Employer of record in Montana: PEO rules, payroll registration and what the client still owns (2026)

As of November 2026, Montana requires a license from the Department of Labor and Industry for any professional employer organization (PEO) that enters a professional employer arrangement or an employee leasing arrangement with a Montana client, under MCA Title 39, chapter 8; an unrestricted license costs $750 a year. Montana is a PEO-level reporting state: the licensed PEO reports unemployment wages as the employing unit and must provide workers' compensation for all its employees. The client, though, shares joint and several liability for any wages, premiums, payroll taxes and benefits the PEO leaves unpaid, and keeps duties such as workplace safety and Montana's good-cause discharge rule in mind.

This page is for a company outside Montana, or a staffing firm, deciding whether to employ a Montana worker through an employer of record (EOR) or PEO, or to register itself. The difference between an EOR, a PEO and payrolling is in what is an employer of record and payrolling services explained. The 1995 repeal of employment agency licensing and the PEO license basics are in staffing agency license in Montana, and the full state checklist is in hiring employees in Montana. This page adds what the client signs up to, who reports the wages, who insures the worker and what stays with you.

Montana employer of record and PEO rules at a glance

Does Montana license employer of record companies or PEOs?

Yes, and Montana's definition reaches further than most. Under MCA 39-8-102, a PEO is "a person that provides services of employees pursuant to one or more professional employer arrangements or to one or more employee leasing arrangements," or one that represents to the public that it does. An employee leasing arrangement is one under which a PEO "hires its own employees and assigns the employees to work for another person to staff and manage, or to assist in staffing and managing, a facility, function, project, or enterprise on an ongoing basis." There is no test of what share of your workforce is covered, so an EOR that hires one Montana worker for an open-ended role and assigns them to you fits the words.

• Penalties. Operating without a license is grounds for denial or revocation, and a person who fails to comply with the chapter "is guilty of a misdemeanor" with a fine of up to $1,000, up to a year in jail, or both (MCA 39-8-302).
• Finances. An unrestricted applicant keeps a tangible net worth of at least $50,000, shown by audited statements, or by compiled statements plus a $100,000 security deposit, and keeps positive working capital (MCA 39-8-202(6)-(7)).
• Ongoing duties. The PEO files, within 90 days after each quarter, a CPA's certification that all payroll taxes for the quarter were paid; notifies the department within 20 days when a client starts or ends an arrangement; keeps records for five years; and posts its license (MCA 39-8-207(2)).
• Provisional license. The department may let an applicant operate, at no charge, while its application is processed (MCA 39-8-202(11)).

The department's PEO program page publishes a list of licensed PEOs, says background checks of controlling persons are no longer required as of October 1, 2025, and tells businesses to "Verify that a PEO is licensed and in good standing." It adds: "Use of a PEO does not eliminate a business's legal liabilities; client companies may be liable for any unmet obligations by the PEO."

What if the provider calls itself an employer of record but has no Montana license?

Ask whether it claims to be a temporary service contractor: a business that "hires the person's own employees and assigns them to clients to fulfill a work assignment with a finite ending date" to support or supplement the client's workforce (MCA 39-8-102(12)). If your role has no end date, that exclusion is hard to claim. The other exclusions are narrow: commonly owned companies sharing employees, independent contractors with a Montana exemption certificate, and health care facilities lending their own staff.

The department's guide for PEOs also shows what happens when one operates before it is licensed: "the payroll must be reported under the client's UI account number until the PEO's license is approved." In other words, an unlicensed provider's Montana wages land on your account, and the joint liability described below still follows the contract.

What does a Montana client agree to in a PEO contract?

Montana prescribes the contract's disclosures, and they are unusually direct. MCA 39-8-207(1) requires a written contract that discloses the services, the administrative fee and each party's rights and obligations, and states that the PEO:

• "reserves a right of direction and control over employees assigned to the client's location," while the client may keep enough direction and control to conduct its business, discharge fiduciary duties and comply with licensing laws;
• "assumes responsibility for the payment of wages of employees, workers' compensation premiums, payroll-related taxes, and employee benefits from its own accounts without regard to payments by the client"; and
• "retains authority to hire, terminate, discipline, and reassign employees," with the client entitled to accept or cancel an assignment.

The contract must also state that "the client shares joint and several liability for any wages, workers' compensation premiums, and payroll-related taxes and for any benefits left unpaid" by the PEO, and that if the PEO's license is suspended or revoked, "this liability is retroactive to the client's entering into a contract with the licensee." It must say the client is responsible for compliance with the Montana Safety Culture Act (Title 39, chapter 71, part 15). Read those clauses before anything else: they are the price of the arrangement.

Who pays Montana unemployment tax on an EOR or PEO worker?

The PEO, as the employing unit. MCA 39-8-207(4)(b) says the PEO pays unemployment taxes and "For unemployment reporting purposes, each professional employer organization is the employing unit," keeping "separate records" and submitting "quarterly wage lists for each of its clients." The department's PEO guide for UI eServices (February 2025) explains the mechanics:

• "All PEO clients must have an individual UI account," holding the client's ownership, contact and industry details. The account is "linked to the PEO's UI account" and stays "inactive for purposes of quarterly reports, tax payment, and claims."
• "Montana is a PEO level reporting state," so correspondence goes to the PEO's mailing address.
• A client that was reporting its own Montana payroll must have its account inactivated as of its last payroll before the PEO adds it. If you later leave the PEO and run your own Montana payroll, ask the department how your account and rate will be handled.

