(a) All professional employer organization arrangements shall have a written contract between the client and the professional employer organization recognizing the rights, responsibilities, and duties of each party. The contract shall disclose to the client the services to be rendered by the professional employer organization, including the total administrative fees charged for professional employer organization services, the respective rights and obligations of the parties, and shall provide the following:

(1) The professional employer organization reserves a right of direction and control over contract employees and exercises that right in the context of the need to do so according to the terms and conditions of the professional employment agreement. The client, however, as an employer, may retain sufficient direction and control over covered employees necessary to conduct its business, and, without which, the client would be unable to conduct its business, discharge any fiduciary responsibility, or comply with any applicable licensure, regulatory, or statutory requirement.

(2) The professional employer organization assumes responsibility to pay wages to covered employees, withhold, collect, report, and remit payroll-related and unemployment taxes to the extent that the client employer has funded the obligations; 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 used in this section, the term 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, vacation, sick leave, or other paid time off pay, unless the professional employer organization has expressly agreed to assume liability for the payments in the professional employer agreement.

(3) Under the terms and conditions of the professional employment agreement, the professional employer organization and the client shall both have a right to hire, terminate, and discipline the covered employees subject to the terms of any collective bargaining agreements which may exist.

(4) The responsibility to obtain workers' compensation coverage for covered employees, from a carrier licensed to do business in this state and otherwise in compliance with all applicable requirements, shall be specifically allocated to either the client or the professional employer organization in the professional employer agreement.

(b) A professional employer organization shall provide written notice to each covered employee affected by any such professional employer agreement of the general nature of the co-employment relationship between and among the professional employer organization, the client, and the covered employee.

(c)(1) Except as specifically provided in this chapter or in the professional employer agreement, 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.

(2) 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 is necessary to conduct the business of the client, to discharge the fiduciary responsibilities of the client, or to comply with any licensure requirements applicable to client or to the covered employees.

(3) Except to the extent otherwise expressly provided by the applicable professional employer agreement, a client shall be solely responsible for the quality, adequacy, or safety of the goods or services produced or sold in a client's business.

(4) A client shall be solely responsible for directing, supervising, training, and controlling the work of the covered employees with respect to the business activities of the client and shall be solely responsible for the acts, errors, or omissions of the covered employees with regard to those activities.

(5) 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) Neither a professional employer agreement nor this chapter may be construed to diminish, abolish, or remove rights of covered employees as to clients or obligations of the client as to a covered employee existing prior to the effective date of a professional employer agreement.

(e) A covered employee is not, solely as the result of being a covered employee of a professional employer organization, an employee of the professional employer organization for purposes of general liability insurance, employment practices 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.

(f)(1) A professional employer organization shall be entitled to exercise only those rights and obligated to perform only those duties and responsibilities specifically required by this chapter and/or set forth in the professional employer agreement.

(2) A professional employer organization shall be deemed an employer of its worksite employees and perform the responsibilities designated in the professional employer organization arrangement and this chapter. A professional employer organization may not be liable for the acts, errors, or omissions of a client, 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 client.

(3) A client and a professional employer organization shall each be deemed an employer for purposes of sponsoring retirement and welfare benefit plans for their covered employees, however, in no case shall a health care benefit plan be deemed to be jointly sponsored by both the client and the professional employer organization. The professional employer agreement shall identify whether the client or the professional employer organization is the sponsor of any given health care benefit plan.

a. Any single employer health care plan sponsored by a professional employer organization that is required under the federal Employee Retirement Income Security Act "ERISA" to be governed exclusively by federal law shall not be subject to this chapter.

b. Any health care plan sponsored by the professional employer organization that is not required under the federal Employee Retirement Income Security Act "ERISA" to be governed exclusively by federal law shall be governed by the laws of the State of Alabama.

(4) A professional employer organization shall pay wages and collect, report, and pay employment related taxes and report and pay unemployment taxes for covered employees to the extent that the client employer has funded those obligations.

(5)a. For purposes of unemployment compensation, covered employees of a professional employer organization are considered the employees of the professional employer organization, which shall be responsible for the payment of contributions, penalties, and interest on wages paid by the professional employer organization to its covered employees during the term of the applicable professional employer agreement.

b. The professional employer organization shall report by client and pay all required contributions to the Unemployment Compensation Trust Fund using the state employer account number and the contribution rate of the professional employer organization.

c. On the termination of a contract between a professional employer organization and a client or the failure by a professional employer organization to submit reports or make tax payments as required by this chapter, the client shall be treated as a new employer without a previous experience record unless that client is otherwise eligible for an experience rating.

(6)a. A professional employer organization shall assure to the satisfaction of the secretary that workers' compensation coverage is provided for all covered employees employed in this state pursuant to the laws of this state. Failure to provide the secretary with proof of workers' compensation coverage shall subject the professional employer organization to a civil penalty of one thousand dollars ($1,000). In the event individual coverage is obtained for each client employer, failure to provide proof of coverage for each client employer shall constitute a separate finable offense.

b. If the responsibility to obtain workers' compensation coverage for covered employees is allocated in the professional employer agreement to the professional employer organization, the agreement shall require that the professional employer organization maintain and provide to each client, at the termination of the agreement if requested by the client, records regarding the loss experience related to workers' compensation insurance provided to covered employees pursuant to the agreement.

c. Each professional employer organization shall within 30 days notify the secretary and the workers' compensation insurance carrier, if applicable, of the initiation of a new client or the termination of the professional employer organization's relationship with any client for which the professional employer organization provides services for covered employees within this state.

d. Each professional employer organization shall further notify the secretary and its clients within 10 days of any notice of cancellation of workers' compensation coverage. Failure to provide notices shall subject the registrant to an administrative penalty of one hundred dollars ($100) per day for each day past the required notice.

e. Both the client and the professional employer organization shall be considered the employer for the purpose of workers' compensation coverage, and shall each be entitled to protection of the exclusive remedy provision of the workers' compensation laws of this state.

(7)a. The sale and provision of professional employer services in conformance with this chapter shall not constitute the sale of insurance. However, the following activities shall not be considered the sale or provision of professional employer services: (i) Exclusively providing, selling, or administering workers' compensation and/or health insurance plans to one or more clients; (ii) soliciting prospective clients based solely or primarily on representations of insurance coverage or cost advantages; or (iii) offering for sale or selling a policy of insurance to a client or employee. No professional employer organization shall function or hold itself out as an insurer or insurance producer unless appropriately licensed by this state. The Alabama Department of Insurance shall have exclusive control of determining what defines the sale of insurance.

b. A self-insured professional employer organization may not extend the use of its self-insurance certificate to any other person, firm, or corporation not specifically authorized by such certificate.