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PUBLIC LAWS OF MAINE
Second Special Session of the 121st

CHAPTER 668
H.P. 1369 - L.D. 1843

An Act To Require Surety Bonding by Payroll Processing Companies

Be it enacted by the People of the State of Maine as follows:

     Sec. 1. 10 MRSA §1495, sub-§1-A is enacted to read:

     1-A. Administrator. "Administrator" means, except in cases in which the payroll processor is a wholly owned subsidiary of a supervised financial organization as defined by Title 9-A, section 1-301, subsection 38-A, the Director of the Office of Consumer Credit Regulation within the Department of Professional and Financial Regulation. In cases in which the payroll processor is a wholly owned subsidiary of a supervised financial organization as defined by Title 9-A, section 1-301, subsection 38-A, "administrator" means the Superintendent of Financial Institutions within the Department of Professional and Financial Regulation.

     Sec. 2. 10 MRSA §1495-A, as enacted by PL 1999, c. 172, §1 and affected by §2, is repealed.

     Sec. 3. 10 MRSA §1495-B, sub-§§1 and 2, as enacted by PL 1997, c. 495, §1, are repealed.

     Sec. 4. 10 MRSA §1495-B, sub-§§3 to 7 are enacted to read:

     3. Periodic reports to employers. On a regular basis not less frequently than quarterly, a payroll processor shall provide to each employer an accounting of:

     4. Disclosure of methods of verification. On a regular basis not less frequently than quarterly, a payroll processor shall clearly and conspicuously and in easily understood language disclose to each employer for which it provides payroll processing services the specific method or methods whereby each employer can contact state and federal tax and unemployment insurance authorities, including but not limited to Internet address and toll-free telephone number information, to verify that payments have been made and properly credited on behalf of the employer.

     5. Disclosure of limitations of surety bond. Whenever a payroll processor promotes, markets or advertises itself or its services and uses the phrase "bonded with the State" or "fully bonded" or other language that in the opinion of the administrator would lead an employer to believe that the bond coverage provides full compensation for potential losses should the payroll processor fail to make required payments or become insolvent, the payroll processor shall also include a clear and conspicuous disclaimer stating that use of the language referencing bonding does not signify or ensure that the bond will cover all potential claims if the payroll processor fails to comply with its responsibilities under this chapter. A payroll processor also shall provide this disclaimer to an employer before contracting for payroll processing services to that employer.

     6. Notices of nonpayment to be sent to employers. A payroll processor may not designate itself as the sole recipient of notices from state or federal authorities for nonpayment of taxes or unemployment insurance contributions. A payroll processor shall ensure that such notices are provided directly to the affected employers.

     7. Exception. A payroll processor that does not have the authority to access, control, direct, transfer or disburse a client's funds is not subject to this section.

     Sec. 5. 10 MRSA §1495-C, sub-§1, ¶B, as enacted by PL 1997, c. 495, §1, is amended to read:

     Sec. 6. 10 MRSA §§1495-D to 1495-I are enacted to read:

§1495-D.      Licensing; proof of insurance and bonding; fees

     1. License required. A person desiring to engage or continue in business in this State as a payroll processor shall apply to the administrator for a license under this chapter on or before January 31st of each year. The application must be in a form prescribed by the administrator. The administrator may refuse the application if it contains erroneous or incomplete information. A license may not be issued unless the administrator, upon investigation, finds that the financial responsibility, character and fitness of the applicant and, where applicable, its partners, officers or directors, warrant belief that the business will be operated honestly and fairly within the purposes of this chapter.

     2. Proof of fidelity insurance. Each applicant shall provide to the administrator proof of one of the following, at the applicant's option, in an amount 2 times the highest weekly payroll processed by the applicant in the preceding year or in the amount of $5,000,000, whichever is less:

     3. Proof of surety bond. Except as provided in section 1495-E, subsection 4, an applicant under subsection 1 shall provide to the administrator proof of the surety bond required pursuant to section 1495-E.

     4. Fees. The initial application and annual renewal application must include a fee of $250 if the payroll processor has fewer than 25 employers as payroll processing clients; $500 if the payroll processor has from 25 to 500 employers as payroll processing clients; and $750 for those payroll processors that have more than 500 employers as payroll processing clients. The aggregate of license fees and other fees and assessments provided for by this chapter is appropriated for the use of the administrator. Any balance of these funds does not lapse but must be carried forward to be expended for the same purpose in the following fiscal year.

