Legislation Would Kill Hawaii’s Employee Leasing Industry

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BY JACK SCHNEIDER – The employee leasing industry was born in Hawaii in 1982, started by two companies, JS Services and Altres. At that time, there were approximately 40 companies throughout the United States providing this service.

The employee leasing industry, now called professional employer organizations (PEOs), provides an important avenue for small companies to remain in compliance with the numerous mandated benefits and policies that an employer faces.


The PEO takes care of their human resource functions, pays and files the payroll taxes, and pays and does the audits for workers’ compensation and temporary disability insurance. The PEO provides medical insurance, pays child support, provides retirement accounts, and does much more. The PEO allows the small businesses to concentrate on the reason that they went into business.

PEOs benefit not only the small employer but also the state.

The state departments of taxation and labor currently receive one accurate and timely tax filing from each PEO. Without PEOs they would receive hundreds of tax filings.

Over the past 30 years, numerous PEOs were formed throughout Hawaii. The industry grew and prospered. Some companies elected to grow by acquiring other PEOs and by expanding to the mainland. JS Services elected to remain small, ensuring total customer satisfaction and personalized service.

We have stressed honesty, integrity and transparency on every level, and have maintained these guiding principles up through the present day. We have elected to remain local, serving only Hawaii businesses.

During the last year of the Lingle administration, the two largest PEOs lobbied successfully for the passage of a PEO bill. That bill passed both legislative bodies, and Gov. Linda Lingle signed it into law as Act 139. This act provided for regulating the PEO industry in Hawaii. It called for numerous fees, expensive audits and a $250,000 performance bond.

Currently there is no bonding agency in Hawaii that I know of that will provide a $250,000 bond. The only option available is to place the amount in a bank, with the account controlled by the state. The bank would charge a substantial amount for the privilege of holding the PEO money.

Most states require a net worth of $50,000. If net worth is not $50,000, then either a “letter of credit” from a bank or surety bond from a surety company of $50,000 is required.

Nowhere else in the United States is the bonding requirement so onerous.

This act would be blatantly anti-competitive and was designed to eliminate the smaller PEOs while allowing the larger two or three PEOs to control the industry.

During the legislative session that just ended, Senate Bill 2424 was passed out of both legislative bodies and has gone to the governor for his signature. This bill raises the unobtainable performance bond amount up to between $500,000 and $1 million. This will guarantee the demise of numerous small or boutique PEOs.

Please call the governor @ 808-586-0034 and request that he please veto the bill.