ESAC Standards & Procedures

Statement of Purpose and Operation

The Employer Services Assurance Corporation (ESAC) was established to operate as an independent, non-profit organization in 1994 by the National Association of Professional Employer Organizations for the purpose of providing services to the Professional Employer Organization (PEO) industry that could not be provided by an industry trade association.
ESAC’s purpose is to build trust and provide assurance to PEO clients, worksite employees, insurers, taxing authorities, regulators, and the general public by providing the following services to the PEO industry:

1. Administer a comprehensive accreditation process for PEOs to voluntarily demonstrate, in an independently verifiable manner, their compliance with important ethical, financial and operational standards;
2. Monitor ongoing compliance with those standards by ESAC-accredited PEOs on a quarterly basis;
3. Provide a financial assurance program with surety bonds held by the Employer Services Trust to back the performance of each accredited PEO; and
4. Work with accredited PEOs and other industry organizations to protect public interests and promote continued industry growth.

PEO participation in ESAC programs is totally voluntary. Membership in any industry trade association is not a prerequisite for participation.

ESAC is managed by its officers and staff under the supervision of a nineteen-member Board of Directors. Officers and directors are nominated by a nominating committee appointed by the president or by any participating PEO and are elected by the vote of a majority of participating PEOs. Seven of the director positions are designated for distinguished former regulators and the remaining twelve director positions are designated for experienced PEO industry executives representing various sizes of PEOs and various geographical regions.

Ad hoc industry committees, ESAC staff, and professional advisors to the Board, with the help and review of a broad-based Industry Advisory Board of PEO industry leaders, develop ESAC programs, standards and procedures. Participation requirements are based on studies of past industry failures and defaults, consideration of current industry best practices, consideration of the demonstrated strengths and weaknesses of various state PEO licensing and registration laws and applicable state and federal regulations, and the requirements of surety bond and insurance carriers backing ESAC programs. Participation requirements and program administrative procedures are offered for the broadest possible industry review, including all participating PEOs, ESAC surety and insurance carriers, the Industry Advisory Board, the National Association of Professional Employer Organizations, nationally recognized industry attorneys, and industry-related national regulatory organizations. Program features and requirements are approved by the Board of Directors by majority vote after considering all review comments and recommendations.

ESAC programs are administered in the most objective and professional manner possible by outsourcing key evaluation functions to independent service providers with nationally-recognized expertise in the areas of background investigations, monitoring of critical business functions, PEO employment and service practices, finance and accounting, and applicable state and federal regulations.

Annual fees paid by participating PEOs provide funding for ESAC programs. The accreditation fee schedule is established by majority vote of the Board of Directors as necessary to cover administrative and program costs. The Board diligently seeks to manage the affairs of ESAC in the most cost-effective manner possible consistent with accomplishing its mission and its nonprofit status.

Any ESAC-accredited PEO and Controlling Person, as a condition of eligibility for continued accreditation, agrees to be bound by the terms and conditions set forth in these Standards. Any applicant for accreditation or as a Controlling Person, as a condition of consideration of such application, agrees to be bound by the terms and conditions set forth in these Standards.

Eligibility

IMPORTANT NOTE: A PEO shall not be declared ineligible for accreditation based on it entering into a service arrangement that does not conform to the requirements of this section if the non-conformance of the arrangement is due to a requirement of state law, regulation or administrative rule applicable to PEOs operating in that state.

1. Any Professional Employer Organization (PEO) or group of Affiliated Professional Employer Organizations (PEO Group) is eligible to apply for accreditation and participation in the PEO Client Assurance Program.
2. A PEO is an organization that enters into professional employer arrangements with clients. Such arrangements are defined as those whereby an Entity agrees to employ all or a part of a client’s workforce and where employer responsibilities for those employees are in fact allocated between or shared by the PEO and the client. The employer responsibilities are deemed allocated between or shared by the PEO and the client whenever the agreement between the client and the PEO expressly provides for such allocation or sharing. The term “PEO arrangement” is to be liberally construed so as to include any and all arrangements meeting the above criteria by whatever term known. For these purposes, an “Entity” shall mean an organization, including but not limited to, a corporation, partnership, limited liability company, trust, association or joint venture, and shall also include an individual operating as a sole proprietorship. “Employer responsibilities” shall mean responsibilities generally performed by an employer including payment of wages and taxes, the right to provide benefits and to hire, direct, control, discipline and terminate employees.
3. The following shall not be subject to this definition:
1. Arrangements wherein an Entity whose principal business activity is not entering into a PEO arrangement, which shares employees with a commonly owned company within the meaning of section (414)(b) and (c) of the Internal Revenue Code of 1986, as amended, and which does not hold itself out as a PEO; or
2. Arrangements for which an Entity assumes responsibility as an independent contractor for a product produced or a service delivered by the client’s business, as well as assumes primary direction and control over the work performed by the assigned employees; or
3. A temporary help arrangement whereby an Entity hires its own employees and assigns them to a client to support or supplement the client’s workforce in special work situations such as employee absences, temporary skill shortages, seasonal workloads, and special assignments and projects; or
4. Any Entity for which less than five percent of its total gross wages paid to all employees is paid to employees under a PEO arrangement during its fiscal year, and provided that such Entity does not advertise or hold itself out to the public as a PEO; or
5. Administrative service arrangements wherein an Entity does not in fact employ all or part of a client’s workforce, and the administrative services are provided to the client for a fee without assumption of associated employer responsibilities and liabilities.