§1495-E. Surety bonding

     1. Bond required; minimum amount; duration. Each application for a license under section 1495-D must be accompanied by evidence of a surety bond, in a form approved by the administrator, in an amount equal to the total of all local, state and federal tax payments and unemployment insurance premiums processed by the payroll processor on behalf of employers in this State in the 3-consecutive-month period of highest volume during the previous calendar year or $100,000, whichever is greater, but not to exceed $500,000. The bond must designate the administrator as payee. The bond paid to the administrator may be used for the purposes of the administrator and for the benefit of any employer who may have a cause of action against the payroll processor. The terms of the bond must run continuously until cancelled and the aggregate amount of the bond must be maintained at all times during the licensing period.

     2. Modification of bond terms. If bonding is unavailable under the terms and conditions of subsection 1, the administrator, within the administrator's discretion, may modify those terms and conditions so as to ensure the maximum practicable protection for employers.

     3. Cancellation notification. A surety company issuing a bond pursuant to this section shall immediately notify the administrator when that bond is cancelled or terminated or lapses. The notice must include the name and address of the payroll processor and the amount of the bond. The cancellation, termination or lapse is not effective until at least 30 days after the administrator receives notice.

     4. Exception. A payroll processor that does not have the authority to access, control, direct, transfer or disburse a client's funds is not subject to this section.

§1495-F. Powers of administrator

     1. Examinations. The administrator shall establish a program of regular examinations of payroll processors subject to the provisions of this chapter. The regular examinations must be conducted not less frequently than every 18 months. The administrator may, in the administrator's discretion, use an audit report of a payroll processor performed by the processor or another party to supplement or substitute for the administrator's own regular examination. In addition, the administrator may, at any time, conduct a special examination or investigation of any payroll processor the administrator believes has engaged in conduct that is a violation of any provision in this chapter. For purposes of both routine and special examinations and investigations, the payroll processor shall give the administrator free and reasonable access to the offices, places of business and records of the payroll processor, and the administrator may make and procure copies of those records, books, documents or other materials without employing the subpoena powers provided by subsection 2. For purposes of both routine and special examinations and investigations, and in addition to reviewing for compliance with other provisions of this chapter, the administrator may review the safety and soundness of the payroll processor, including but not limited to an examination of its assets and liabilities and its investments of employer funds to ensure that the payroll processor is utilizing prudent investment practices with respect to those funds.

     2. Subpoenas. For the purposes of this section, the administrator may administer oaths or affirmations and, upon the administrator's own motion or upon request of any party, may subpoena witnesses, compel their attendance, adduce evidence and require the production of any matter that is relevant to an examination or investigation, including the existence, description, nature, custody, condition and location of any books, documents or other material and the identity and location of persons having knowledge of relevant facts or any other matter reasonably calculated to lead to the discovery of admissible evidence.

     3. Inspection of records. If the payroll processor's records are located outside this State, that payroll processor, at the administrator's option, shall either make the records available to the administrator at a convenient location within the State or allow the administrator or the administrator's representatives to inspect them at the place where the records are maintained. The administrator may designate representatives, including comparable officials of the state in which the records are located, to inspect them on the administrator's behalf.

     4. Maintenance of records. A payroll processor shall maintain records of its payroll processing service activity in conformity with generally accepted accounting principles and practices and in a manner that will enable the administrator to determine whether the payroll processor is complying with the provisions of this chapter. The records need not be kept in the place of business where the activity took place if the administrator is given free access to the records, wherever located. All records relating to payroll processing services must be maintained for at least 6 years from the end of the fiscal year in which the activity took place.

     5. Enforcement. If an individual without lawful excuse fails to obey a subpoena or to give testimony when directed to do so by the administrator or obstructs the proceedings by any means, whether or not in the presence of the administrator, that individual is guilty of contempt. The administrator, through the Attorney General, may file a complaint in the Superior Court of the county in which an act on which the complaint is based was performed or in which the individual resides or transacts business setting forth the facts constituting the contempt and requesting an order returnable in not less than 2 days nor more than 5 days directing the individual to show cause before the court why the individual should not be punished for contempt. If the court determines that the individual has committed any alleged contempt, the court shall punish the offender for contempt.

     6. Expenses. At the discretion of the administrator, the expenses of the administrator necessarily incurred in the examination or investigation of any payroll processor engaged in conduct governed by this chapter may be charged to that payroll processor. That payroll processor may be assessed for the actual expenses incurred by the administrator, including, but not limited to, travel expenses and the proportionate part of the salaries and expenses of examiners engaged in the examination or investigation. Notice of any assessment of those costs must be given to the payroll processor by the administrator as soon as feasible after the close of the examination or investigation and the payroll processor must have the time specified by the administrator to pay the assessment, which may not be less than 30 days.

     7. Rules. The administrator may adopt reasonable rules governing payroll processors in accordance with this chapter. These rules are routine technical rules pursuant to Title 5, chapter 375, subchapter 2-A.

