North Carolina Professional Employer Organization Bond: A Comprehensive Guide

August 5, 2022

North Carolina Professional Employer Organization Bond

This guide provides information for insurance agents to help their customers obtain a North Carolina Professional Employer Organization bond

At a Glance:

  • Average Cost: Between 1% to 7.5% of the bond amount per year based on the applicant’s credit history
  • Bond Amount: $100,000
    • Organizations whose liabilities outweigh their assets must purchase an additional bond in an amount equal to the distance between the two
  • Who Needs it: All professional employer organizations (PEOs) operating in North Carolina
  • Purpose: To ensure the public will receive compensation for financial harm if the PEO fails to comply with licensing law
  • Who Regulates Professional Employer Organizations in North Carolina: The North Carolina Department of Insurance

Background

North Carolina Statute 58-89A-35 requires all PEOs operating in the state to obtain a license from the Department of Insurance. The North Carolina legislature enacted the licensing requirement to ensure that PEOs engage in ethical business practices. To provide financial security for the enforcement of the licensing law, PEOs must purchase and maintain a $100,000 surety bond to be eligible for licensure. Additionally, PEOs whose liabilities are greater than their assets must purchase an additional bond in an amount equal to the difference between the two.

What is the Purpose of the North Carolina Professional Employer Organization Bond?

North Carolina requires professional employers to purchase a surety bond as part of the application process to obtain a business license. The bond ensures that the public will receive compensation for financial harm if the PEO fails to comply with the regulations outlined in North Carolina Statute 58-89A-1 et seq. Specifically, the bond protects the public if the PEO engages in any acts of fraud or misrepresentation. In short, the bond is a type of insurance that protects the public if the PEO violates the terms of its license.

North Carolina Professional Employer Organization Bond Form

North Carolina Professional Employer Organization Bond Form

How Can an Insurance Agent Obtain a North Carolina Professional Employer Organization Surety Bond?

BondExchange makes obtaining a North Carolina Professional Employer Organization bond easy. Simply login to your account and use our keyword search to find the “Employer” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

Not an agent? Then let us pair you with one!

BX Agent Finder Link

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Is a Credit Check Required for the North Carolina Professional Employer Organization Bond?

Surety companies will run a credit check on the owners of the PEO to determine eligibility and pricing for the North Carolina Professional Employer Organization bond. Owners with excellent credit and work experience can expect to receive the best rates. Owners with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit,” meaning that the credit check will not affect the owner’s credit.

How Much Does the North Carolina Professional Employer Organization Bond Cost?

The North Carolina Professional Employer Organization bond can cost anywhere between 1% to 7.5% of the bond amount per year. Insurance companies determine the rate based on several factors including your customer’s credit score and experience. The chart below offers a quick reference for the cost of a $100,000 bond requirement.

$100,000 Professional Employer Organization Bond Cost

Credit Score Bond Cost (1 year)
680+ $1,000
625 – 679 $1,500
575 – 624 $3,750
550 – 574 $5,000
500 – 549 $7,500

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

Who is Required to Purchase the Bond?

North Carolina requires all professional employer organizations (PEOs) to purchase a surety bond as a prerequisite to obtaining a business license. PEOs whose liabilities are greater than their assets must purchase an additional bond as well. To paraphrase North Carolina Statute 58-89A-5, a professional employer organization is a business that provides client companies with long-term workers and shares all employer responsibilities with them. PEOs are typically staff leasing services companies, employee leasing companies, staff leasing companies, and administrative employers.

Exemptions to this definition include:

  • Companies that provide temporary employees or independent contractors
  • Personnel placement services
  • Managed services
  • Payroll services not involving employee staffing/leasing
  • Commonly owned companies that share employees

How do North Carolina Private Employer Organizations Apply for a License?

PEOs in North Carolina must navigate several steps to obtain a license. Below are the general guidelines, but applicants should refer to the application form for details on the process.

License Period – All North Carolina PEO licenses are perpetual and will not expire unless surrendered or revoked. However, PEOs still must renew their licenses annually.

Step 1 – Determine the License/Registration Type

North Carolina requires PEOs to obtain either a license or De minimis registration. PEOs are eligible for a De minimis registration if they satisfy all of the following criteria:

    • Does not maintain a physical office in North Carolina
    • Does not employ salespersons that reside or operate in North Carolina
    • Does not have more than 50 employees in North Carolina
    • Is a licensed PEO in any state other than North Carolina
    • Is operated by and under the control of persons with good moral character

PEOs that do not meet all of the above requirements must obtain a license. Additionally, multiple PEOs that are owned by the same parent company may apply for a group license.

*The remaining steps focus exclusively on how to obtain a PEO license, as registration applicants are not required to obtain a bond.

Step 2 – Purchase a Surety Bond

All North Carolina PEOs must purchase and maintain a $100,000 surety bond. Additionally, PEOs whose liabilities are greater than their assets must purchase another bond in an amount equal to the difference between the two.

Step 3 – Purchase Insurance

PEOs or their client companies must purchase and maintain workers’ compensation insurance for all employees assigned in North Carolina

Step 4 – Complete the Application

All North Carolina PEO License applications should be emailed to [email protected](applicants must cc [email protected])

PEOs must complete the application in its entirety and submit the following items:

PEOs must pay a $1,000 application fee before receiving their license.

How do North Carolina Private Employer Organizations Renew Their Licenses?

All North Carolina PEO licenses are perpetual and will not expire unless surrendered or revoked. However, PEOs still must renew their licenses annually. The Department of Insurance will send the PEO a renewal notice containing instructions on how to renew their license.

What are the Insurance Requirements for North Carolina Professional Employer Organizations?

North Carolina does not require professional employer organizations to purchase any form of liability insurance as a prerequisite to obtaining a state license. However, PEOs must purchase workers’ compensation insurance for all assigned workers in North Carolina. All PEOs are required to purchase and maintain a $100,000 surety bond. PEOs whose liabilities outweigh their assets must purchase an additional bond in an amount equal to the difference between the two.

How Do North Carolina Professional Employer Organizations File Their Bonds?

Professional employer organizations should email their completed bond forms, including the power of attorney, to [email protected] (PEOs must cc [email protected]).

The surety bond requires signatures from both the surety company that issues the bond and from a representative of the PEO. The surety company should include the following information on the bond form:

  • Legal name of the entity/individual(s) buying the bond
  • Surety company’s name
  • Bond amount
  • Date the bond is signed

What Can North Carolina Professional Employer Organizations do to Avoid Claims Made Against Their Bonds?

To avoid claims against their bonds, professional employer organizations in North Carolina must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

  • Do not engage in any acts of fraud or misrepresentation
  • Pay all required taxes and fees

What Other Insurance Products Can Agents Offer North Carolina Professional Employer Organizations?

PEOs must purchase workers’ compensation insurance coverage for all employees assigned in North Carolina. Additionally, most PEOS will purchase liability insurance. Bonds are our only business at BondExchange, so we do not issue any other types of insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for North Carolina Professional Employer Organization Customers?

North Carolina conveniently provides a public database of active PEOs in the state. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

2022-08-08T09:39:36-04:00