I 

112TH CONGRESS 

1ST SESSION H. R. 2466 

To amend the Internal Revenue Code of 1986 to clarify the employment 

tax treatment and reporting of wages paid by professional employer 

organizations. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 8, 2011 

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 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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Small Business Effi5 ciency Act of 2011’’. 

6 SEC. 2. NO INFERENCE. 

7 Nothing contained in this Act or the amendments 

8 made by this Act shall be construed to create any inferVerDate Mar 15 2010 02:59 Jul 09, 2011 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H2466.IH H2466

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1 ence with respect to the determination of who is an em2 ployee or employer— 

3 (1) for Federal tax purposes (other than the 

4 purposes set forth in the amendments made by sec5 tion 3), or 

6 (2) for purposes of any other provision of law. 

7 SEC. 3. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZA8 TIONS. 

9 (a) EMPLOYMENT TAXES.—Chapter 25 of the Inter10 nal Revenue Code of 1986 (relating to general provisions 

11 relating to employment taxes) is amended by adding at 

12 the end the following new section: 

13 ‘‘SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANI14 ZATIONS. 

15 ‘‘(a) GENERAL RULES.—For purposes of the taxes 

16 imposed by this subtitle— 

17 ‘‘(1) a certified professional employer organiza18 tion shall be treated as the employer (and no other 

19 person shall be treated as the employer) of any work 

20 site employee performing services for any customer 

21 of such organization, but only with respect to remu22 neration remitted by such organization to such work 

23 site employee, and 


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1 ‘‘(2) the exemptions and exclusions which would 

2 (but for paragraph (1)) apply shall apply with re3 spect to such taxes imposed on such remuneration. 

4 ‘‘(b) SUCCESSOR EMPLOYER STATUS.—For purposes 

5 of sections 3121(a) and 3306(b)(1)— 

6 ‘‘(1) a certified professional employer organiza7 tion entering into a service contract with a customer 

8 with respect to a work site employee shall be treated 

9 as a successor employer and the customer shall be 

10 treated as a predecessor employer during the term 

11 of such service contract, and 

12 ‘‘(2) a customer whose service contract with a 

13 certified professional employer organization is termi14 nated with respect to a work site employee shall be 

15 treated as a successor employer and the certified 

16 professional employer organization shall be treated 

17 as a predecessor employer. 

18 ‘‘(c) LIABILITY WITH RESPECT TO WORK SITE EM19 PLOYEES.— 

20 ‘‘(1) GENERAL RULES.—Solely for purposes of 

21 its liability for the taxes imposed by this subtitle— 

22 ‘‘(A) the certified professional employer or23 ganization shall be treated as the employer of 

24 any individual (other than a work site employee 

25 or a person described in subsection (e)) who is 


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1 performing services covered by a contract meet2 ing the requirements of section 7705(e)(2), but 

3 only with respect to remuneration remitted by 

4 such organization to such individual, and 

5 ‘‘(B) the exemptions and exclusions which 

6 would (but for subparagraph (A)) apply shall 

7 apply with respect to such taxes imposed on 

8 such remuneration. 

9 ‘‘(d) SPECIAL RULE FOR RELATED PARTY.—Sub10 section (a) shall not apply in the case of a customer which 

11 bears a relationship to a certified professional employer 

12 organization described in section 267(b) or 707(b). For 

13 purposes of the preceding sentence, such sections shall be 

14 applied by substituting ‘10 percent’ for ‘50 percent’. 

15 ‘‘(e) SPECIAL RULE FOR CERTAIN INDIVIDUALS.— 

16 For purposes of the taxes imposed under this subtitle, an 

17 individual with net earnings from self-employment derived 

18 from the customer’s trade or business (including a partner 

19 in a partnership that is a customer), is not a work site 

20 employee with respect to remuneration paid by a certified 

21 professional employer organization. 

22 ‘‘(f) REGULATIONS.—The Secretary shall prescribe 

23 such regulations as may be necessary or appropriate to 

24 carry out the purposes of this section.’’. 


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1 (b) CERTIFIED PROFESSIONAL EMPLOYER ORGANI2 ZATION DEFINED.—Chapter 79 of such Code (relating to 

3 definitions) is amended by adding at the end the following 

4 new section: 

5 ‘‘SEC. 7705. CERTIFIED PROFESSIONAL EMPLOYER ORGANI6 ZATIONS. 

7 ‘‘(a) IN GENERAL.—For purposes of this title, the 

8 term ‘certified professional employer organization’ means 

9 a person who applies to be treated as a certified profes10 sional employer organization for purposes of section 3511 

11 and who has been certified by the Secretary as meeting 

12 the requirements of subsection (b). 

