the states where the worksite employees perform their primary duties, pursuant to coverage provisions of state law. A PEO may allow the worksite employer to cover the assigned worksite employees under the worksite employer’s policies or plans of insurance, if permitted or required by state law, so long as the PEO obtains a certificate or policy endorsement naming the PEO as an additional insured or the equivalent evidence of coverage under state law. Under such circumstances, the PEO shall be responsible for ensuring that coverage is in fact provided for all assigned worksite employees. In states that permit employers to obtain alternatives to workers’ compensation insurance, a PEO may do so, provided the alternative coverage provided meets or exceeds the statutory minimum coverage required under workers’ compensation laws and written disclosure of the nature and limitations of the coverage, including exposure to tort suits, if applicable, is provided to all clients affected by the coverage.
  10. An ESAC-accredited PEO shall provide each client, within 90 days of becoming accredited or 30 days from inception of each new client arrangement, with a copy of an information package provided by ESAC (Exhibit D).
  11. An ESAC-accredited PEO shall not knowingly use the PEO/Client relationship to help the Client evade or avoid its obligations under the National Labor Relations Act or any collective bargaining agreement.
  12. An ESAC-accredited PEO shall not represent or imply that it is a seller of insurance in any of its sales and marketing materials or activities or engage in any activity that constitutes the sale of insurance except through duly licensed insurance agents.
  13. An ESAC-accredited PEO shall be able to provide to regulatory agencies in each applicable jurisdiction and to insurance carriers the following minimum information upon request:
    1. The name, address and tax I.D. number of any client added or terminated within 10 business days, or as required by state law.

    2. Payroll data by client, client SIC number, and workers’ compensation classification code.

    3. A listing of all worksite employees covered by workers’ compensation insurance by client worksite location and by classification code.

    4. Workers’ compensation certificates of insurance, or certificates of alternative coverage where permitted by state law.
  14. Except as provided in this standard, an ESAC-accredited PEO shall not be an Affiliate with a non-accredited PEO. An accredited PEO shall provide written notification to ESAC on or before the effective date of any transaction in which the accredited PEO becomes an Affiliate with a non-accredited PEO. Within ten (10) business days of the effective date of such a transaction, such accredited PEO shall notify its affected clients of the transaction in a form satisfactory to ESAC and shall provide ESAC with evidence satisfactory to ESAC that such notice was sent to clients. An affected client shall be a client of the ESAC-accredited PEO, if as a result of the transaction, either the ownership of the accredited PEO has changed or the services provided to such clients have changed or are reasonably expected to change in the foreseeable future.
    1. If the transaction is an acquisition, directly or indirectly, by (i) the ESAC-accredited PEO, (ii) an Affiliate of the ESAC-accredited PEO, or (iii) a Controlling Person with respect to the ESAC-accredited PEO, the following provisions shall apply:

      1. Within thirty (30) days of the effective date of such a transaction, such accredited PEO shall:

        1. Remit to ESAC an Acquisition Fee for each separate non-accredited PEO that became an Affiliate of the accredited PEO as a result of the transaction and a Controlling Person fee for each new Controlling Person; and

        2. Provide notice of any changes in Controlling Persons with the submission of applications for any new Controlling Persons; and

        3. Provide ESAC the terms of the transaction and information concerning any new Affiliates of the accredited PEO on such forms as ESAC may prescribe.

      2. In the event that after the transaction, there are no non-accredited PEOs that are Affiliates of the accredited PEO (whether by reason of merger of any acquired non-accredited PEO into the accredited PEO or acquisition of assets of a non-accredited PEO, or otherwise) the accredited PEO shall:

        1. Merge the financial affairs of the non-accredited PEO into the accredited PEO as of the effective date of the transaction, in which case the accredited PEO must submit a pro-forma balance sheet and computation of Adjusted Net Worth, Current Ratio, and Quick Ratio, indicating the impact of the merger on its financial position as of the effective date of the transaction no later than 90 days after the transaction’s effective date. Subsequent financial statements for the accredited PEO shall be submitted at the time required by accreditation maintenance procedures.

        2. With respect to ESAC operating standards not specifically required by applicable state or federal laws, within 12 months following the effective date of the transaction, bring the affairs and operations of the non-accredited PEO into compliance with such standards.

      3. In the event that the transaction is such that, after the consummation thereof, there is one or more non-accredited PEOs as an Affiliate(s) of the ESAC-accredited PEO:

        1. The ESAC-accredited PEO shall cause each non-accredited PEO that is an Affiliate of the accredited PEO to apply for accreditation within 90 days of the effective date of the transaction;

        2. Until such time as each non-accredited PEO that is an Affiliate of the accredited PEO becomes accredited, the accredited PEO shall:

          1. Continue to operate as a separate Entity with respect to each such non-accredited PEO;

          2. Market and provide its services under a separate and distinct trade name from each such non-accredited PEO and not allow any non-accredited PEO to use the trade name of the accredited PEO in any manner in sales and marketing or in client service or otherwise use the name of the accredited PEO in a manner that implies that such Entities are affiliated;

          3. Not guarantee or otherwise share in or be responsible for the liabilities of any non-accredited PEO;

          4. Not participate in any benefit or group workers’ compensation insurance policy or plan held, sponsored or co-sponsored by any non-accredited PEO or in which any non-accredited PEO also participates, nor allow any non-accredited PEO to cover clients or worksite employees by a workers’ compensation policy or plan, a benefit plan or group insurance program sponsored or co-sponsored by the accredited PEO; and

          5. Not engage in the transfer of clients from accredited PEOs to any non-accredited PEO or vice versa or allow a client sold by either of the entities to be signed or serviced under a PEO arrangement with the other entity.

