AB 1515 adds a new Chapter 1 to Part 6 of Division 2 of the California Labor Code to require registration of professional employer organizations (PEOs) with the Division of Labor Standards Enforcement before they may provide or advertise PEO services in the state. The bill sets out three alternative ways a business can qualify as a PEO (federal certification, ESAC accreditation, or providing services under a written ongoing professional employer agreement), defines the core activities that count as "professional employer services," and allows the division to set an initial registration fee capped at the reasonable cost of registration.
Separately, the bill amends Labor Code section 6330 to require the Director of Industrial Relations to submit the Division of Occupational Safety and Health’s annual report to the Governor and to post the report on the Department of Industrial Relations website. For practitioners, AB 1515 signals new state-level oversight of co-employment arrangements and paperwork/insurance practices that currently operate under mixed federal and private accreditation regimes — creating compliance obligations for PEOs, potential operational changes for client employers, and new administrative work for state regulators.
At a Glance
What It Does
The bill makes it unlawful to provide or advertise professional employer services in California unless the provider is registered with the Division of Labor Standards Enforcement. It defines PEOs by three alternative routes (IRS certification under 26 U.S.C. §7705, ESAC accreditation, or delivering services under a written ongoing PEO agreement) and describes three concrete services that trigger the definition.
Who It Affects
Third-party HR/payroll providers that use their own FEIN to report wages, secure workers’ compensation, or offer employee benefit plans; small and mid-sized clients who outsource HR and payroll to PEOs; workers’ compensation carriers and the Division of Labor Standards Enforcement, which will administer registration and oversight.
Why It Matters
The measure brings an industry that has relied on federal certification and voluntary accreditation into a defined state regulatory perimeter, which can change liability lines, payroll and tax reporting practices, and insurance contracting. Compliance officers and HR leaders should expect registration, documentation demands, and potential reallocation of legal and insurance risk.
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What This Bill Actually Does
AB 1515 builds a short, targeted state framework around professional employer organizations. It starts with a definition: a PEO is either (1) certified under the federal PEO code, (2) accredited by the Employer Services Assurance Corporation (ESAC), or (3) any entity that provides a set of specified services under a written professional employer agreement meant to create an ongoing relationship with a client.
That third path is the catch-all: it captures traditional co-employment relationships even if the provider lacks federal certification or ESAC accreditation.
The bill then enumerates what counts as "professional employer services." The statute points to three operational signals: reporting employee wages under the PEO’s federal employer identification number, securing workers’ compensation insurance consistent with California law, and offering employee benefit plans. Those three actions operate as bright-line indicators a provider is functioning as a PEO for state regulatory purposes.Once an entity meets the definition, the statute prohibits it from providing, advertising, or otherwise holding itself out as providing those services in California unless it has registered with the Division of Labor Standards Enforcement.
The division may set an initial registration fee, but the fee cannot exceed the division’s reasonable cost of delivering the registration program. The bill does not spell out detailed registration criteria in the text provided (for example, bonding, financials, or disclosure obligations), nor does it attach a specific civil penalty schedule to unregistered activity within the chapter itself.Finally, AB 1515 amends Labor Code section 6330 to require the Director of Industrial Relations to send the Division of Occupational Safety and Health’s annual report to the Governor in addition to the Legislature and to post that report on the department’s website.
That change is aimed at transparency and public access to DOSH activity data, which may complement the division’s new visibility into PEO activity once registration begins.
The Five Things You Need to Know
The bill establishes three alternative paths to qualify as a PEO for California law: IRS certification under 26 U.S.C. §7705, ESAC accreditation, or providing services under a written professional employer agreement intended to create an ongoing relationship.
It identifies three operational triggers for "professional employer services": reporting employee wages using the PEO’s FEIN, securing workers’ compensation insurance (per specified Labor Code references), and offering employee benefit plans.
AB 1515 makes it unlawful to provide, advertise, or otherwise hold oneself out as providing professional employer services in California unless registered with the Division of Labor Standards Enforcement.
The division may charge an initial registration fee to PEOs, but the fee must not exceed the division’s reasonable cost of providing the registration service.
The bill amends Labor Code section 6330 to require the Director of Industrial Relations to submit DOSH’s annual activity report to the Governor and to post it on the Department of Industrial Relations website.
