LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
200 W. Washington St., Suite 301
Indianapolis, IN 46204
(317) 233-0696
iga.in.gov
FISCAL IMPACT STATEMENT
LS 6326 NOTE PREPARED: Dec 3, 2021
BILL NUMBER: HB 1033 BILL AMENDED:
SUBJECT: Professional Employer Organizations.
FIRST AUTHOR: Rep. Torr BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED: GENERAL IMPACT: State
XDEDICATED
XFEDERAL
Summary of Legislation: The bill provides that, for purposes of the unemployment compensation system
law, a professional employer organization (PEO):
(1) that enters into a professional employer agreement is not treated as a successor employer or as
receiving a transfer of a trade or business;
(2) that elects to use the PEO level reporting method is liable for contributions, interest, penalties,
and surcharges for the duration of a professional employer agreement unless the PEO elects to
change to the client level reporting method; and
(3) is permitted to apply certain wages to the maximum amount of wages that are subject to
contributions to the system.
The bill also provides that certain changes in a PEO relationship do not make a client a successor employer.
It provides that a PEO that has made an election to use the client level reporting method may file a request
for clearance with the Department of Workforce Development (DWD).
Effective Date: July 1, 2022.
Explanation of State Expenditures: The DWD would experience increased workload to change the way
that PEOs using the PEO level reporting method are treated under the state’s unemployment insurance
system. The costs to administer the unemployment insurance system are paid from federal funds.
Additional Information - PEOs contract with employers (client companies) to provide various services related
to human resources management, such as payroll processing, benefit management, and regulation
compliance. The PEO is considered a co-employer, meaning that the client’s employees work for both the
HB 1033 1 client company and the PEO. PEOs become the employer of record for the client company’s employees for
purposes of unemployment insurance.
Explanation of State Revenues: Unemployment Insurance Benefit Fund: The bill may reduce future
revenue to the Unemployment Insurance Benefit Fund if certain employers end a contract with a PEO and
avoid a higher state unemployment tax (SUTA) rate and the negative experience account associated with the
PEO. The bill may allow these employers to create a new employer experience account with a lower SUTA
tax rate. Under this bill, certain PEOs would also see their experience rating and SUTA tax rate change when
clients sever a relationship with the PEO. SUTA tax revenues may be reduced if neither the PEO’s nor the
client employers’ experience rating would account for unemployment claims made due to layoffs by client
employers before they severed the relationship with the PEO.
Additional Information - Under the bill, it is unclear when a client leaving a contract with a PEO using the
PEO level reporting method would be treated as a new employer and when they would retain experience
account balance, liabilities, and wage credits.
Under the unemployment insurance system, employers who lay off employees the most often have negative
experience accounts and pay higher SUTA tax rates. Under current law, when a client leaves a PEO reporting
at the PEO level, the client employer pays the same SUTA tax rates as the PEO for up to two years. Under
a PEO using the PEO level reporting method, all of the liabilities for unemployment benefits for the PEO
and all client employers are combined.
Most new employers pay a SUTA premium rate of 2.5% of the first $9,500 each of their employees earn. The
new employer rate for construction companies is the lower of 4.0% or the average rate for all construction
companies. The new construction company rate for 2021 is 2.50%. The new employer rate for a
governmental entity that does not elect to be reimbursable employer is 1.6%.
Explanation of Local Expenditures:
Explanation of Local Revenues:
State Agencies Affected: Department of Workforce Development.
Local Agencies Affected:
Information Sources: Professional Employer Organizations FAQ,
https://www.in.gov/dwd/indiana-unemployment/employers/professional-employer-organizations-faq/;
Unemployment Insurance Employer Handbook, https://www.in.gov/dwd/files/Employer_Handbook.pdf.
Fiscal Analyst: Camille Tesch, 317-232-5293.
HB 1033 2