§1495-G.      Contracts and cooperation with other agencies

     1. Other agencies' staff. The administrator may employ and engage experts, professionals or other personnel of other state or federal regulatory agencies as may be necessary to assist the administrator in carrying out the regulatory functions of this chapter. The administrator may contract agency staff to other state and federal agencies to assist those other state and federal agencies in carrying out their regulatory functions.

     2. Cooperative agreements. The administrator may enter into cooperative agreements with other state, federal or foreign agencies to facilitate the regulatory functions of the administrator, including, but not limited to, the sharing between agencies of information that is otherwise confidential, coordination of examinations and joint examinations.

     3. Confidentiality. Any information furnished pursuant to this section by or to the administrator that has been designated as confidential by the agency furnishing the information remains the property of the agency furnishing the information and must be kept confidential by the recipient of the information except as authorized by the furnishing agency.

     4. Provision of information by state agencies. Notwithstanding any other provision of law, a state agency, including but not limited to the State Tax Assessor and the Department of Labor, shall provide such information to the administrator as is necessary for the administrator's enforcement of this chapter.

§1495-H. Enforcement actions

     A payroll processor that fails to obtain a license under section 1495-D_or that violates any provision of this chapter or any rule issued by the administrator, or through any unfair, unconscionable or deceptive practice causes or has the potential to cause damage to an employer or employee of that employer, is subject to one or more of the actions specified in this section:

     1. Cease and desist order. A cease and desist order.

     2. Bond forfeiture. After notice and hearing, forfeiture of that portion of the required bond as proportionately may make aggrieved parties whole;

     3. Civil action by administrator. A civil action seeking civil penalties, remedial action and injunctive relief by the administrator through the Attorney General, after which a court may assess a civil penalty of not less than $1,500 nor more than $7,500 per violation or order remedial or injunctive relief. When the violation consists of failure to maintain the surety bond required by section 1495-E, each day in which coverage is not provided constitutes a separate violation;

     4. Private civil action. A civil action by an aggrieved employer in which that employer has the right to recover actual damages from the payroll processor in an amount determined by the court, plus costs of the action together with reasonable attorney's fees;

     5. Regulatory oversight. Increased regulatory oversight by the administrator, including requiring reports or other information to be submitted at those times and in such forms as the administrator considers appropriate for the proper supervision and regulation of the payroll processor; and

     6. Action on license. Revocation, suspension or nonrenewal of the payroll processor's license.

§1495-I. Insolvency and liquidation

     1. Voluntary liquidation. A payroll processor who voluntarily ceases to do business in the State is subject to the following provisions.

     2. Involuntary liquidation. A payroll processor who is no longer eligible to do business in this State is subject to the following provisions.

     3. Judicial review. A payroll processor closed by action of the administrator pursuant to this chapter may bring an action challenging the administrator's appointment of receiver in Superior Court of Kennebec County or of the county in which the processor transacts business within 10 days after the administrator appoints a receiver. The court shall uphold the administrator's finding that a payroll processor is insolvent or that its condition is such as to render its further proceedings hazardous to the public or to those having funds in its custody and shall uphold the appointment of a receiver unless the court finds that the administrator's action was arbitrary and capricious.

     Sec. 7. 36 MRSA §112, sub-§4, as repealed and replaced by PL 1999, c. 127, Pt. A, §49, is amended to read:

     4. Examination of records and premises. Whenever necessary to the administration of this Title, the assessor may make, or cause to be made by an employee, an examination or investigation of the place of business, books and other documents and any other relevant personal property of any person who the assessor has reason to believe is liable for any tax imposed by this Title. The assessor may also examine the books and records of a payroll processor, as defined in Title 10, section 1495, and client books and records in the possession of a payroll processor.

At the conclusion of an audit, the assessor or an agent shall conduct an audit conference with the taxpayer and shall give the taxpayer a written summary of the audit findings, including the legal basis for the audit findings and adjustments, along with copies of relevant bureau audit workpapers.

     Sec. 8. 36 MRSA §182, sub-§2, as enacted by PL 2001, c. 583, §8, is repealed.

     Sec. 9. 36 MRSA §191, sub-§2, ¶¶AA and BB, as enacted by PL 2003, c. 390, §4, are amended to read:

     Sec. 10. 36 MRSA §191, sub-§2, ¶CC is enacted to read:

     Sec. 11. Appropriations and allocations. The following appropriations and allocations are made.

PROFESSIONAL AND FINANCIAL REGULATION, DEPARTMENT OF
Office of Consumer Credit Regulation
Initiative: Allocates funds for a Senior Consumer Credit Examiner position, a Clerk IV position and All Other administrative costs to administer the licensing program for payroll processors.
Other Special Revenue Funds 2003-04 2004-05

     Sec. 12. Effective date. This Act takes effect January 31, 2005.

Effective January 31, 2005.

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