An Act To Require Surety Bonding by Payroll Processing Companies (AFTER DEADLINE)
Maine Legislature, Session 121, LD 1843
Committee: Business, Research and Economic Development
Sponsors: DUNLAP, TREAT, HALL, BENNETT, BREAULT, FINCH, GROSE, MOODY, PERRY, THOMPSON, WOTTON
Amends: 10 MRSA §1495-A, 10 MRSA §1495-B, 10 MRSA §1495-C

12lst MAINE LEGISLATURE 
Legislative Document 
No. 1843 
H.P. l369 
House of Representatives, February 5, 2004 
An Act To Require Surety Bonding by Payroll Processing 
Companies 
(AFTER DEADLINE) 
(EMERGENCY) 
Approved for introduction by a majority of the Legislative Council pursuant to Joint Rule 
205. 
Reference to the Committee on Business, Research and Economic Development suggested 
and ordered printed. 
Presented by Representative DUNLAP of Old Town. 
!Jl~ 
/J7.71ldC~ 
MILLICENT M. MacFARLAND 
Clerk 
Cosponsored by Senator TREAT of Kennebec, Senator HALL of Lincoln and 
Representatives: BENNETT of Caribou, BREAULT of Buxton, FINCH of Fairfield, GROSE 
of Woolwich, MOODY of Manchester, PERRY of Calais, THOMPSON of China, WOTTON 
of Littleton. 
Printed on recycled paper 
Emergency preamble. Whereas, Acts of the Legislature do not 
become effective until 90 days after adjournment unless enacted 
as emergencies; and 
Whereas, payroll processing companies handle millions of 
dollars belonging to Maine businesses and residents, the State of 
Maine and the Federal Government; and 
Whereas, although these payroll processing companies have a 
fiduciary duty to the employers from whom the payroll processing 
companies receive this money, the business of payroll processing 
is relatively unregulated; and 
Whereas, this lack of regulation occasionally leads to the 
loss of large amounts of money through unscrupulous acts, the 
remedy for which is deficient; and 
Whereas, in the judgment of the Legislature, these facts 
create an emergency within the meaning of the Constitution of 
Maine 
and 
require 
the 
following 
legislation 
as 
immediately 
necessary for the preservation of the public peace, health and 
safety; now, therefore, 
Be it enacted by the People of the State of Maine as follows: 
Sec. 1. 10 MRSA §1495-A. as enacted by PL 1999, c. 172, §l 
and affected by §2, is amended to read: 
§1495-A. Reqistration required 
1. 
Genera11y. 
A payroll processor that conducts business 
in this State must register annually with the SEaEe-±aH-A££ess9F 
Department of Professional and Financial Regulation by January 
30th on a form designed and furnished by the assessor. 
2. 
Information required. 
The information required of a 
registrant must include the name 
and mailing address of the 
payroll processor, 
the 
physical 
location or 
locations 
where 
payroll processing services are performed, a list of the services 
performed for clients by the payroll processor and any other 
information the SEaEe-±aH-A££ess9F Department of Professional and 
Financial Regulation determines to be necessary. 
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4. 
Proof of surety bond. 
A registrant under subsection 1 
shall provide to the Department of Professional and Financial 
Regulation proof of the surety bond required pursuant to section 
1495-D. 
Sec. 2. 10 MRSA §1495-B, sub-§I, as enacted by PL 1997, c. 
495, §1, is amended to read: 
1. 
Generally. 
Except 
as 
provided 
by 
subsection 
2, 
a 
payroll processor shall provide a disclosure statement at the 
time of contracting and by September 1st of each even-numbered 
year to each employer for which it provides payroll processing 
services. 
The statement must be made on a form designed jointly 
by 
t::ae--S-t.-a-t-e---~a-lr-A55e5se~f the Department of Labor, Bureau of 
Employment 
SecuritYf 
and 
the 
Department 
of 
Professional 
and 
Financial Regulation, Office of Consumer Credit Regulation. 
The 
disclosure statement form must be provided by the assessor to 
payroll processors and must include at a minimum the following: 
A. 
The length of time 
been 
in 
the 
business 
services; and 
in which the payroll processor has 
of 
providing 
payroll 
processing 
B. 
A 
statement 
as 
to 
whether 
any 
services are contracted out to others 
services are contracted out and to whom. 
payroll 
and, if 
processing 
so, which 
Sec. 3. 10 MRSA §1495-C, sub-§I, ~B. as enacted by PL 1997, c. 
495, §1, is amended to read: 
B. 
