1.Certified professional
employer organizations
(a)Chapter 25 of the Internal Revenue Code of 1986 is amended
by adding at the end the following new section:
3511.Certified
professional employer organizations
(a)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 statusFor 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 organizationSolely 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)
(1)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)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 51 (work
opportunity credit),
(F)section 51A
(temporary incentives for employing long-term family assistance
recipients),
(G)section 1396
(empowerment zone employment credit),
(H)1400(d) (DC Zone
employment credit),
(I)Section 1400H
(renewal community employment credit), and
(J)any other section
as provided by the Secretary.
(e)Special rule
for related partyThis 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 individualsFor 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)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 definedChapter 79 of the
Internal Revenue Code of 1986 is amended by adding at the end the following new
section:
7705.Certified
professional employer organizations defined
(a)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)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)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)
(A)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)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 requirementsA 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)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 attestationIf 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)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 authorityThe 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)For purposes of this title—
(1)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 requirementsA 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 requirementThe 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 statusExcept 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)The
Secretary shall prescribe such regulations as may be necessary or appropriate
to carry out the purposes of this
section.
.
(c)
(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 organizationsIf 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 organizationsFor 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)
(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 obligationsThe 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 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)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 organizationsThe 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.
.
(g)
(1)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)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)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.