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Staff Leasing Services Adopted Rules

JUSTIFICATION FOR ADMINISTRATIVE RULE ADOPTION
Staff Leasing Services
16 TAC Chapter 72
§§72.10, 72.20 - 72.23 and 72.40

The Texas Commission of Licensing and Regulation (Commission) adopts amendments to existing rules at 16 Texas Administrative Code (TAC), Chapter 72, §§72.10, 72.20 - 72.23 and 72.40 regarding the Staff Leasing Services program. The amendments to §§72.10 and 72.20 - 72.23 are adopted without changes to the proposed text as published in the September 9, 2011, issue of the Texas Register (36 TexReg 5780) and the amendments to §72.40 are adopted with changes to the proposed text as published in the September 9, 2011, issue of the Texas Register (36 TexReg 5780). The effective date of the adoption is December 31, 2011.

The amendments implement House Bill 2249, 81st Legislature, Regular Session (2009), which made certain changes to Chapter 91, Texas Labor Code relating to Staff Leasing Service providers. These changes were effective December 31, 2011, and primarily address a new requirement that original and renewal applicants for a staff leasing license must establish positive working capital by providing an audited financial statement to the Texas Department of Licensing and Regulation (Department). Prior to this adoption, an applicant could utilize several options, including a letter of credit or bond to establish net worth. The new standard of positive working capital is a more stringent financial standard and providing audited statements is estimated to be more costly for applicants, but an increased protection for the public. A summary of each amended rule was included in the notice of proposed rules published in the September 9, 2011, issue of the Texas Register (36 TexReg 5780).

The amendment to §72.10 deletes definition of ‘Net Worth’ as a financial qualification to obtain a staff leasing license. The definition of ‘Working Capital’ is found in the statute.

The amendments to §§72.20 - 72.23 replace ‘net worth’ with ‘positive working capital’ as a requirement for initial and renewal licensure.

The amendment to §72.40 is rewritten and reorganized to set forth the information the Department requires to prove ‘positive working capital’ and what kinds of financial security may be provided to satisfy any deficiencies in an applicant’s positive working capital requirement.

The Department drafted and distributed the proposed rules to persons internal and external to the agency. The proposed rules were published in the Texas Register on September 9, 2011. The 30-day public comment period closed on October 10, 2011.

The Department received public comments from four interested parties: (1) Covenant Strategies, Inc. (2) Siddons Highway Construction Info., Inc. (3) Edgar, Kiker & Cross, PC and (4) a Certified Public Accountant (CPA). The comments are summarized below, together with the Department’s responses.

Each of the commenters expressed concern that the requirement of an audited financial statement was very costly, and the CPA expressed concern regarding §72.40(a)(3), which originally required that the date of the audited financial statement be no earlier than twelve (12) months from the date of the application for licensure or renewal. That commenter recommended extending the time frame to 18 months.

The Department responded that although it understands that there are additional costs involved with audited financial statements, it is unable to modify the requirement to provide audited financial statements because that requirement is mandated by statute. A state agency’s rules cannot change the requirements set forth in the statute.

Regarding the CPA’s request to roll back the date of the financials to 18 months prior to the application date, the Department initially responded in its presentation of the proposed rules to the Commission on November 1, 2011, that 18 months was too far back in time for an accurate and current ‘snapshot’ of the applicant’s working capital and during that same meeting, the Department offered as a compromise that it would be willing to allow affected applicants to revise their renewal dates, in order for the dates of the renewals and audited financials to correspond.

During its consideration of the adoption of these proposed amendments on November 1, 2011, the Commission considered the comments, the Department’s responses and the significant time required for preparing and submitting audited financial statements, and ultimately determined that financial statements dated no more than fifteen (15) months from the date of application would be a reasonable time to allow audited financials to be prepared and submitted. Therefore, the Commission adopted §72.40(a)(3) with one change, which included replacing ‘twelve’ with ‘fifteen’. The Commission adopted the other proposed amendments without any changes.

The amended rules are adopted under Texas Labor Code, Chapter 91 and Texas Occupations Code, Chapter 51, which authorize the Commission, the Department’s governing body, to adopt rules as necessary to implement these chapters and any other law establishing a program regulated by the Department.