A payroll processor that conducts business in this State 
and fails to register with the 8t:at:e-~aH-Assesse~ Department 
of Professional 
and Financial Regulation as 
required by 
section l495-A commits a civil violation for which a penalty 
of not less than $500 nor more than $2,500 may be adjudged. 
Sec. 4. 10 MRS A §1495-C, sub-§I. ~~C and D are enacted to read: 
C. 
A payroll processor that fails to maintain the surety 
bond required by section 1495-D or to provide proof of the 
surety bond to the Department of Professional and Financial 
Regulation as required by section 1495-A commits a civil 
violation 
adjudged 
violation 
for which a fine of up to $1, 000 per day may be 
for each day that the payroll 
p ocessor is in 
of the requirements of section 1495-A or 1495-D. 
D. 
A payroll processor 
who 
violates the provisions of 
section 1495-E commits a civil violation for which a fine up 
to or equal to the amount invested in violation of section 
1495-E may be adjudged. 
Sec. 5. 10 MRSA §§1495-D, 1495-E, 1495-F and 1495-G are enacted 
to read: 
§1495-D. 
Surety bonding 
1. 
Bond required: duration. 
Prior to commencing business 
in this State, a payroll processor shall obtain a surety bond in 
favor of the Treasurer of State for the benefit of persons as 
their 
interest 
may 
appear, 
executed 
by 
a 
surety 
company 
authorized to do business in this State and payable to any party 
injured under the terms of the bond. 
The payroll processor shall 
maintain the bond in full force while the payroll processor does 
business in this State and for a period of one year following the 
cessation of business in this State by that payroll processor. 
2. 
Minimum amount of bond. 
The amount of the surety bond 
required pursuant to this section must be at least equal to the 
4-year aggregate of all employer and employee taxes handled by 
the payroll processor. 
If a payroll processor does not have a 
4-year history, the amount of the bond must be at least $100,000. 
3. 
Cancellation notification. 
A surety company insuring a 
surety bond pursuant to this section shall immediately notify the 
Department of Professional and Financial Regulation when that 
bond is canceled or terminated or lapses. 
The notice must be in 
writing 
and 
must 
be 
transmitted 
by 
the 
surety 
company 
by 
electronic means as prescribed by the department 
The notice 
must include the name and address of the payroll 
·rocessor and 
the amount of the bond. 
§1495-E. 
Investment of funds 
A payroll processor may deposit or invest the funds handled 
by it only as described in this section. 
1. 
Deposits in insured institutions. 
Funds handled by a 
payroll processor may be invested in deposits or share accounts 
in any financial institution or credit union, as long as deposits 
or 
shares 
in the 
financial 
institution or credit 
union are 
insured by the Federal Deposit 
Insurance Corporation or 
the 
National Credit Union Administration. 
, 
• 
Legal investments . 
A pa.yroll processor may invest in 
the following: 
A. 
Government unit bonds, such as: 
(1) 
The bonds 
and other obligations of the United 
States 
or 
the 
bonds 
and 
other 
obligations 
or 
participation 
certificates 
issued 
by 
any 
agency, 
association, 
authority or instrumentality created by 
Congress or any executive order; 
(2) 
The 
bonds 
and 
other 
obligations 
issued 
or 
guaranteed by any state or by any instrumentality or 
agency of any state or by any political subdivision of 
any state, as long as those securities are rated within 
the 
highest 
grades 
by 
a 
nationally 
recognized 
statistical rating organization; 
( 3 } 
The 
bond~ 
and 
other 
Q;Qligations 
is~ueg 
or 
guaranteed 
by 
this 
State 
or 
is~ued 
by 
an 
instrumentality 
or 
agency 
of 
this 
State 
Qr 
any 
2Qlitical subdivision of this Stgtg that is not in 
defgult on gny of its 
Qut~tgnging funggd 
obliggtiQn~ l 
(4) 
The 
bonds 
and 
other 
obligations 
issued 
or 
guaranteed by 
the 
Dominion of 
Canada or 
issued or 
gUgranteeg by any 2rovince or politicgl subdivision of 
a 2rovince of the Dominion of Canada, as long as those 
securities are rated wi thin the 3 highest grades by a 
ngtiQnglly recognized statistical rating organization 
gng gre payable in United States funds; 
B. 
The bonds and other obligations of any United States 
COr2Qration, as long as those securities are rated within 
the 3 highest grades by a nationally recognized statistical 
rating 
organization. 