13 ‘‘(b) CERTIFICATION.—A person meets the require14 ments of this subsection if such person— 

15 ‘‘(1) demonstrates that such person (and any 

16 owner, officer, and such other persons as may be 

17 specified in regulations) meets such requirements as 

18 the Secretary shall establish with respect to tax sta19 tus, background, experience, business location, and 

20 annual financial audits, 

21 ‘‘(2) represents that it will satisfy the bond and 

22 independent financial review requirements of sub23 sections (c) on an ongoing basis, 

24 ‘‘(3) represents that it will satisfy such report25 ing obligations as may be imposed by the Secretary, 


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1 ‘‘(4) computes its taxable income using an ac2 crual method of accounting unless the Secretary ap3 proves another method, 

4 ‘‘(5) agrees to verify the continuing accuracy of 

5 representations and information which was pre6 viously provided on such periodic basis as the Sec7 retary may prescribe, and 

8 ‘‘(6) agrees to notify the Secretary in writing of 

9 any change that materially affects the continuing ac10 curacy of any representation or information which 

11 was previously made or provided. 

12 ‘‘(c) REQUIREMENTS.— 

13 ‘‘(1) IN GENERAL.—An organization meets the 

14 requirements of this paragraph if such organiza15 tion— 

16 ‘‘(A) meets the bond requirements of sub17 paragraph (2), and 

18 ‘‘(B) meets the independent financial re19 view requirements of subparagraph (3). 

20 ‘‘(2) BOND.— 

21 ‘‘(A) IN GENERAL.—A certified profes22 sional employer organization meets the require23 ments of this paragraph if the organization has 

24 posted a bond for the payment of taxes under 

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1 retary) that is in an amount at least equal to 

2 the amount specified in subparagraph (B). 

3 ‘‘(B) AMOUNT OF BOND.— 

4 ‘‘(i) IN GENERAL.—For the period 

5 April 1 of any calendar year through 

6 March 31 of the following calendar year, 

7 the amount of the bond required is equal 

8 to the greater of— 

9 ‘‘(I) 5 percent of the organiza10 tion’s liability under section 3511 for 

11 taxes imposed by subtitle C during the 

12 preceding calendar year (but not to 

13 exceed $1,000,000), or 

14 ‘‘(II) $50,000. 

15 ‘‘(ii) SPECIAL RULE FOR NEWLY CRE16 ATED PROFESSIONAL EMPLOYER ORGANI17 ZATIONS.—During the first three full cal18 endar years that an organization is in ex19 istence, subclause (I) of clause (i) shall not 

20 apply. For this purpose— 

21 ‘‘(I) under rules provided by the 

22 Secretary, an organization is treated 

23 as in existence as of the date that 

24 such organization began providing 

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1 parable to the services being provided 

2 with respect to work site employees, 

3 regardless of whether such date oc4 curred before or after the organization 

5 is certified under subsection (b), and 

6 ‘‘(II) an organization with liabil7 ity under section 3511 for taxes im8 posed by subtitle C during the pre9 ceding calendar year in excess of 

10 $5,000,000 shall no longer be de11 scribed in this clause (ii) as of April 

12 1 of the year following such calendar 

13 year. 

14 ‘‘(3) INDEPENDENT FINANCIAL REVIEW RE15 QUIREMENTS.—A certified professional employer or16 ganization meets the requirements of this subpara17 graph if such organization— 

18 ‘‘(A) has, as of the most recent audit date, 

19 caused to be prepared and provided to the Sec20 retary (in such manner as the Secretary may 

21 prescribe) an opinion of an independent cer22 tified public accountant as to whether the cer23 tified professional employer organization’s fi24 nancial statements are presented fairly in acVerDate Mar 15 2010 02:59 Jul 09, 2011 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H2466.IH H2466

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1 cordance with generally accepted accounting 

2 principles, and 

3 ‘‘(B) provides to the Secretary an assertion 

4 regarding Federal employment tax payments 

5 and an examination level attestation on such 

6 assertion from an independent certified public 

7 accountant not later than the last day of the 

8 second month beginning after the end of each 

9 calendar quarter. Such assertion shall state 

10 that the organization has withheld and made 

11 deposits of all taxes imposed by chapters 21, 

12 22, and 24 of the Internal Revenue Code in ac13 cordance with regulations imposed by the Sec14 retary for such calendar quarter and such ex15 amination level attestation shall state that such 

16 assertion is fairly stated, in all material re17 spects. 

