Small Business Efficiency Act - Amends the Internal Revenue Code to treat professional employer organizations (PEOs), certified by the Internal Revenue Service (IRS), as employers for employment tax purposes (thus allowing such PEOs to pay wages and collect and remit payroll taxes on behalf of an employer).
Sets forth IRS certification requirements for PEOs, including financial review and reporting requirements. Requires a PEO to post a bond each year, up to $1 million, to guarantee payment of employment taxes.
[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3581 Introduced in House (IH)]
113th CONGRESS
1st Session
H. R. 3581
To amend the Internal Revenue Code of 1986 to clarify the employment
tax treatment and reporting of wages paid by professional employer
organizations, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
November 21, 2013
Mr. Brady of Texas (for himself and Mr. Thompson of California)
introduced the following bill; which was referred to the Committee on
Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to clarify the employment
tax treatment and reporting of wages paid by professional employer
organizations, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Efficiency Act''.
SEC. 2. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.
(a) Employment Taxes.--Chapter 25 of the Internal Revenue Code of
1986 is amended by adding at the end the following new section:
``SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.
``(a) General Rules.--For purposes of the taxes, and other
obligations, imposed by this subtitle--
``(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, and
``(2) exclusions, definitions, and other rules which are
based on the type of employer and which would (but for
paragraph (1)) apply shall apply with respect to such taxes
imposed on such remuneration.
``(b) Successor Employer Status.--For purposes of sections
3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)--
``(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, and
``(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.
``(c) Liability of Certified Professional Employer Organization.--
Solely for purposes of its liability for the taxes, and other
obligations, imposed by this subtitle--
``(1) a 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 (f)) 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,
and
``(2) exclusions, definitions, and other rules which are
based on the type of employer and which would (but for
paragraph (1)) apply shall apply with respect to such taxes
imposed on such remuneration.
``(d) Treatment of Credits.--
``(1) In general.--For purposes of any credit specified in
paragraph (2)--
``(A) such credit with respect to a work site
employee performing services for the customer applies
to the customer, not the certified professional
employer organization,
``(B) the customer, and not the certified
professional employer organization, shall take into
account wages and employment taxes--
``(i) paid by the certified professional
employer organization with respect to the work
site employee, and
``(ii) for which the certified professional
employer organization receives payment from the
customer, and
``(C) the certified professional employer
organization shall furnish the customer with any
information necessary for the customer to claim such
credit.
``(2) Credits specified.--A credit is specified in this
paragraph if such credit is allowed under--
``(A) section 41 (credit for increasing research
activity),
``(B) section 45A (Indian employment credit),
``(C) section 45B (credit for portion of employer
social security taxes paid with respect to employee
cash tips),
``(D) section 45C (clinical testing expenses for
certain drugs for rare diseases or conditions),
``(E) section 45R (employee health insurance
expenses of small employers),
``(F) section 51 (work opportunity credit),
``(G) section 51A (temporary incentives for
employing long-term family assistance recipients),
``(H) section 1396 (empowerment zone employment
credit),
``(I) 1400(d) (DC Zone employment credit),
``(J) Section 1400H (renewal community employment
credit), and
``(K) any other section as provided by the
Secretary.
``(e) Special Rule for Related Party.--This section 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'.
``(f) 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 is not a
work site employee with respect to remuneration paid by a certified
professional employer organization.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Certified Professional Employer Organization Defined.--Chapter
79 of the Internal Revenue Code of 1986 is amended by adding at the end
the following new section:
``SEC. 7705. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS DEFINED.
``(a) In General.--For purposes of this title, the term `certified
professional employer organization' means a person who has been
certified by the Secretary for purposes of section 3511 as meeting the
requirements of subsection (b).
``(b) General Requirements.--A person meets the requirements of
this subsection if such person--
``(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,
``(2) computes its taxable income using an accrual method
of accounting unless the Secretary approves another method,
``(3) agrees that it will satisfy the bond and independent
financial review requirements of subsection (c) on an ongoing
basis,
``(4) agrees that it will satisfy such reporting
obligations as may be imposed by the Secretary,
``(5) agrees to verify on such periodic basis as the
Secretary may prescribe that it continues to meet the
requirements of this subsection, and
``(6) agrees to notify the Secretary in writing within such
time as the Secretary may prescribe of any change that
materially affects whether it continues to meet the
requirements of this subsection.
``(c) Bond and Independent Financial Review Requirements.--
``(1) In general.--An organization meets the requirements
of this paragraph if such organization--
``(A) meets the bond requirements of paragraph (2),
and
``(B) meets the independent financial review
requirements of paragraph (3).