        3. In the event any non-accredited PEO does not become accredited within 180 days from the effective date of the transaction, the accredited PEO must either (i) cease to be an Affiliate of the non-accredited PEO, or (ii) cease to be an accredited PEO as of the expiration of such 180 day period.

    2. If the transaction results in one or more non-accredited PEOs becoming an Affiliate of the ESAC-accredited PEO and such transaction is not described in paragraph a. above, the following provisions shall apply:

      1. Within thirty (30) days of the effective date of such a transaction, such ESAC-accredited PEO shall:

        1. Remit to ESAC an Acquisition Fee for each separate non-accredited PEO that became an Affiliate of the accredited PEO as a result of the transaction and a Controlling Person fee for each new Controlling Person;

        2. Provide notice of any changes in Controlling Persons with the submission of applications for any new Controlling Persons;

        3. Provide ESAC the terms of the transaction and information concerning any new Affiliates of the accredited PEO on such forms as ESAC may prescribe; and

        4. Provide ESAC with security in a form acceptable to ESAC, determined in its sole discretion, in an amount equal to the amount of financial assurance provided to the clients and employees of the accredited PEO, which security shall remain in effect until such time as all non-accredited PEOs that are Affiliates of the accredited PEO have become accredited.

      2. The following provisions shall apply as set forth below:

        1. Each non-accredited PEO that is an Affiliate of the ESAC-accredited PEO shall apply for accreditation within 90 days of the effective date of the transaction;

        2. Until such time as each non-accredited PEO that is an Affiliate of the ESAC-accredited PEO becomes accredited, the accredited PEO shall:

          1. Continue to operate as a separate Entity with respect to each such non-accredited PEO or an Affiliate of any non-accredited PEO, which shall prohibit without limitation, commingling funds of the accredited PEO with a non-accredited PEO or an Affiliate of any non-accredited PEO; withdrawal of funds of the accredited PEO by a non-accredited PEO or an Affiliate of any non-accredited PEO; and the transfer of assets by the accredited PEO to or for the benefit of a non-accredited PEO or an Affiliate of any non-accredited PEO;

          2. Make from its own accounts all payments of employment taxes, employee benefit premiums and contributions, and workers’ compensation premiums of the accredited PEO directly to the taxing authority, insurance carrier or plan administrator, as the case may be;

          3. By the 20th day of the following month, provide ESAC with a monthly certification signed by all Controlling Persons and a verification by an independent CPA of the timely and accurate payment of all payroll taxes, employee benefit contributions and insurance premiums of the accredited PEO in a manner acceptable to ESAC;

          4. Market and provide its services under a separate and distinct trade name from each such non-accredited PEO and not allow any non-accredited PEO to use the trade name of the accredited PEO in any manner in sales and marketing or in client service or otherwise use the name of the accredited PEO in a manner that implies that such Entities are affiliated;

          5. Not guarantee, assume or otherwise share in or be responsible for the liabilities of any non-accredited PEO or an Affiliate of any non-accredited PEO;

          6. Not participate in any benefit or group workers’ compensation insurance policy or plan held, sponsored, co-sponsored, issued or provided by any non-accredited PEO or an Affiliate of any non-accredited PEO or in which any non-accredited PEO or an Affiliate of any non-accredited PEO also participates, nor allow any non-accredited PEO or an Affiliate of any non-accredited PEO to cover clients or worksite employees by a workers’ compensation policy or plan, a benefit plan or group insurance program sponsored or co-sponsored by the accredited PEO;

          7. Not engage in any merger, combination or similar transaction in which the separate legal existence of the accredited PEO ceases;

          8. Not engage in the transfer of clients from accredited PEOs to any non-accredited PEO or an Affiliate of any non-accredited PEO or vice versa or allow a client sold by either of the entities to be signed or serviced under a PEO arrangement with the other entity; and

          9. Comply with all other standards and procedures required for maintaining accreditation, including the timely submission of any and all information requested by ESAC regarding Affiliates and Controlling Persons of Affiliates.

        3. In the event any non-accredited PEO that is an Affiliate of the accredited PEO does not become accredited within 180 days from the effective date of the transaction, the accredited PEO must either (i) cease to be an Affiliate of non-accredited PEO, or (ii) cease to be an accredited PEO on the expiration of such 180 day period.

      3. In the event of merger of such accredited PEO or similar transaction, prior to such time as all non-accredited PEOs that are Affiliates of the accredited PEO become accredited, in which the separate legal existence of the accredited PEO ceases, the accredited PEO shall cease to be accredited on the effective date of such merger or similar transaction.