The statutory provisions affected by the adoption are those set forth in Texas Labor Code, Chapter 91 and Texas Occupations Code, Chapter 51. No other statutes, articles or codes are affected by the adoption.

§72.10. Definitions.

The following words and terms, as used in this chapter and Texas Labor Code, Chapter 91, have the following meanings, unless the context clearly indicates otherwise.

(1) Department--Texas Department of Licensing and Regulation.

(2) Person--Any individual, partnership, corporation, or any other business entity.

(3) The Code--The Texas Labor Code, Chapter 91.

§72.20. License Requirements--Full License.

(a) Any person who performs or offers to perform staff leasing services as defined by the Code, must be licensed with the department.

(b) To obtain an original staff leasing services license, a person must provide the department with all of the following required information, on forms prescribed by the executive director:

(1) a completed registration form, including any applicable attachments or application forms;

(2) a completed personal information form from each controlling person as defined in Texas Labor Code §91.001(7);

(3) fingerprint cards for the applicant and any controlling persons;

(4) a completed criminal history questionnaire, as applicable;

(5) documentation from the Texas Secretary of State recognizing the person’s authority to do business in this state;

(6) proof of positive working capital as described under §72.40; and

(7) the required fees.

(1) A comparison of the person's fingerprints by appropriate state or federal law enforcement agencies with fingerprints on file; and

(2) A criminal history check with appropriate state and federal law enforcement agencies.

(d) Falsification of a required document by the applicant is grounds for denial and/or revocation of license.

(e) Falsification of documentation provided by a controlling person disqualifies that person from serving as a controlling person on the staff leasing services company.

§72.21. License Renewal Requirements--Full License.

(a) In order for a staff leasing services company to continue operating in this state, a license must be renewed annually.

(b) Non-receipt of a license renewal notice from the department does not exempt a person from any requirements of this chapter.

(c) To renew a staff leasing services license, a person must provide the department with all of the following required information, on forms prescribed by the executive director:

(1) a completed registration form, including any applicable attachments or application forms;

(2) a completed personal information form from each controlling person as defined in Texas Labor Code §91.001(7), or a form indicating there has been no change in the personal information form since the previous license application or renewal from each controlling person;

(3) fingerprint cards for any new controlling persons;

(4) a completed criminal history questionnaire, as applicable;

(5) proof of positive working capital as described under §72.40; and

(6) the required fees.

(d) Each individual applicant and all controlling persons of the staff leasing service company must submit to a background investigation as described in §72.20(c) each year at the time of renewal.

(e) Falsification of a required document by the applicant is grounds for denial and/or revocation of license.

(f) Falsification of documentation provided by a controlling person disqualifies that person from serving as a controlling person on the staff leasing services company.

(g) The department may refuse to renew a registration if the applicant or a controlling person of the applicant has violated Texas Labor Code, Chapter 91, this chapter, or a rule or an order issued by the commission or executive director.

§72.22. License Requirements-Limited License.

(a) To qualify for a limited license, a person at all times must:

(b) A person applying for a limited license must provide the department with all of the following required information, on forms prescribed by the executive director:

(1) a completed registration form, including any applicable attachments or application forms;

(2) a completed personal information form from each controlling person as defined in Texas Labor Code §91.001(7);

(3) a completed criminal history questionnaire, as applicable;

(4) proof of current licensure as a staff leasing services company, in good standing, if licensed in another state;

(5) documentation from the Texas Secretary of State recognizing the person’s authority to do business in this state;

(6) proof of positive working capital as described under §72.40; and

(7) the required fees.

(d) Falsification of documentation provided by a controlling person disqualifies that person from serving as a controlling person on the staff leasing services company.

(e) After the person obtains the limited license, the person must continue to meet all of the requirements under subsection (a) in order to retain the limited license. Failure to continue meeting the requirements will result in loss of the limited license.

§72.23. License Renewal Requirements--Limited License.

(a) In order for a limited license staff leasing services company to continue operating in this state, a limited license must be renewed annually.

(b) Non-receipt of a limited license renewal notice from the department does not exempt a person from any requirements of this chapter.

(1) employ less than 50 assigned employees in this state at any one time;

(2) not assign employees to client companies that are based or domiciled in the state;

(3) not maintain an office in this state; and

(4) not solicit client companies located or domiciled in this state.

