North Carolina Insurance Department officials denied an ongoing licensure request of Castleton Group Inc., a professional employer organization based in Raleigh, “due to its hazardous financial condition.”
The Department, in dispute with Castleton since mid-2005, has repeatedly denied the PEO’s application for licensure because its financials have dipped to the point of insolvency, the hearing officer in the case ruled.
Department officials say all 89 of Castleton’s client companies, including approximately 3,000 employees, could be affected by this ruling. The decision comes as many client companies see a flurry of end-of-year activity, including processing holiday pay checks and preparing W-2 tax forms.
“We want Castleton’s client companies to be fully aware of this decision so they can review their situations,” said Insurance Commissioner Jim Long.
Professional employer organizations help manage employee related matters such as health benefits, workers’ compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. Clients contract with a PEO to assume these responsibilities and provide expertise in human resources management, allowing them to concentrate on the operational and revenue-producing side of its operations. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client’s worksite and by contractually assuming certain employer rights, responsibilities and risk.
Under a law passed in 2005, the Department of Insurance is the licensing body for PEOs.
Castleton Group has never been licensed under the 2005 law; however, that law allowed Castleton Group to keep operating pending the resolution of the licensing dispute. An applicant for an original or renewal PEO license must demonstrate a net worth of at least $50,000 according to language contained in the law.
The decision from the hearing officer in this case determined that the Castleton Group’s liabilities exceed its assets by some $6 million.
In addition, evidence showed that the company’s former chief financial officer admitted to filing false federal payroll tax reports, resulting in an estimated $8 million in unpaid federal payroll taxes.
The Department recommends that any client companies of Castleton Group immediately review their human resources needs in light of this decision. Companies that choose to seek services from a new PEO have 90 licensed organizations in North Carolina from which to choose. According to the National Association of Professional Employer Organizations Web site, there are about 700 PEOs currently operating in the U.S.
NAPEO Executive Vice President Milan P. Yager said the association has led aggressively in persuading states across the nation to regulate and monitor the financial condition of PEOs – including direct involvement in the creation of North Carolina’s law.
“In fact, that law makes it possible for the commissioner to take appropriate actions when necessary,” Yager added.
Castleton Group has filed an appeal with the Superior Court of Wake County, and has been granted a temporary stay of the license denial pending a full hearing on the merits of the stay motion that has been scheduled for Dec. 11.
Source: North Carolina Department of Insurance
Topics Commercial Lines Talent Business Insurance North Carolina
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