Exempts amounts paid to a professional employment organization on behalf of employees hired by a client company. (HB502 HD1)

A BILL FOR AN ACT

SECTION 1. The purpose of this Act is to eliminate unfair taxation for those Hawaii businesses that may realize added efficiency and cost-effectiveness by contracting payroll and payroll-related functions. Since the contracting company renders general excise tax payments, it is appropriate to exempt the organization under such contract from further taxation on the same payroll moneys. The general excise tax would apply to the fee for the performance of the contracted services. The advantages of this rapidly growing trend on the mainland has not been well utilized in Hawaii because the taxation on payroll pass-through moneys can be substantially more than the fee for those services.

This tax exemption has precedence in Hawaii law such as in the operation of hotels, where management companies are reimbursed by hotels for similar payroll and related functions.

SECTION 2. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237- Professional employment organization payroll cost exemption. (a) As used in this section:

"Assigned employee" means an employee under a professional employment organization arrangement whose work is performed in the State. The term does not include an employee hired to support or supplement a client company's work force as temporary help. "Assigned employee" means the same as the term "leased employee" as defined in section 414(n) of the Internal Revenue Code, 1986, as amended.

"Client company" means a person that contracts with a professional employment organization and is assigned employees by the professional employment organization under that contract.

"Professional employment organization" means a business entity that offers to co-employ employees that are assigned to the work sites of its client companies.

"Professional employment organization services" means an arrangement by which co-employees of a professional employment organization are assigned to work at the client company and such assigned employee's assignment is intended to be of a long term or continuing nature, rather than temporary. The term does not include temporary help.

"Temporary help" means an arrangement by which an organization hires its own employees and assigns them to a client company to support or supplement the client's work force in a special situation, including:

(b) This chapter shall not apply to amounts received by a professional employment organization from a client company that is disbursed by the professional employment organization for employee wages, salaries, payroll taxes, insurance premiums, and benefits, including retirement, vacation, sick leave, health benefits and similar employment benefits with respect to assigned employees at a client company."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2000.