HR 2466 IHCommentsClose CommentsPermalink

112th CONGRESSCommentsClose CommentsPermalink

1st SessionCommentsClose CommentsPermalink

H. R. 2466CommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to clarify the employment tax treatment and reporting of wages paid by professional employer organizations.CommentsClose CommentsPermalink

IN THE HOUSE OF REPRESENTATIVESCommentsClose CommentsPermalink

July 8, 2011CommentsClose CommentsPermalink

Mr. BRADY of Texas (for himself, Mr. THOMPSON of California, Mr. HERGER, Mr. TONKO, and Mr. SAM JOHNSON of Texas) introduced the following bill; which was referred to the Committee on Ways and MeansCommentsClose CommentsPermalink

A BILLCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to clarify the employment tax treatment and reporting of wages paid by professional employer organizations.CommentsClose CommentsPermalink

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,CommentsClose CommentsPermalink

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Small Business Efficiency Act of 2011’.CommentsClose CommentsPermalink

SEC. 2. NO INFERENCE.

Nothing contained in this Act or the amendments made by this Act shall be construed to create any inference with respect to the determination of who is an employee or employer--CommentsClose CommentsPermalink





(1) for Federal tax purposes (other than the purposes set forth in the amendments made by section 3), orCommentsClose CommentsPermalink





(2) for purposes of any other provision of law.CommentsClose CommentsPermalink

SEC. 3. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.

(a) Employment Taxes- Chapter 25 of the Internal Revenue Code of 1986 (relating to general provisions relating to employment taxes) is amended by adding at the end the following new section:CommentsClose CommentsPermalink

‘SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.

‘(a) General Rules- For purposes of the taxes imposed by this subtitle--CommentsClose CommentsPermalink





‘(1) a certified professional employer organization shall be treated as the employer (and no other person shall be treated as the employer) of any work site employee performing services for any customer of such organization, but only with respect to remuneration remitted by such organization to such work site employee, andCommentsClose CommentsPermalink





‘(2) the exemptions and exclusions which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.CommentsClose CommentsPermalink





‘(b) Successor Employer Status- For purposes of sections 3121(a) and 3306(b)(1)--CommentsClose CommentsPermalink





‘(1) a certified professional employer organization entering into a service contract with a customer with respect to a work site employee shall be treated as a successor employer and the customer shall be treated as a predecessor employer during the term of such service contract, andCommentsClose CommentsPermalink





‘(2) a customer whose service contract with a certified professional employer organization is terminated with respect to a work site employee shall be treated as a successor employer and the certified professional employer organization shall be treated as a predecessor employer.CommentsClose CommentsPermalink





‘(c) Liability With Respect to Work Site Employees-CommentsClose CommentsPermalink





‘(1) GENERAL RULES- Solely for purposes of its liability for the taxes imposed by this subtitle--CommentsClose CommentsPermalink





‘(A) the certified professional employer organization shall be treated as the employer of any individual (other than a work site employee or a person described in subsection (e)) who is performing services covered by a contract meeting the requirements of section 7705(e)(2), but only with respect to remuneration remitted by such organization to such individual, andCommentsClose CommentsPermalink





‘(B) the exemptions and exclusions which would (but for subparagraph (A)) apply shall apply with respect to such taxes imposed on such remuneration.CommentsClose CommentsPermalink





‘(d) Special Rule for Related Party- Subsection (a) shall not apply in the case of a customer which bears a relationship to a certified professional employer organization described in section 267(b) or 707(b). For purposes of the preceding sentence, such sections shall be applied by substituting ‘10 percent’ for ‘50 percent’.CommentsClose CommentsPermalink





‘(e) Special Rule for Certain Individuals- For purposes of the taxes imposed under this subtitle, an individual with net earnings from self-employment derived from the customer’s trade or business (including a partner in a partnership that is a customer), is not a work site employee with respect to remuneration paid by a certified professional employer organization.CommentsClose CommentsPermalink





‘(f) Regulations- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.’.CommentsClose CommentsPermalink





(b) Certified Professional Employer Organization Defined- Chapter 79 of such Code (relating to definitions) is amended by adding at the end the following new section:CommentsClose CommentsPermalink

‘SEC. 7705. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.

