Lessor Employing Unit / Professional Employer Organization Wage and Tax Reporting Information

What Is a Lessor Employing Unit?

The term “lessor employing unit” is defined as an independently established business entity which engages in the business of providing leased employees to any other employer, individual, organization, partnership, corporation, or other legal entity, referred to herein as a client. Any legal entity determined to be engaged in the business of “outsourcing” shall be considered a “lessor employing unit”. Additionally, the licensing requirements of the Arkansas PEO Recognition and Licensing Act (Arkansas Code Annotated 23-92-401 et seq.), as administered by the Arkansas Insurance Department, must be satisfied. Lessor employing units must obtain an employee leasing firm license from the Arkansas Department of Insurance, posting a surety bond in the amount required by them, and meeting other requirements of that licensing department. (The surety bond required for licensing is in addition to the bond requirements of the Division of Workforce Services.)

If, after three (3) years all contributions have been paid in a timely manner, the bond held for a bonded lessor employer may, upon request, be reduced from $100,000 to $35,000. Beginning July 1, 2005, bonded lessor employers must report wages for new clients on separate client accounts for three years; after which time, the bonded lessor employer shall report all wages under his own account number and federal ID number, using the assigned rate.

Non-bonded lessor employers must always report wages under separate client accounts.

In lieu of a surety bond, the lessor employing unit may deposit in a depository designated by the director securities with marketable value equivalent to the amount required for surety bond. The securities so deposited shall include authorization to the director to sell any such securities in an amount sufficient to pay any contributions which the lessor employing unit fails to promptly pay when due. [Reference Arkansas Code Annotated, Section 11-10-717 (e) (2) (B).]

The clients of lessor employing units must continue to report wages paid to their employees and pay the contributions due them until the lessor employing unit has complied with the security bond requirements as stated above.

In addition, in 2003 the following Division of Workforce Services Law was put into effect by the Arkansas Legislature: The employee leasing company is prohibited from moving the wages of a client from one leasing company account to another leasing company account with a lower rate. §11-10-717 (e) (2) (A) (iii).

A lessor employer who has not posted a Surety Bond or provided other acceptable collateral, must submit separate quarterly contribution and wage reports for each of its client entities. When an employer enters into a contract with an employee leasing company which has not posted a $100,000 surety bond, a new Division of Workforce Services account number will be issued. If the client has an existing account with DWS, it will be terminated, a new account number issued as a successor account, and the experience rating transferred to the successor account number. A new employer will have a new DWS number issued. The lessor information on the account will be the lessor Federal Identification Number, address, telephone number and lessor contact person. Individual client information will compose the remainder of the items.

If a client chooses to retain a portion of the employees, a multiple account will be generated with the parent account unit belonging to the client and the secondary unit having joint and several liability with the lessor employer.

In order for lessor accounts to be accurately maintained, a monthly list of clients added and deleted will be sent to the Arkansas Insurance Department, with a copy to the Division of Workforce Services. A Power of Attorney signed by the client’s representative should be submitted for each lessor client.

The provisions, as outlined herein, are not applicable to private employment agencies who provide their employees to employers on a temporary basis, provided that the private employment agencies are liable as employers for the payment of contribution on wages paid to temporary workers they employ. An example is a Temporary Help Firm, which is defined as a firm that hires its own employees and assigns them to clients to support or supplement the client’s workforce in work situations such as employees’ absences, temporary skill shortages, seasonal workloads and special assignments/projects. [Reference Arkansas Code Annotated, Section 11-10-717 (e) (5)].