If you employ Montana workers directly, you need your own account once total annual payroll reaches $1,000, per the department's employer handbook, which also says "it is against the law to deduct UI taxes from your employees' wages."

Who carries workers' compensation in Montana?

The Workers' Compensation Act "applies to all employers and to all employees," with listed exemptions (MCA 39-71-401). For PEOs, MCA 39-8-207 says:

• The PEO must "provide workers' compensation coverage for all employees," and "A license may not be issued" until the department receives proof of Montana coverage.
• Under a professional employer arrangement, the PEO and the client are both "the immediate employers" of the workers for workers' compensation; under an employee leasing arrangement, the PEO is.
• The PEO and client share the exclusive remedy of either party's policy, and if either one complies with 39-71-401 for a worker, neither is an uninsured employer for that worker.
• The PEO gives its insurer each client's name, tax ID, risk ID, employee list, class codes, payroll and first reports of injury, so each client's experience modification can be calculated.

Ask for the certificate showing your worksite and the class code used, and remember the contract makes you jointly liable for unpaid premiums.

Which Montana registrations, reports and notices still apply?

• Income tax withholding. The PEO must "pay wages and collect, report, and pay payroll-related taxes from its own accounts" (39-8-207(4)(a)). Employers subject to withholding register with the Department of Revenue, per its employer guide, and each new employee completes Form MW-4.
• New-hire reporting. "Within twenty (20) days from the date of hire," to the New Hire Reporting Program.
• Employment verification. Under the 2025 LEGAL Act, an employer keeps a copy of either the E-Verify result or a completed Form I-9 with document copies (MCA 39-2-1603); see E-Verify requirements in Montana. Agree which party keeps it.
• Notices. The PEO gives each assigned employee written notice of the relationship, including its right of direction and control and its authority to hire, fire and reassign (39-8-207(2)(a)). The wage and hour poster is on the department's labor law posters page.
• Paid leave programs. We found no Montana paid family leave or disability insurance program that needs a separate employer registration.

What does the client company still own in Montana?

• The probationary period. Under the Wrongful Discharge from Employment Act, a discharge is wrongful if it was "not for good cause and the employee had completed the employer's probationary period" (MCA 39-2-904). If no period is set "prior to or at the time the employee begins work," it is 12 months (MCA 39-2-910). Agree in writing who sets it, before the start date.
• Hiring rules. Recording with a hidden device needs the knowledge of all parties, so warn candidates at the start (see Montana recording consent law for interviews); applicant drug tests need a qualified testing program (see Montana drug testing laws); Montana's consumer reporting law limits most adverse items to seven years (see Montana background check laws); and there is no private-employer ban-the-box, salary history or pay-range law (see ban the box in Montana, salary history ban states and pay transparency laws by state).
• Non-competes. MCA 28-2-703 voids restraints on a lawful trade with narrow exceptions; see Montana non-compete law.
• Safety and insurance. The client answers for the Safety Culture Act, and assigned employees are the client's for its general liability, motor vehicle, fidelity, surety and liquor liability insurance (39-8-207(10)).
• Co-employment liability. Beyond the statutory joint liability, wage and discrimination claims can name both parties; see joint employer liability for staffing agencies.
• Federal payroll taxes. The IRS says the client "generally remains responsible" for employment taxes unless the PEO is IRS-certified; check the CPEO public listings.

When is registering your own company in Montana the better route?

• You would rather carry the liability directly. A PEO contract leaves you jointly liable for its unpaid wages, premiums and taxes; your own payroll replaces that with ordinary employer duties: a UI account at $1,000 of annual payroll, a Department of Revenue withholding account, Form MW-4, workers' compensation, LEGAL Act records and 20-day new-hire reports.
• You plan several Montana hires. You will set probationary periods and handle good-cause discharges yourself in any case.
• The work has a fixed end date. A temporary service contractor is outside the PEO license and may fit better.

Questions to ask an employer of record or PEO before signing for Montana

1. Are you on the Department of Labor and Industry's list of licensed PEOs, with an unrestricted or restricted license, and when does it expire?
2. If not, are you a temporary service contractor, and what is the finite end date of our worker's assignment?
3. Does your contract contain the disclosures MCA 39-8-207(1) requires, including the joint liability and Safety Culture Act statements?
4. Have you filed the quarterly CPA certification that payroll taxes were paid, and will you share it with us?
5. Will you register our client UI account and notify the department within 20 days when our arrangement starts and ends?
6. Who is the workers' compensation carrier, and which class code applies to our worker?
7. Who sets the probationary period, and who decides and documents any discharge?
8. Are you an IRS-certified PEO, and who is liable for federal employment taxes if a deposit is missed?
9. Can we move the worker to our own payroll later, and is there a conversion fee?

Employer of record rules in other western states: Washington, Oregon, Utah and Colorado.