‘(a) In General- For purposes of this title, the term ‘certified professional employer organization’ means a person who applies to be treated as a certified professional employer organization for purposes of section 3511 and who has been certified by the Secretary as meeting the requirements of subsection (b).CommentsClose CommentsPermalink





‘(b) Certification- A person meets the requirements of this subsection if such person--CommentsClose CommentsPermalink





‘(1) demonstrates that such person (and any owner, officer, and such other persons as may be specified in regulations) meets such requirements as the Secretary shall establish with respect to tax status, background, experience, business location, and annual financial audits,CommentsClose CommentsPermalink





‘(2) represents that it will satisfy the bond and independent financial review requirements of subsections (c) on an ongoing basis,CommentsClose CommentsPermalink





‘(3) represents that it will satisfy such reporting obligations as may be imposed by the Secretary,CommentsClose CommentsPermalink





‘(4) computes its taxable income using an accrual method of accounting unless the Secretary approves another method,CommentsClose CommentsPermalink





‘(5) agrees to verify the continuing accuracy of representations and information which was previously provided on such periodic basis as the Secretary may prescribe, andCommentsClose CommentsPermalink





‘(6) agrees to notify the Secretary in writing of any change that materially affects the continuing accuracy of any representation or information which was previously made or provided.CommentsClose CommentsPermalink





‘(c) Requirements-CommentsClose CommentsPermalink





‘(1) IN GENERAL- An organization meets the requirements of this paragraph if such organization--CommentsClose CommentsPermalink





‘(A) meets the bond requirements of subparagraph (2), andCommentsClose CommentsPermalink





‘(B) meets the independent financial review requirements of subparagraph (3).CommentsClose CommentsPermalink





‘(2) BOND-CommentsClose CommentsPermalink





‘(A) IN GENERAL- A certified professional employer organization meets the requirements of this paragraph if the organization has posted a bond for the payment of taxes under subtitle C (in a form acceptable to the Secretary) that is in an amount at least equal to the amount specified in subparagraph (B).CommentsClose CommentsPermalink





‘(B) AMOUNT OF BOND-CommentsClose CommentsPermalink





‘(i) IN GENERAL- For the period April 1 of any calendar year through March 31 of the following calendar year, the amount of the bond required is equal to the greater of--CommentsClose CommentsPermalink





‘(I) 5 percent of the organization’s liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year (but not to exceed $1,000,000), orCommentsClose CommentsPermalink





‘(II) $50,000.CommentsClose CommentsPermalink





‘(ii) SPECIAL RULE FOR NEWLY CREATED PROFESSIONAL EMPLOYER ORGANIZATIONS- During the first three full calendar years that an organization is in existence, subclause (I) of clause (i) shall not apply. For this purpose--CommentsClose CommentsPermalink





‘(I) under rules provided by the Secretary, an organization is treated as in existence as of the date that such organization began providing services to any client which were comparable to the services being provided with respect to work site employees, regardless of whether such date occurred before or after the organization is certified under subsection (b), andCommentsClose CommentsPermalink





‘(II) an organization with liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year in excess of $5,000,000 shall no longer be described in this clause (ii) as of April 1 of the year following such calendar year.CommentsClose CommentsPermalink





‘(3) INDEPENDENT FINANCIAL REVIEW REQUIREMENTS- A certified professional employer organization meets the requirements of this subparagraph if such organization--CommentsClose CommentsPermalink





‘(A) has, as of the most recent audit date, caused to be prepared and provided to the Secretary (in such manner as the Secretary may prescribe) an opinion of an independent certified public accountant as to whether the certified professional employer organization’s financial statements are presented fairly in accordance with generally accepted accounting principles, andCommentsClose CommentsPermalink





‘(B) provides to the Secretary an assertion regarding Federal employment tax payments and an examination level attestation on such assertion from an independent certified public accountant not later than the last day of the second month beginning after the end of each calendar quarter. Such assertion shall state that the organization has withheld and made deposits of all taxes imposed by chapters 21, 22, and 24 of the Internal Revenue Code in accordance with regulations imposed by the Secretary for such calendar quarter and such examination level attestation shall state that such assertion is fairly stated, in all material respects.CommentsClose CommentsPermalink