18 ‘‘(4) SPECIAL RULE FOR SMALL CERTIFIED

19 PROFESSIONAL EMPLOYER ORGANIZATIONS.—The 

20 requirements of paragraph (3)(A) shall not apply 

21 with respect to a fiscal year of an organization if 

22 such organization’s liability under section 3511 for 

23 taxes imposed by subtitle C during the calendar year 

24 ending on (or concurrent with) the end of the fiscal 

25 year were $5,000,000 or less. 


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1 ‘‘(5) CONTROLLED GROUP RULES.—For pur2 poses of the requirements of paragraphs (2), (3) and 

3 (4), all professional employer organizations that are 

4 members of a controlled group within the meaning 

5 of sections 414(b) and (c) shall be treated as a sin6 gle organization. 

7 ‘‘(6) FAILURE TO FILE ASSERTION AND ATTES8 TATION.—If the certified professional employer orga9 nization fails to file the assertion and attestation re10 quired by paragraph (3) with respect to a particular 

11 quarter, then the requirements of paragraph (3) 

12 with respect to such failure shall be treated as not 

13 satisfied for the period beginning on the due date for 

14 such attestation. 

15 ‘‘(7) AUDIT DATE.—For purposes of paragraph 

16 (3)(A), the audit date shall be six months after the 

17 completion of the organization’s fiscal year. 

18 ‘‘(d) SUSPENSION AND REVOCATION AUTHORITY.— 

19 The Secretary may suspend or revoke a certification of 

20 any person under subsection (b) for purposes of section 

21 3511 if the Secretary determines that such person is not 

22 satisfying the representations or requirements of sub23 sections (b) or (c), or fails to satisfy applicable accounting, 

24 reporting, payment, or deposit requirements. 


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1 ‘‘(e) WORK SITE EMPLOYEE.—For purposes of this 

2 title— 

3 ‘‘(1) IN GENERAL.—The term ‘work site em4 ployee’ means, with respect to a certified profes5 sional employer organization, an individual who— 

6 ‘‘(A) performs services for a customer pur7 suant to a contract which is between such cus8 tomer and the certified professional employer 

9 organization and which meets the requirements 

10 of paragraph (2), and 

11 ‘‘(B) performs services at a work site 

12 meeting the requirements of paragraph (3). 

13 ‘‘(2) SERVICE CONTRACT REQUIREMENTS.—A 

14 contract meets the requirements of this paragraph 

15 with respect to an individual performing services for 

16 a customer if such contract is in writing and pro17 vides that the certified professional employer organi18 zation shall— 

19 ‘‘(A) assume responsibility for payment of 

20 wages to the individual, without regard to the 

21 receipt or adequacy of payment from the cus22 tomer for such services, 

23 ‘‘(B) assume responsibility for reporting, 

24 withholding, and paying any applicable taxes 

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1 ual’s wages, without regard to the receipt or 

2 adequacy of payment from the customer for 

3 such services, 

4 ‘‘(C) assume responsibility for any em5 ployee benefits which the service contract may 

6 require the certified professional employer orga7 nization to provide, without regard to the re8 ceipt or adequacy of payment from the cus9 tomer for such services, 

10 ‘‘(D) assume responsibility for hiring, fir11 ing and for recruiting workers in addition to 

12 the customer’s responsibility for hiring, firing 

13 and recruiting workers, 

14 ‘‘(E) maintain employee records relating to 

15 the individual, and 

16 ‘‘(F) agree to be treated as a certified pro17 fessional employer organization for purposes of 

18 section 3511 with respect to such individual. 

19 ‘‘(3) WORK SITE COVERAGE REQUIREMENT.— 

20 The requirements of this paragraph are met with re21 spect to an individual if at least 85 percent of the 

22 individuals performing services for the customer at 

23 the work site where such individual performs serv24 ices are subject to 1 or more contracts with the cer25 tified professional employer organization which meet 


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1 the requirements of paragraph (2) (but not taking 

2 into account those individuals who are excluded em3 ployees within the meaning of section 414(q)(5)). 

4 ‘‘(f) DETERMINATION OF EMPLOYMENT STATUS.— 

5 Except to the extent necessary for purposes of section 

6 3511, nothing in this section shall be construed to affect 

7 the determination of who is an employee or employer for 

8 purposes of this title. 

9 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

10 such regulations as may be necessary or appropriate to 

11 carry out the purposes of this section.’’. 

