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[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2466 Introduced in House (IH)]

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.

    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 of 
2011''.

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--
            (1) for Federal tax purposes (other than the purposes set 
        forth in the amendments made by section 3), or
            (2) for purposes of any other provision of law.

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:

``SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.

    ``(a) General Rules.--For purposes of the taxes 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) the exemptions and exclusions 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) 
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 With Respect to Work Site Employees.--
            ``(1) General rules.--Solely for purposes of its liability 
        for the taxes imposed by this subtitle--
                    ``(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, and
                    ``(B) the exemptions and exclusions which would 
                (but for subparagraph (A)) apply shall apply with 
                respect to such taxes imposed on such remuneration.
    ``(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'.
    ``(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.
    ``(f) 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 such Code (relating to definitions) is amended by adding at the 
end the following new section:

``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).
    ``(b) Certification.--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) represents that it will satisfy the bond and 
        independent financial review requirements of subsections (c) on 
        an ongoing basis,
            ``(3) represents that it will satisfy such reporting 
        obligations as may be imposed by the Secretary,
            ``(4) computes its taxable income using an accrual method 
        of accounting unless the Secretary approves another method,
            ``(5) agrees to verify the continuing accuracy of 
        representations and information which was previously provided 
        on such periodic basis as the Secretary may prescribe, and
            ``(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.
    ``(c) Requirements.--
            ``(1) In general.--An organization meets the requirements 
        of this paragraph if such organization--
                    ``(A) meets the bond requirements of subparagraph 
                (2), and
                    ``(B) meets the independent financial review 
                requirements of subparagraph (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) that is in an amount at least equal 
                to the amount specified in subparagraph (B).
                    ``(B) Amount of bond.--
                            ``(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--
                                    ``(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.
                            ``(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--
                                    ``(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), and
                                    ``(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.
            ``(3) Independent financial review requirements.--A 
        certified professional employer organization meets the 
        requirements of this subparagraph if such organization--
                    ``(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, and
                    ``(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.
            ``(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.
            ``(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.
            ``(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.
            ``(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.
    ``(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 
                the 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 the 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 
                certified professional employer 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 
                for recruiting workers in addition to the customer's 
                responsibility for hiring, firing and recruiting 
                workers,
                    ``(E) maintain employee records relating to the 
                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 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:
    ``(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.''.
            (2) Section 3302 of such Code 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 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.''.
            (3) 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) 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.'', 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)''.
            (4) Section 6053(c) of such Code (relating to reporting of 
        tips) is amended by adding at the end the following new 
        paragraph:
            ``(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.''.
    (d) Clerical Amendments.--
            (1) The table of sections for chapter 25 of such Code 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.''.
    (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.
    (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:
            ``(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.''.
    (g) Effective Dates.--
            (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.
            (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).
                                 <all>
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