‘(4) SPECIAL RULE FOR SMALL CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS- The requirements of paragraph (3)(A) shall not apply with respect to a fiscal year of an organization if such organization’s liability under section 3511 for taxes imposed by subtitle C during the calendar year ending on (or concurrent with) the end of the fiscal year were $5,000,000 or less.CommentsClose CommentsPermalink





‘(5) CONTROLLED GROUP RULES- For purposes of the requirements of paragraphs (2), (3) and (4), all professional employer organizations that are members of a controlled group within the meaning of sections 414(b) and (c) shall be treated as a single organization.CommentsClose CommentsPermalink





‘(6) FAILURE TO FILE ASSERTION AND ATTESTATION- If the certified professional employer organization fails to file the assertion and attestation required by paragraph (3) with respect to a particular quarter, then the requirements of paragraph (3) with respect to such failure shall be treated as not satisfied for the period beginning on the due date for such attestation.CommentsClose CommentsPermalink





‘(7) AUDIT DATE- For purposes of paragraph (3)(A), the audit date shall be six months after the completion of the organization’s fiscal year.CommentsClose CommentsPermalink





‘(d) Suspension and Revocation Authority- The Secretary may suspend or revoke a certification of any person under subsection (b) for purposes of section 3511 if the Secretary determines that such person is not satisfying the representations or requirements of subsections (b) or (c), or fails to satisfy applicable accounting, reporting, payment, or deposit requirements.CommentsClose CommentsPermalink





‘(e) Work Site Employee- For purposes of this title--CommentsClose CommentsPermalink





‘(1) IN GENERAL- The term ‘work site employee’ means, with respect to a certified professional employer organization, an individual who--CommentsClose CommentsPermalink





‘(A) performs services for a customer pursuant to a contract which is between such customer and the certified professional employer organization and which meets the requirements of paragraph (2), andCommentsClose CommentsPermalink





‘(B) performs services at a work site meeting the requirements of paragraph (3).CommentsClose CommentsPermalink





‘(2) SERVICE CONTRACT REQUIREMENTS- A contract meets the requirements of this paragraph with respect to an individual performing services for a customer if such contract is in writing and provides that the certified professional employer organization shall--CommentsClose CommentsPermalink





‘(A) assume responsibility for payment of wages to the individual, without regard to the receipt or adequacy of payment from the customer for such services,CommentsClose CommentsPermalink





‘(B) assume responsibility for reporting, withholding, and paying any applicable taxes under subtitle C, with respect to the individual’s wages, without regard to the receipt or adequacy of payment from the customer for such services,CommentsClose CommentsPermalink





‘(C) assume responsibility for any employee benefits which the service contract may require the certified professional employer organization to provide, without regard to the receipt or adequacy of payment from the customer for such services,CommentsClose CommentsPermalink





‘(D) assume responsibility for hiring, firing and for recruiting workers in addition to the customer’s responsibility for hiring, firing and recruiting workers,CommentsClose CommentsPermalink





‘(E) maintain employee records relating to the individual, andCommentsClose CommentsPermalink





‘(F) agree to be treated as a certified professional employer organization for purposes of section 3511 with respect to such individual.CommentsClose CommentsPermalink





‘(3) WORK SITE COVERAGE REQUIREMENT- The requirements of this paragraph are met with respect to an individual if at least 85 percent of the individuals performing services for the customer at the work site where such individual performs services are subject to 1 or more contracts with the certified professional employer organization which meet the requirements of paragraph (2) (but not taking into account those individuals who are excluded employees within the meaning of section 414(q)(5)).CommentsClose CommentsPermalink





‘(f) Determination of Employment Status- Except to the extent necessary for purposes of section 3511, nothing in this section shall be construed to affect the determination of who is an employee or employer for purposes of this title.CommentsClose CommentsPermalink





‘(g) Regulations- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.’.CommentsClose CommentsPermalink





(c) Conforming Amendments-CommentsClose CommentsPermalink





(1) Section 45B of such Code (relating to credit for portion of employer social security taxes paid with respect to employees with cash tips) is amended by adding at the end the following new subsection:CommentsClose CommentsPermalink