12 (c) CONFORMING AMENDMENTS.— 

13 (1) Section 45B of such Code (relating to credit 

14 for portion of employer social security taxes paid 

15 with respect to employees with cash tips) is amended 

16 by adding at the end the following new subsection: 

17 ‘‘(e) CERTIFIED PROFESSIONAL EMPLOYER ORGANI18 ZATIONS.—For purposes of this section, in the case of a 

19 certified professional employer organization that is treat20 ed, under section 3511, as the employer of a work site 

21 employee who is a tipped employee, the credit determined 

22 under this section does not apply to such organization, but 

23 does apply to the customer of such organization with re24 spect to which the work site employee performs services. 

25 For this purpose the customer shall take into account any 


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1 remuneration and taxes remitted by the certified profes2 sional employer organization.’’. 

3 (2) Section 3302 of such Code is amended by 

4 adding at the end the following new subsection: 

5 ‘‘(h) TREATMENT OF CERTIFIED PROFESSIONAL EM6 PLOYER ORGANIZATIONS.—If a certified professional em7 ployer organization (as defined in section 7705) (or a cli8 ent of such organization) makes a payment to the State’s 

9 unemployment fund with respect to a work site employee, 

10 such organization shall be eligible for the credits available 

11 under this section with respect to such payment.’’. 

12 (3) Section 3303(a) of such Code is amended— 

13 (A) by striking the period at the end of 

14 paragraph (3) and inserting ‘‘; and’’ and by in15 serting after paragraph (3) the following new 

16 paragraph: 

17 ‘‘(4) a certified professional employer organiza18 tion (as defined in section 7705) is permitted to col19 lect and remit, in accordance with paragraphs (1), 

20 (2), and (3), contributions during the taxable year 

21 to the State unemployment fund with respect to a 

22 work site employee.’’, and 

23 (B) in the last sentence— 


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1 (i) by striking ‘‘paragraphs (1), (2), and 

2 (3)’’ and inserting ‘‘paragraphs (1), (2), (3), 

3 and (4)’’, and 

4 (ii) by striking ‘‘paragraph (1), (2), or 

5 (3)’’ and inserting ‘‘paragraph (1), (2), (3), or 

6 (4)’’. 

7 (4) Section 6053(c) of such Code (relating to 

8 reporting of tips) is amended by adding at the end 

9 the following new paragraph: 

10 ‘‘(8) CERTIFIED PROFESSIONAL EMPLOYER OR11 GANIZATIONS.—For purposes of any report required 

12 by this section, in the case of a certified professional 

13 employer organization that is treated, under section 

14 3511, as the employer of a work site employee, the 

15 customer with respect to whom a work site employee 

16 performs services shall be the employer for purposes 

17 of reporting under this section and the certified pro18 fessional employer organization shall furnish to the 

19 customer any information necessary to complete 

20 such reporting no later than such time as the Sec21 retary shall prescribe.’’. 

22 (d) CLERICAL AMENDMENTS.— 

23 (1) The table of sections for chapter 25 of such 

24 Code is amended by adding at the end the following 

25 new item: 

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


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1 (2) The table of sections for chapter 79 of such 

2 Code is amended by inserting after the item relating 

3 to section 7704 the following new item: 

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

4 (e) REPORTING REQUIREMENTS AND OBLIGA5 TIONS.—The Secretary of the Treasury shall develop such 

6 reporting and recordkeeping rules, regulations, and proce7 dures as the Secretary determines necessary or appro8 priate to ensure compliance with the amendments made 

9 by this Act with respect to entities applying for certifi10 cation as certified professional employer organizations or 

11 entities that have been so certified. Such rules shall be 

12 designed in a manner which streamlines, to the extent pos13 sible, the application of requirements of such amendments, 

14 the exchange of information between a certified profes15 sional employer organization and its customers, and the 

16 reporting and recordkeeping obligations of the certified 

17 professional employer organization. 

18 (f) USER FEES.—Subsection (b) of section 7528 of 

19 such Code (relating to Internal Revenue Service user fees) 

20 is amended by adding at the end thereof the following new 

21 paragraph: 

22 ‘‘(4) CERTIFIED PROFESSIONAL EMPLOYER OR23 GANIZATIONS.—The fee charged under the program 

24 in connection with the certification by the Secretary 


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1 of a professional employer organization under sec2 tion 7705 shall not exceed $500.’’. 

3 (g) EFFECTIVE DATES.— 

4 (1) IN GENERAL.—The amendments made by 

5 this Act shall take effect on the January 1st of the 

6 first calendar year beginning more than 12 months 

7 after the date of the enactment of this Act. 

8 (2) CERTIFICATION PROGRAM.—The Secretary 

9 of the Treasury shall establish the certification pro10 gram described in section 7705(b) of the Internal 

11 Revenue Code of 1986 not later than 6 months be12 fore the effective date determined under paragraph 

13 (1). 

Æ 


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