(d) To renew a limited license, a person must provide the department with all of the following required information, on forms prescribed by the executive director:

(1) a completed registration form, including any applicable attachments or application forms;

(3) a completed criminal history questionnaire, as applicable;

(4) proof of current licensure as a staff leasing services company, in good standing, if licensed in another state;

(5) proof of positive working capital as described under §72.40; and

(6) the required fees.

(e) Falsification of a required document by the applicant is grounds for denial of the application and/or revocation of a license.

(f) Falsification of documentation provided by a controlling person disqualifies that person from serving as a controlling person on the staff leasing services company.

(g) The person must continue to meet all of the requirements under subsection (a) in order to retain the limited license. Failure to continue meeting the requirements will result in loss of the limited license.

§72.40. Proof of Positive Working Capital

(a) A person applying for an original license or a renewal license must demonstrate the person’s positive working capital according to the schedule set out in Texas Labor Code §91.014(a). Positive Working Capital must be demonstrated by the financial statement of the applicant that:

(1) is prepared in accordance with generally accepted accounting principles;

(2) is audited by an independent certified public accountant, and is without qualification as to the going concern status of the applicant;

(3) reflects positive working capital on a date not earlier than fifteen months before the date of the application; and

(4) is based on adequate reserves for taxes, insurance, and incurred claims that are not paid.

(b) An applicant that has not had sufficient operating history to have audited financial statements based on at least 12 months of operations must meet the financial capacity requirements required by the schedule in Texas Labor Code §91.014(a) and must provide the department with financial statements that have been reviewed by a certified public accountant.

(c) An applicant may satisfy any deficiencies in the working capital requirement as set forth in subsection (a) or (b), with one or more of the following:

(1) A guaranty with the most recent audited financial statement of the guarantor, demonstrating positive working capital according to the schedule set out in Texas Labor Code §91.014(a);

(2) A surety bond that:

(A) is issued by a surety authorized to do business in the State of Texas;

(B) conforms to the Texas Insurance Code;

(D) is payable to the executive director on behalf of persons who are injured because of a licensee’s violation of Texas Labor Code, Chapter 91 or this chapter; and

(E) states that the surety will provide the department 60 days prior written notice of its intent to cancel the bond;

(3) An original letter of credit that:

(A) is irrevocable;

(B) is issued by a qualified financial institution which is financially responsible in the amount of the letter of credit;

(C) does not require examination of the performance of the underlying transaction between the department and the licensee;

(D) is payable to the department on sight or within a reasonably brief period of time after presentation of all required documents; and

(E) does not include any condition that makes payment to the department contingent upon the consent of or other action by the licensee or other party; or

(4) Another form of security acceptable to the executive director.

(d) Any form of financial security used to satisfy a deficiency in applicant’s positive working capital under subsection (a) or (b) that is issued or written for a specified term must be replaced or renewed in accordance with this chapter.

(e) Any form of financial security used to satisfy a deficiency in applicant’s positive working capital under subsection (a) or (b) must be maintained by the licensee for the entire time the licensee continues to do business in this state.

(f) Any form of financial security used to satisfy a deficiency in applicant’s positive working capital under subsection (a) or (b) must be kept in effect until the later of:

(1) two years after the licensee ceases to do business in this state;

(2) two years after the licensee’s license expires; or

(3) the executive director receives satisfactory proof from the licensee and determines that the licensee has discharged or otherwise adequately met all its obligations under Texas Labor Code, Chapter 91 and this chapter.

(g) If any form of financial security under subsection (c) is canceled or lapses during the term of the licensee’s license, the licensee may not continue operations after the effective date of the cancellation or lapse, unless and until the licensee files with the executive director a valid form of financial security that meets the requirements provided by Texas Labor Code, Chapter 91, and this chapter and that provides coverage after that date.

(h) Cancellation or lapse of the financial security under subsection (c) does not affect the licensee’s liability before or after the effective date of the cancellation or lapse.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency’s legal authority.

Filed with the Office of the Secretary of State, on December 9, 2011.

William H. Kuntz, Jr.
Executive Director
Texas Department of Licensing and Regulation

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