‘(e) Certified Professional Employer Organizations- For purposes of this section, in the case of a certified professional employer organization that is treated, under section 3511, as the employer of a work site employee who is a tipped employee, the credit determined under this section does not apply to such organization, but does apply to the customer of such organization with respect to which the work site employee performs services. For this purpose the customer shall take into account any remuneration and taxes remitted by the certified professional employer organization.’.CommentsClose CommentsPermalink





(2) Section 3302 of such Code is amended by adding at the end the following new subsection:CommentsClose CommentsPermalink





‘(h) Treatment of Certified Professional Employer Organizations- If a certified professional employer organization (as defined in section 7705) (or a client of such organization) makes a payment to the State’s unemployment fund with respect to a work site employee, such organization shall be eligible for the credits available under this section with respect to such payment.’.CommentsClose CommentsPermalink





(3) Section 3303(a) of such Code is amended--CommentsClose CommentsPermalink





(A) by striking the period at the end of paragraph (3) and inserting ‘; and’ and by inserting after paragraph (3) the following new paragraph:CommentsClose CommentsPermalink





‘(4) a certified professional employer organization (as defined in section 7705) is permitted to collect and remit, in accordance with paragraphs (1), (2), and (3), contributions during the taxable year to the State unemployment fund with respect to a work site employee.’, andCommentsClose CommentsPermalink





(B) in the last sentence--CommentsClose CommentsPermalink





(i) by striking ‘paragraphs (1), (2), and (3)’ and inserting ‘paragraphs (1), (2), (3), and (4)’, andCommentsClose CommentsPermalink





(ii) by striking ‘paragraph (1), (2), or (3)’ and inserting ‘paragraph (1), (2), (3), or (4)’.CommentsClose CommentsPermalink





(4) Section 6053(c) of such Code (relating to reporting of tips) is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(8) CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS- For purposes of any report required by this section, in the case of a certified professional employer organization that is treated, under section 3511, as the employer of a work site employee, the customer with respect to whom a work site employee performs services shall be the employer for purposes of reporting under this section and the certified professional employer organization shall furnish to the customer any information necessary to complete such reporting no later than such time as the Secretary shall prescribe.’.CommentsClose CommentsPermalink





(d) Clerical Amendments-CommentsClose CommentsPermalink





(1) The table of sections for chapter 25 of such Code is amended by adding at the end the following new item:CommentsClose CommentsPermalink





‘Sec. 3511. Certified professional employer organizations.’.CommentsClose CommentsPermalink





(2) The table of sections for chapter 79 of such Code is amended by inserting after the item relating to section 7704 the following new item:CommentsClose CommentsPermalink





‘Sec. 7705. Certified professional employer organizations.’.CommentsClose CommentsPermalink





(e) Reporting Requirements and Obligations- The Secretary of the Treasury shall develop such reporting and recordkeeping rules, regulations, and procedures as the Secretary determines necessary or appropriate to ensure compliance with the amendments made by this Act with respect to entities applying for certification as certified professional employer organizations or entities that have been so certified. Such rules shall be designed in a manner which streamlines, to the extent possible, the application of requirements of such amendments, the exchange of information between a certified professional employer organization and its customers, and the reporting and recordkeeping obligations of the certified professional employer organization.CommentsClose CommentsPermalink





(f) User Fees- Subsection (b) of section 7528 of such Code (relating to Internal Revenue Service user fees) is amended by adding at the end thereof the following new paragraph:CommentsClose CommentsPermalink





‘(4) CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS- The fee charged under the program in connection with the certification by the Secretary of a professional employer organization under section 7705 shall not exceed $500.’.CommentsClose CommentsPermalink





(g) Effective Dates-CommentsClose CommentsPermalink





(1) IN GENERAL- The amendments made by this Act shall take effect on the January 1st of the first calendar year beginning more than 12 months after the date of the enactment of this Act.CommentsClose CommentsPermalink





(2) CERTIFICATION PROGRAM- The Secretary of the Treasury shall establish the certification program described in section 7705(b) of the Internal Revenue Code of 1986 not later than 6 months before the effective date determined under paragraph (1).CommentsClose CommentsPermalink