Rules Relating to Insurance and Bond Requirements

NY-ADR

6/17/15 N.Y. St. Reg. DOS-22-15-00010-E
NEW YORK STATE REGISTER
VOLUME XXXVII, ISSUE 24
June 17, 2015
RULE MAKING ACTIVITIES
DEPARTMENT OF STATE
REGULATORY IMPACT STATEMENT, REGULATORY FLEXIBILITY ANALYSIS, RURAL AREA FLEXIBILITY ANALYSIS AND/OR JOB IMPACT STATEMENT
 
I.D No. DOS-22-15-00010-E
Rules Relating to Insurance and Bond Requirements
This regulatory impact statement, regulatory flexibility analysis, rural area flexibility analysis and/or job impact statement pertain(s) to a notice of Emergency rule making, I.D. No. DOS-22-15-00010-E, printed in the State Register on June 3, 2015.
Regulatory Impact Statement
1. Statutory Authority:
New York Executive Law § 91 and New York General Business Law (“GBL”) §§ 402(5); 404 and 405(2). Section 91 of the Executive Law authorizes the Secretary of State to: “adopt and promulgate such rules which shall regulate and control the exercise of the powers of the department of state.” In addition, Sections 401(5) and 404 of the GBL authorize the Secretary of State to promulgate rules specifically relating to the appearance enhancement industry. Section 405(2) requires an appearance enhancement licensee to be bonded or insured.
2. Legislative Objectives:
Article 27 of the GBL was enacted, inter alia¸ to provide a system of licensure of appearance enhancement businesses and operators that would allow for the greatest possible flexibility in the establishment of regulated services, while establishing measures to protect members of the public, including those who work in the industry. Consistent with this legislative intent, the Department is empowered to issue regulations that accomplish these purposes.
3. Needs and Benefits:
It has come to the attention of the Department that a number of appearance enhancement businesses may be engaging in exploitive practices to deprive practitioners and workers of wages due. Practitioners providing nail services to the public have been particularly impacted. While the regulations of the Department, in accord with statutory mandate, have long required bonding or insurance for the protection of the public welfare, the Department finds that new and more particularized bonding and insurance requirements are needed to help ensure that employees who provide nail specialty services receive the wages and benefits they have earned.
After consulting with the Department of Labor and advocacy groups, it was determined that this regulation is needed to help protect the wellbeing of practitioners and workers who provide nail specialty services to the public.
4. Costs:
a. Costs to Regulated Parties:
Prior regulatory requirements were primarily concerned with liability coverage, whether by bond or insurance. The majority of appearance enhancement business owners satisfied their obligations by obtaining an insurance policy in the required amount of $25,000 per occurrence and $75,000 in the aggregate. This rulemaking maintains such liability requirement and adds a new requirement that the business’ payment of wages and remuneration legally due employees and providers of appearance enhancement services be guaranteed in amounts keyed to the number of individuals employed by the business owner. Therefore, the cost to the regulated parties is the cost of acquiring the wage guarantee.
The Department is informed that for purchasers in good credit standing, the cost of acquiring a “wage bond” is likely to be 2 - 4% of the amount of the bond. Thus, a surety bond in the amount of $25,000 (1 – 4 employees) would range between $500 and $1,000. Businesses employing more individuals are required to maintain greater coverage. Bond amounts and cost of acquisition are as follows: $40,000 for 5 -10 individuals, $800 -$1,600; $75,000 for 11 – 25 individuals, $1,500 - $3,000, and $125,000 for 26 or more individuals, $2,500 - $5,000.
b. Costs to the Department of State, the State, and Local Governments:
The Department does not anticipate any additional costs to implement the rule. Existing staff will manage new filing requirements.
5. Local Government Mandates:
The rule does not impose any program, service, duty or responsibility upon any county, city, town, village, school district or other special district.
6. Paperwork:
The rule requires a licensee to file its bond with the Secretary and to notify the Secretary of the bond’s impending cancellation.
7. Duplication:
This rule does not duplicate, overlap or conflict with any other state or federal requirement.
8. Alternatives:
The Department considered not proposing the instant rulemaking. It was determined, however, that this rule is immediately needed to protect the general welfare of a significant population of practitioners who have been deprived of legally due wages.
9. Federal Standards:
The proposed amendments do not exceed any minimum standards of the federal government for the same or similar subject areas.
10. Compliance Schedule:
As stated in the emergency rule itself, compliance will be required by July 1, 2015.
Regulatory Flexibility Analysis
1. Effect of rule:
In addition to continuing the requirement that appearance enhancement business owners acquire and maintain liability insurance, this rulemaking requires appearance enhancement business owners to acquire and maintain a guarantee by a surety or insurer for the business’ payment of wages and remuneration legally due. The rule will protect appearance enhancement practitioners and workers from the exploitive and pernicious practice of wage theft. There are approximately 26,753 appearance enhancement businesses and 7,764 area renters in New York State that may be subject to this rule. Compliance is required depending upon the numbers of persons employed.
2. Compliance requirements:
Prior regulatory requirements provided that appearance enhancement business owners provide liability coverage, whether by bond or insurance, in the amount or $25,000 per occurrence and $75,000 in the aggregate. This rulemaking maintains such liability requirement, and adds a new requirement that the business’ payment of wages legally due employees and providers of appearance enhancement services be guaranteed in amounts keyed to the number of individuals employed by the business owner. The rule requires a licensee to file its bond with the Secretary and to notify the Secretary of the bond’s impending cancellation. Additionally, the rule maintains the current requirement to have evidence of such coverage at the licensed business premises.
3. Professional services:
