Sec. 1506. Certified professional employer organizations
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Chapter 25 is amended by adding at the end the following new section: For purposes of the taxes and other obligations imposed by this subtitle— 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 the exemptions, exclusions, definitions, and other rules which are based on type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.
For purposes of sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(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 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.
Solely for purposes of its liability for the taxes and other obligations imposed by this subtitle— a certified professional employer organization shall be treated as the employer of any work site employee (other than a person described in subsection (e)) who is performing services covered by a contract meeting the requirements of section 7706(e)(2), but only with respect to remuneration remitted by such organization to such individual, and exemptions, exclusions, definitions, and other rules which are based on type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.
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 . 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.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section. . Chapter 79, as amended by the preceding provisions of this Act, is amended by adding at the end the following new section: 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).
A person meets the requirements of this subsection if such person— 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, agrees that it will satisfy the bond and independent financial review requirements of subsections
(c)on an ongoing basis, agrees that it will satisfy such reporting obligations as may be imposed by the Secretary, computes its taxable income using an accrual method of accounting unless the Secretary approves another method, agrees to verify on such periodic basis as the Secretary may prescribe that it continues to meet the requirements of this subsection, and agrees to notify the Secretary in writing, within such time as the of Secretary may prescribe, of any change that materially affects the continuing accuracy of any agreement or information which was previously made or provided. An organization meets the requirements of this paragraph if such organization— meets the bond requirements of paragraph (2), and meets the independent financial review requirements of paragraph (3). 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). 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— 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 $50,000. During the first three full calendar years that an organization is in existence, subclause
(I)of clause
(i)shall not apply. For this purpose— 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 customer 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), and 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. A certified professional employer organization meets the requirements of this paragraph if such organization— 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, and 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. 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. 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. For purposes of paragraph (3)(A), the audit date shall be six months after the completion of the organization’s fiscal year. 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 agreements or requirements of subsections
(b)or (c), or fails to satisfy applicable accounting, reporting, payment, or deposit requirements. For purposes of this title— The term work site employee means, with respect to a certified professional employer organization, an individual who— 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 performs services at a work site meeting the requirements of paragraph (3). 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— assume responsibility for payment of wages to the individual, without regard to the receipt or adequacy of payment from the customer for such services, 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, 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, assume responsibility for hiring, firing and for recruiting workers in addition to the customer’s responsibility for recruiting, hiring, and firing workers, maintain employee records relating to the individual, and agree to be treated as a certified professional employer organization for purposes of section 3511 with respect to such individual. 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)). 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. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section. . Section 3302 is amended by adding at the end the following new subsection: If a certified professional employer organization (as defined in section 7706), 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. . Section 3303(a) is amended— by striking the period at the end of paragraph
(3)and inserting ; and and by inserting after paragraph
(3)the following new paragraph: if the taxpayer is a certified professional employer organization (as defined in section 7706) 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 in the last sentence— by striking paragraphs (1), (2), and
(3)and inserting paragraphs (1), (2), (3), and
(4), and by striking paragraph (1), (2), or
(3)and inserting paragraph (1), (2), (3), or
(4). Section 6053(c) is amended by adding at the end the following new paragraph: 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. . The table of sections for chapter 25 is amended by adding at the end the following new item: Sec. 3511. Certified professional employer organizations. . The table of sections for chapter 79, as amended by the preceding provisions of this Act, is amended by adding at the end the following new item: Sec. 7706. Certified professional employer organizations. . 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 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. Subsection
(b)of section 7528 is amended by adding at the end thereof the following new paragraph: The fee charged under the program in connection with the certification by the Secretary of a professional employer organization under section 7706 shall be an annual fee not to exceed $1,000 per year. . 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. The Secretary of the Treasury shall establish the certification program described in section 7706(b) of the Internal Revenue Code of 1986, as added by this section, not later than 6 months before the effective date determined under paragraph (1). 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— for Federal tax purposes (other than the purposes set forth in the amendments made by this section), or for purposes of any other provision of law.