Not 
more 
than 
2% 
of 
the 
annual 
aggregate of funds handled by the 2ayroll 2rocessor may be 
invgsted in the securities of anyone such cor2oration, and 
the total of all such investments may not exceed 20% of the 
annual aggregate of funds handled by the 2gyroll 2rocessor; 
C. 
Any of the following: 
(l} 
The bonds, debentures, 
acceptan!;;;~s ang 
~Qmmercial 
pap~r of 
a 
financial 
instit,lJ,tion 
authorized 
to 
do 
busin~ss within this State or incor20rated under the 
laws 
of this State 
Qr 
the Qnited 
State~ or 
of 
a 
financial institution holding company rggistered undgr 
Title 
9-B, 
chapter 
101. 
For 
the 
purposes 
of 
this 
subsection, an out-of-state owner of a Maine financial 
institution or financial institution holding company is 
not 
considered 
a 
Maine 
financial 
institution 
or 
financial institution holding company: 
(2) 
The bonds, debentures, acceptances and commercial 
paper of a 
bank or bank holding company principally 
domiciled outside the State, as long as the bank's or 
holding company's bonds and debentures are rated in the 
highest grades by a nationally recognized statistical 
rating organization. In the case of commercial paper, 
the commercial paper must be rated in the 2 highest 
grades. 
In the 
case of acceptances, 
the bank's or 
holding company's ratings of its other obligations so 
listed must be rated in the 2 highest grades. The bank 
must also be insured by the Federal Deposit Insurance 
Corporation, and the holding company must be registered 
under the federal Bank Holding Company Act of 1956: and 
(3) 
Capital notes or debentures issued by a savings 
bank or savings and loan association chartered under 
the laws of any state or of the United States or of the 
Commonwealth 
of 
Puerto 
Rico, 
as 
long 
as 
that 
institution is insured by the Federal Deposit Insurance 
Corporation 
or 
Federal 
Savings 
and 
Loan 
Insurance 
Corporation or issued by a thrift institution holding 
company registered under the United States Housing Act, 
Section 408. These obligations must be rated in the 3 
highest grades by a nationally recognized statistical 
rating organization. 
A payroll processor may not acquire obligations of anyone 
bank or thrift, 
or bank or thrift holding company, 
not 
principally domiciled in this State in excess of 5°" of the 
annual aggregate of funds handled by the payroll processor: 
D. 
Mutual 
funds 
or 
trusts, 
as 
long 
as 
all 
of 
the 
investments of those mutual funds or trusts are permissible 
investments under this section: and 
E. 
United States or State Government guaranteed loans. 
§1495-F. 
Audits 
A payroll processor shall submi t 
to an annual audit to be 
conducted 
by 
the 
Department 
of 
Professional 
and 
Financial 
Regulation. 
§1495-G. 
Rulemaking 
~'" 
The Department of Professional and Financial Regulation may 
adopt routine technical rules pursuant to Title 5, chapter 375, 
subchapter 2-A to enforce the provisions of this chapter. 
Emergency clause. 
In view of the emergency cited in the 
preamble, this Act takes effect when approved. 
SUMMARY 
This bill strengthens the laws regarding payroll processors 
in the following ways: 
1. 
It requires a payroll processor to maintain a surety 
bond equal to the 4-year aggregate of all employer and employee 
taxes handled by the payroll processor. 
A new payroll processor 
or a processor without a 4-year history is required to obtain a 
bond of at least $100,000; 
2. 
It restricts the use of the funds held by the payroll 
processor 
to 
deposits 
in 
insured 
investments 
in 
government 
bonds 
commercial paper of other specific 
insti tutions 
are 
highly 
rated 
financial 
institutions 
or 
or 
the 
stocks, 
bonds 
or 
institutions as long as those 
by 
a 
nationally 
recognized 
statistical rating organization; 
3. 
It requires a bonding company to immediately notify the 
Department 
of 
Professional 
and 
Financial 
Regulation 
of 
the 
cancellation, termination or lapse of a surety bond; 
4. 
It imposes a civil penalty of up to $1,000 per day for 
each 
day 
that 
the 
payroll 
processor 
fails 
to maintain 
the 
required surety bond and a civil penalty up to or equal to the 
amount illegally invested by the payroll processor; 
5. 
It requires the payroll processor to submit to annual 
audits to be conducted by the Department of Professional and 
Financial Regulation; and 
6. 
It shifts from the State Tax Assessor to the Department 
of 
Professional 
and 
Financial 
Regulation 
oversight 
and 
responsibility for payroll processors.