The Department does not anticipate the need for professional services.
4. Compliance costs:
The Department is informed that for purchasers in good credit standing, the cost of acquiring a “wage bond” is likely to be 2 -4% of the amount of the bond. Thus, a surety bond in the amount of $25,000 (1 – 4 employees) would range between $500 and $1,000. Businesses employing more individuals are required to maintain greater coverage. Bond amounts and cost of acquisition are as follows: $40,000 for 5 -10 individuals, $800 -$1,600; $75,000 for 11 – 25 individuals, $1,500 - $3,000, and $125,000 for 26 or more individuals, $2,500 - $5,000.
5. Economic and technological feasibility:
The amount of coverage required and thus, the cost of acquiring such coverage, has been keyed to the relative size of the business. The smallest business identified, one that employees 1-5 individuals, may expend as little as $500 to comply. Accordingly, the Department believes it is both economically and technically feasible to comply with this rule.
6. Minimizing adverse impact:
The Department did not identify any alternatives that would achieve the results of the proposed rule and at the same time be less restrictive and less burdensome in terms of compliance. The Department has consulted with Department of Labor as well as several advocacy groups and finds this rule is necessary for the wellbeing of those who engage in appearance enhancement practices.
7. Small business and local government participation:
The Department, in conjunction with other state agencies, has consulted with small business interests that may be affected by this rule. The Korean American Nail Salon Association of New York, which represents a significant number of nail salon owners, was consulted as part of the Department’s efforts. Although this particular proposal was not presented, the group was, generally, supportive and amenable to the changes discussed.
8. Compliance:
As stated in the emergency rule, itself, compliance will be required by July 1, 2015.
9. Cure period:
The Department is not providing for a cure period prior to enforcement of these regulations. The Department finds that protecting the wages of workers is a significant public concern. In addition, as this rule is not effective until July 1, 2015, the Department believes that those employers impacted by this rule will have sufficient time to comply. Accordingly, the Department finds that a cure period is not appropriate.
Rural Area Flexibility Analysis
1. Types and estimated numbers of rural areas:
The rule will apply to appearance enhancement businesses that are licensed pursuant to Article 27 of the General Business Law. There are approximately 26,753 appearance enhancement businesses and 7,764 area renters across New York State that may be subject to this rule. Licensed owners are responsible for complying with this rule.
2. Reporting, recordkeeping and other compliance requirements; and professional services:
Prior regulatory requirements provided that appearance enhancement business owners provide liability coverage, whether by bond or insurance, in the amount or $25,000 per occurrence and $75,000 in the aggregate. This rulemaking maintains such liability requirement, and adds a new requirement that the business’ payment of wages and remuneration legally due employees and providers of appearance enhancement services be guaranteed in amounts keyed to the number of individuals employed by the business owner. The rule requires a licensee to file its bond with the Secretary and to notify the Secretary of the bond’s impending cancellation. Additionally, the rule maintains the current requirement to have evidence of such coverage at the licensed business premises. No different or additional compliance requirements apply to businesses located in rural areas.
3. Costs:
The Department is informed that for purchasers in good credit standing, the cost of acquiring a “wage bond” is likely to be 2 -4% of the amount of the bond. Thus, a surety bond in the amount of $25,000 (1 – 4 employees) would range between $500 and $1,000. Businesses employing more individuals are required to maintain greater coverage. Bond amounts and cost of acquisition are as follows: $40,000 for 5 -10 individuals, $800 -$1,600; $75,000 for 11 – 25 individuals, $1,500 - $3,000, and $125,000 for 26 or more individuals, $2,500 - $5,000.
4. Minimizing adverse impact:
The Department has consulted with Department of Labor, and several advocacy groups, but did not identify any alternatives that would achieve the results of the proposed rules and also be less restrictive and less burdensome in terms of compliance. Businesses in rural areas will not be impacted any more or less than businesses in other areas.
5. Rural area participation:
The Department, in conjunction with other state agencies, has consulted with business interests that may be affected by this rule. Publication of this rule in the New York State Register will provide notice to those in rural areas and afford everyone an opportunity to comment. The Department has also posted a copy of this rule on the Department’s website, which will provide additional opportunity for rural area participation.
Job Impact Statement
1. Nature of impact:
This rulemaking will help to insure the payment of wages lawfully due and owing to appearance enhancement practitioners and workers. Insomuch as this rulemaking will help protect workers, the Department believes that it will have a positive impact on jobs and employment opportunities. Specifically, more workers may seek employment in this industry if they know that their wages will now be guaranteed.
2. Categories and numbers affected:
There are approximately 26,753 appearance enhancement businesses and 7,764 area renters in New York State that may be subject to this rule.
3. Regions of adverse impact:
The proposed rulemaking will not have any disproportionate regional adverse impact on jobs or employment opportunities.
4. Minimizing adverse impact:
The Department considered not proposing the instant rulemaking. It was determined, however, that this rule is immediately needed to protect the general welfare of a significant population of individuals who have been deprived of legally due wages. The Department has consulted with Department of Labor and several advocacy groups, but did not identify any alternatives which would achieve the results of the proposed rules and at the same time be less restrictive and less burdensome in terms of compliance.
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