``(2) Bond.--
``(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) in an amount at least equal to the
amount specified in subparagraph (B).
``(B) Amount of bond.--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--
``(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), or
``(ii) $50,000.
``(3) Independent financial review requirements.--A
certified professional employer organization meets the
requirements of this paragraph if such organization--
``(A) has, as of the most recent review 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 that the
certified professional employer organization's
financial statements are presented fairly in accordance
with generally accepted accounting principles, and
``(B) provides, not later than the last day of the
second month beginning after the end of each calendar
quarter, to the Secretary from an independent certified
public accountant an assertion regarding Federal
employment tax payments and an examination level
attestation on such assertion.
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.
``(4) Controlled group rules.--For purposes of the
requirements of paragraphs (2) and (3), 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.
``(5) 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 any calendar 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.
``(6) Review date.--For purposes of paragraph (3)(A), the
review date shall be 6 months after the completion of the
organization's fiscal year.
``(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.
``(e) Work Site Employee.--For purposes of this title--
``(1) In general.--The term `work site employee' means,
with respect to a certified professional employer organization,
an individual who--
``(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), and
``(B) performs services at a work site meeting the
requirements of paragraph (3).
``(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--
``(A) assume responsibility for payment of wages to
such individual, without regard to the receipt or
adequacy of payment from the customer for such
services,
``(B) assume responsibility for reporting,
withholding, and paying any applicable taxes under
subtitle C, with respect to such individual's wages,
without regard to the receipt or adequacy of payment
from the customer for such services,
``(C) assume responsibility for any employee
benefits which the service contract may require the
organization to provide, without regard to the receipt
or adequacy of payment from the customer for such
services,
``(D) assume responsibility for hiring, firing, and
recruiting workers in addition to the customer's
responsibility for hiring, firing and recruiting
workers,
``(E) maintain employee records relating to such
individual, and
``(F) agree to be treated as a certified
professional employer organization for purposes of
section 3511 with respect to such individual.
``(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)).
``(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.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(c) Conforming Amendments.--
(1) Section 3302 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new subsection:
``(h) Treatment of Certified Professional Employer Organizations.--
If a certified professional employer organization (as defined in
section 7705), or a customer of such organization, makes a contribution
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 contribution.''.
(2) Section 3303(a) of such Code is amended--
(A) by striking the period at the end of paragraph
(3) and inserting ``; and'' and by inserting after
paragraph (3) the following new paragraph:
``(4) if the taxpayer is a certified professional employer
organization (as defined in section 7705) that is treated as
the employer under section 3511, such certified professional
employer organization 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.'', and
(B) in the last sentence--
(i) by striking ``paragraphs (1), (2), and
(3)'' and inserting ``paragraphs (1), (2), (3),
and (4)'', and
(ii) by striking ``paragraph (1), (2), or
(3)'' and inserting ``paragraph (1), (2), (3),
or (4)''.
(3) Section 6053(c) of such Code is amended by adding at
the end the following new paragraph:
``(8) Certified professional employer organizations.--For
purposes of any report required by this subsection, 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.''.
(d) Clerical Amendments.--
(1) The table of sections for chapter 25 of the Internal
Revenue Code of 1986 is amended by adding at the end the
following new item:
``Sec. 3511. Certified professional employer organizations.''.
(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:
``Sec. 7705. Certified professional employer organizations defined.''.
(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
section with respect to entities applying for certification as
certified professional employer organizations or entities that have
been so certified. Such rules shall include--
(1) notification of the Secretary in the case of the
commencement or termination of a service contract described in
section 7705(e)(2) of the Internal Revenue Code of 1986 between
such a person and a customer, and the employer identification
number of such customer, and
(2) such other information as the Secretary determines is
essential to promote compliance with respect to the credits
identified in section 3511(d) of such Code, and
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.
(f) User Fees.--Subsection (b) of section 7528 of the Internal
Revenue Code of 1986 is amended by adding at the end the following new
paragraph:
``(4) Certified professional employer organizations.--The
annual fee charged under the program in connection with the
ongoing certification by the Secretary of a professional
employer organization under section 7705 shall not exceed
$1,000.''.
(g) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply with respect to wages for services performed on or after
January 1 of the first calendar year beginning more than 12
months after the date of the enactment of this Act.
(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, as added by
subsection (b), not later than 6 months before the effective
date determined under paragraph (1).
(h) No Inference.--Nothing contained in this section or the
amendments made by this section shall be construed to create any
inference with respect to the determination of who is an employee or
employer--
(1) for Federal tax purposes (other than the purposes set
forth in the amendments made by this section), or
(2) for purposes of any other provision of law.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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