KRS § 336.242 — KY Code / Title XXVII / Chapter 336 / Section 336.242
336.242 Rights, duties, and responsibilities of client and professional employer organization in a co-employment relationship -- Professional employer agreement -- Notice -- Imposition of taxes
Status: in_force

336.242 Rights, duties, and responsibilities of client and professional employer

organization in a co-employment relationship -- Professional employer

agreement -- Notice -- Imposition of taxes.

(1) Except as specifically provided in KRS 336.230 to 336.250, or in a professional

employer agreement, in each co-employment relationship:

(a) The client shall be entitled to exercise all rights, and shall be obligated to

perform all duties and responsibilities, otherwise applicable to an employer in

an employment relationship;

(b) The professional employer organization shall be entitled to exercise only those

rights, and shall be obligated to perform only those duties and responsibilities,

specifically required by KRS 336.230 to 336.250 or set forth in the

professional employer agreement. The rights, duties, and obligations of the

professional employer organization as co-employer with respect to any

covered employee shall be limited to those arising out of the professional

employer agreement and KRS 336.230 to 336.250 during the term of co-

employment by the professional employer organization of the covered

employee; and

(c) Unless otherwise expressly agreed by the professional employer organization

and the client in a professional employer agreement, the client retains the

exclusive right to direct and control the covered employees as necessary to

conduct the client's business, to discharge any of the client's fiduciary

responsibilities, or to comply with any licensure requirements applicable to

the client of the covered employees.

(2) Except as otherwise provided in KRS 336.230 to 336.250, the co-employment

relationship between the client and the professional employer organization, and

between each co-employer and each covered employee, shall be governed by the

professional employer agreement. Each professional employer agreement shall:

(a) Include the allocation of rights, duties, and obligations as set forth in

subsection (1) of this section;

(b) Provide that the professional employer organization shall have responsibility

to pay wages to covered employees; to withhold, collect, report and remit

payroll and unemployment taxes; and, to the extent the professional employer

organization has assumed responsibility in the professional employer

agreement, to make payments for employee benefits for covered employees as

a result of the outsourcing of payroll duty to the professional employer

organization by the client. As used in this paragraph, "wages" does not include

any obligation between a client and a covered employee for payments beyond

or in addition to the covered employee's salary, draw, or regular rate of pay

such as bonuses, commissions, severance pay, deferred compensation, profit

sharing, or vacation, sick, or other paid time off, unless the professional

employer organization has expressly agreed to assume liability for payments

in the professional employer agreement;

(c) Provide that the professional employer organization shall have a right to hire,

discipline, and terminate a covered employee as may be necessary to fulfill the

professional employer organization's responsibilities under KRS 336.230 to

336.250 and the professional employer agreement. The client shall have a

right to hire, discipline, and terminate a covered employee; and

(d) Provide that the responsibility to obtain and maintain workers' compensation

coverage for covered employees from an insurer licensed to do business in

this Commonwealth and otherwise in compliance with all applicable

requirements shall be specifically allocated to either the client or the

professional employer organization in the professional employment

agreement.

(3) A professional employer organization shall provide written notice to each covered

employee affected by a professional employer agreement entered into by a

professional employer organization. The notice shall set forth the general nature of

the co-employment relationship between and among the professional employer

organization, the client, and the covered employees. Nothing in this subsection shall

create a presumption of liability against a professional employer organization for

the acts, errors, or omissions of the covered employees. Notwithstanding any

provision to the contrary, the statute of limitations for a claim of a covered

employee against a professional employer organization shall not begin to run until

the covered employee knew or should have known about the professional employer

organization agreement and the identity of the professional employer organization,

but in no event shall the statute of limitations be more than one (1) year from the

date the original lawsuit was timely filed by the covered employee. Nothing in this

subsection shall limit the existing statute of limitations for any causes of action

contained in the original lawsuit for the covered employee.

(4) Except to the extent otherwise expressly provided by the applicable professional

employer agreement:

(a) A client shall be solely responsible for workplace safety and for the quality

and adequacy of the goods and services produced or sold in the client’s

business. Nothing in KRS 336.230 to 336.250 shall limit an injured workers'

ability to recover increased compensation under KRS 342.165 from the co-

employer;

(b) A client shall be solely responsible for directing, supervising, training,

retaining, and controlling the work of the covered employees with respect to

the business activities of the client and solely responsible for the acts, errors,

or omissions of the covered employees with regard to these activities. Nothing

in this subsection shall create a presumption of liability against a professional

employer organization for the acts, errors, or omissions of the covered

employees. Notwithstanding any provision to the contrary, the statute of

limitations for a claim of an injured party who is not a covered employee

against a professional organization shall not begin to run until the injured

party who is not a covered employee knew or should have known about the

professional employer organization agreement and the identity of the

professional employer organization, but in no event shall the statute of

limitations be more than one (1) year from the date the original lawsuit was

timely filed by the injured party who is not a covered employee. Nothing in

this paragraph shall limit the existing statute of limitations for any causes of

action contained in the original lawsuit for the injured party who is not a

covered employee;

(c) A client shall not be liable for the acts, errors, or omissions of a professional

employer organization, or of any covered employee of the client and a

professional employer organization when the covered employee is acting

under the express direction and control of the professional employer

organization;

(d) A professional employer organization shall not be liable for the acts, errors, or

omissions of a client or of any covered employee of the client when the

covered employee is acting under the express direction and control of the

client;

(e) Nothing in this subsection shall serve to limit any contractual liability or

obligation specifically provided in the written professional employer

agreement; and

(f) A covered employee is not, solely as a result of being a covered employee of a

professional employer organization, an employee of the professional employer

organization for the purposes of general liability insurance, fidelity bonds,

surety bonds, employer's liability which is not covered by workers'

compensation, or liquor liability insurance carried by the professional

employer organization unless the covered employees are included by specific

reference in the professional employer agreement and applicable prearranged

employment contract, insurance contract, or bond.

(5) A professional employer organization under KRS 336.230 to 336.250 is not

engaged in the sale of insurance or in acting as a third-party administrator by

providing professional employer services which include services and employee

benefit plans for covered employees.

(6) For purposes of the Commonwealth or any city, county, or other political

subdivision thereof:

(a) Covered employees whose services are subject to sales tax shall be deemed

the employees of the client for purposes of collecting and levying sales tax on

the services performed by the covered employee. Nothing contained in KRS

336.230 to 336.250 shall relieve a client of any sales tax liability with respect

to its goods or services;

(b) Any tax or assessment imposed upon professional employer services or any

business license or other fee which is based upon gross receipts shall allow a

deduction for the gross income or receipts of the business derived from

performing professional employer services that is equal to that portion of the

fee charged to a client that represents the actual cost of wages and salaries,

benefits, workers' compensation, payroll taxes, withholding, or other

assessments paid to or on behalf of a covered employee by the professional

employer organization under a professional employer agreement;

(c) Any tax or assessment or mandated expenditure on a per capita or per

employee basis shall be assessed against the client for covered employees and

against the professional employer organization for its employees who are not

covered employees co-employed with a client. Benefits or monetary

consideration that meet the requirements of mandates imposed on a client and

that are received by covered employees through the professional employer

organization either through payroll or through benefit plans sponsored by the

professional employer organization shall be credited against the client's

obligation to fulfill the mandates; and

(d) In the case of a tax or assessment imposed or calculated upon the basis of total

payroll, the professional employer organization shall be eligible to apply any

small business allowance or exemption available to the client for the covered

employees for purpose of commuting the tax.