Section-by-Section Breakdown
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Definitions: 'division', 'PEO', and 'professional employer services'
This section defines the terms the registration regime uses. It ties the statutory label "PEO" to three concrete categories: (a) federal certification under §7705 of the Internal Revenue Code, (b) ESAC accreditation, or (c) performance of specified services under a written ongoing professional employer agreement. It then lists three activities that qualify as professional employer services — payroll reporting under the PEO’s FEIN, workers’ compensation procurement consistent with California law, and offering benefit plans — creating objective markers regulators can use to identify covered providers.
Registration prerequisite and prohibition on providing or advertising PEO services
This short but consequential provision prohibits any person from providing, advertising, or holding themselves out as a PEO in California unless they register with the Division of Labor Standards Enforcement. The text establishes a precondition to market activity rather than a voluntary disclosure program, shifting the burden to the provider to register before operating publicly as a PEO in the state.
Initial registration fee: capped at 'reasonable cost'
The division may set an initial registration fee for entities that register as PEOs, but the statute caps that fee at the division’s "reasonable cost" of providing registration. That phrasing permits cost recovery while signaling the fee cannot be used as a tax or revenue source beyond administrative cost — though the statute leaves methods for calculating and justifying "reasonable cost" to the division.
Director must send DOSH annual report to Governor and post online
This amendment clarifies delivery and public access for the Division of Occupational Safety and Health’s annual activity report: the Director now sends the report to the Governor as well as to the Legislature and must post it on the Department of Industrial Relations website. The change is procedural but increases transparency and centralizes access to DOSH enforcement and program data that regulators, advocates, and regulated entities use.
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Explore Employment in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Employees covered by PEO arrangements — clearer regulatory markers for PEO activity may improve oversight of workers’ compensation coverage and benefits administration, reducing gaps where payroll-recording or insurance procurement were ambiguous.
- State regulators and enforcement staff — registration creates a known universe of PEOs to monitor, making inspections, audits, and targeted investigations more feasible than chasing unregistered operators.
- Client employers that use established PEOs — firms already certified by the IRS or ESAC will have a clear compliance path and can use registration to demonstrate contractual and regulatory good standing to clients and insurers.
Who Bears the Cost
- PEOs and HR/payroll vendors that meet the statutory triggers — they must register, document operations, and pay an initial fee, and may face additional compliance costs if the division builds further reporting or oversight requirements.
- Small or informal providers of outsourced HR services — entities that previously operated without formal accreditation may be drawn into the regulatory perimeter and either need to invest in compliance or stop marketing certain services in California.
- Department of Industrial Relations and the Division of Labor Standards Enforcement — although the law allows cost recovery via a registration fee, the division will incur workload to design registration forms, vet applicants, and field complaints or enforcement actions, especially if the statute is followed by further rulemaking or monitoring mandates.
Key Issues
The Core Tension
The bill balances two legitimate policy goals—bringing an opaque, high-risk segment of the HR outsourcing market into state oversight to protect workers and employers, versus avoiding burdens that could drive small providers out of market or create conflicting obligations with federal certification and private accreditation regimes. Registration promotes transparency and accountability but imposes compliance costs and raises hard definitional questions that will determine whether the law clarifies the market or simply layers new paperwork on top of existing complexity.
AB 1515 creates a registration floor but leaves significant implementation details unresolved. The statute identifies objective activities (FEIN payroll reporting, workers’ comp procurement, benefits offering) as indicia of a PEO, but phrases such as "all or substantially all employees" and agreements "intended by the parties to create an ongoing relationship" are fact-intensive and could produce disputes about borderline providers (payroll wholesalers, PEO-lite vendors, or bundled benefits brokers).
The bill does not, within the text provided, set out financial responsibility standards (bonding, minimum capital), required disclosures to clients or employees, or an explicit enforcement and penalty regime tied to operating while unregistered — all items that typically determine how effective a registration program will be in practice.
The bill also sits atop overlapping federal and private regimes. Entities certified under IRS §7705 or accredited by ESAC are explicitly included, but California’s new registration requirement adds a state layer that could generate parallel obligations or conflicting reporting expectations (particularly around which FEIN is used for state payroll and unemployment insurance purposes).
Finally, the initial-fee cap at "reasonable cost" helps limit fee abuse but could leave the division underfunded if registration is paired with a heavy enforcement agenda; conversely, a high-cost registration process could discourage smaller providers from entering or continuing to operate in California.
These open questions point to the central implementation risk: registration alone can increase transparency, but without clear supplemental rules on disclosures, sanctions, financial fitness, and interagency coordination (with EDD, the Department of Insurance, and DOSH), the statute may shift operational confusion rather than resolve it.
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