Licensing Requirements for Professional Employer Organizations

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Definitions of professional employment and staffing services

For licensing purposes, it is important to distinguish between placement agencies, placement agencies, and professional employer organizations (PEOs).

  • Placement agencies seek to place people in long-term positions in exchange for compensation from the applicant or potential employer. Placement agencies do not hire employees themselves and do not pay the people they place.
  • Placement agencies (or personnel leasing companies) mainly place temporary employees. Recruitment agencies hire their employees and they, not the client company, are the employer of record. Recruitment agency/employee leasing services can sometimes overlap with employers’ professional organization services, so be sure to check the definition of both with the relevant state when deciding whether this license is required.
  • A Professional Employer Organization (PEO) is a type of full-service human resources outsourcing known as co-employment. In this arrangement, the PEO performs various employee administration tasks, such as payroll and benefits administration, on behalf of a company. PEO services can sometimes overlap with employment agency/employee leasing services, so be sure to check the definition of both when deciding if this license is required.

State Licensing Requirements for Professional Employment and Staffing Services

Licensing requirements for businesses in this industry vary by state.

Typically, to obtain an employment and staffing services license, you must submit an application, fees, and supporting documentation.

Additionally, the application may require the CEO of your company to pass a state exam, obtain an individual professional license, and acquire a bond in the name of the entity. Other common requirements include sample proposed contracts and fee schedules, supporting financial statements and corporate documents.

Once obtained, professional employment and placement services licenses are valid for a certain period, usually one to three years, and must be renewed.

Some agencies may also need to obtain a business license and register with a state that has an employment services licensing requirement in order to conduct business in that state. This is regardless of whether or not the agency has a physical office in the state.

It is important to note that definitions and requirements can be very inconsistent.

For example, in Massachusetts, agencies that meet the definition of “employment agency” must be licensed. Agencies that meet the definition of “placement agencies” must be licensed as placement agencies or registered as placement agencies with the Department of Labor Standards (DLS). Registration and license are valid for one year. During the application process, the DLS will indicate whether a business is required by law to be licensed or registered. Another difference in Massachusetts is that PEOs must register with the DLS and obtain a bond.

In California, employment agencies are not required to be licensed, but they must obtain a bond and file a copy with the Secretary of State. Talent agencies are treated differently and must obtain a talent agency license.

There are also additional requirements for garment workers in California. Any company or agency that provides manufacturers with the services of employees engaged in the manufacturing process of garments or accessories must register and obtain a valid certificate of registration from the commissioner of labor as a contractor. Agencies must also provide the Commissioner with written notice each time they enter into or terminate an agreement to hire or release employees engaged in apparel manufacturing operations.

Maine also has unique licensing requirements. The state does not have a licensing requirement for employment agencies, but does allow licensing at the local level. Check with your county, city or municipality. In addition, staffing agencies and PEOs fall under “Employee Leasing Companies” and are required to register with the Maine Bureau of Consumer Credit Protection.

Ramifications of Non-Compliance

Failure to maintain a specific license or registration can result in significant penalties. Depending on the state, fines range from $1,000 to $25,000.

If you operate an unlicensed agency, you may also be ordered to return any money paid by a client. The state may also prohibit you from operating in its jurisdiction in the future.

CT can help

Outsourcing business registration and license research, management and renewals can help ease the strain on internal resources. By working with a full-service management provider that specializes in efficient commercial license processing, you can free up your time to focus on starting and growing your business while ensuring you keep up with changing compliance requirements.

For more information on Company CT services and how we can streamline your business licensing, please contact us or call us at (844) 701-2064.

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