I 
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) intro-
duced 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 Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Small Business Effi-
ciency Act’’. 
VerDate Mar 15 2010 
22:17 Nov 26, 2013
Jkt 039200
PO 00000
Frm 00001
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
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 termi-
nated 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 EM-
PLOYER ORGANIZATION.—Solely for purposes of its liabil-
ity for the taxes, and other obligations, imposed by this 
subtitle— 
‘‘(1) a certified professional employer organiza-
tion shall be treated as the employer of any indi-
vidual (other than a work site employee or a person 
described in subsection (f)) who is performing serv-
ices covered by a contract meeting the requirements 
of section 7705(e)(2), but only with respect to remu-
neration remitted by such organization to such indi-
vidual, 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.— 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00003
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
‘‘(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 cus-
tomer 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 profes-
sional employer organization receives pay-
ment from the customer, and 
‘‘(C) the certified professional employer or-
ganization 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 re-
search activity), 
‘‘(B) section 45A (Indian employment 
credit), 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00004
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
‘‘(C) section 45B (credit for portion of em-
ployer social security taxes paid with respect to 
employee cash tips), 
‘‘(D) section 45C (clinical testing expenses 
for certain drugs for rare diseases or condi-
tions), 
‘‘(E) section 45R (employee health insur-
ance expenses of small employers), 
‘‘(F) section 51 (work opportunity credit), 
‘‘(G) section 51A (temporary incentives for 
employing long-term family assistance recipi-
ents), 
‘‘(H) section 1396 (empowerment zone em-
ployment credit), 
‘‘(I) 1400(d) (DC Zone employment cred-
it), 
‘‘(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 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00005
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
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 ORGANI-
ZATION DEFINED.—Chapter 79 of the Internal Revenue 
Code of 1986 is amended by adding at the end the fol-
lowing new section: 
‘‘SEC. 7705. CERTIFIED PROFESSIONAL EMPLOYER ORGANI-
ZATIONS 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 pur-
poses of section 3511 as meeting the requirements of sub-
section (b). 
‘‘(b) GENERAL REQUIREMENTS.—A person meets the 
requirements of this subsection if such person— 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00006
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
‘‘(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 sta-
tus, background, experience, business location, and 
annual financial audits, 
‘‘(2) computes its taxable income using an ac-
crual method of accounting unless the Secretary ap-
proves another method, 
‘‘(3) agrees that it will satisfy the bond and 
independent financial review requirements of sub-
section (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 con-
tinues to meet the requirements of this subsection. 
‘‘(c) BOND AND INDEPENDENT FINANCIAL REVIEW 
REQUIREMENTS.— 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00007
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
‘‘(1) IN GENERAL.—An organization meets the 
requirements of this paragraph if such organiza-
tion— 
‘‘(A) meets the bond requirements of para-
graph (2), and 
‘‘(B) meets the independent financial re-
view requirements of paragraph (3). 
‘‘(2) BOND.— 
‘‘(A) IN
GENERAL.—A certified profes-
sional employer organization meets the require-
ments of this paragraph if the organization has 
posted a bond for the payment of taxes under 
subtitle C (in a form acceptable to the Sec-
retary) 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 li-
ability under section 3511 for taxes im-
posed by subtitle C during the preceding 
calendar 
year 
(but 
not 
to 
exceed 
$1,000,000), or 
‘‘(ii) $50,000. 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00008
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
‘‘(3) INDEPENDENT
FINANCIAL
REVIEW
RE-
QUIREMENTS.—A certified professional employer or-
ganization 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 as-
sertion regarding Federal employment tax pay-
ments 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 exam-
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00009
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
ination level attestation shall state that such asser-
tion is fairly stated, in all material respects. 
‘‘(4) CONTROLLED
GROUP
RULES.—For pur-
poses 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 sin-
gle organization. 
‘‘(5) FAILURE TO FILE ASSERTION AND ATTES-
TATION.—If the certified professional employer orga-
nization fails to file the assertion and attestation re-
quired by paragraph (3) with respect to any cal-
endar 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 para-
graph (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 sub-
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00010
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
sections (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 em-
ployee’ means, with respect to a certified profes-
sional employer organization, an individual who— 
‘‘(A) performs services for a customer pur-
suant to a contract which is between such cus-
tomer 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 pro-
vides that the certified professional employer organi-
zation shall— 
‘‘(A) assume responsibility for payment of 
wages to such individual, without regard to the 
receipt or adequacy of payment from the cus-
tomer for such services, 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00011
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
‘‘(B) assume responsibility for reporting, 
withholding, and paying any applicable taxes 
under subtitle C, with respect to such individ-
ual’s wages, without regard to the receipt or 
adequacy of payment from the customer for 
such services, 
‘‘(C) assume responsibility for any em-
ployee benefits which the service contract may 
require the organization to provide, without re-
gard to the receipt or adequacy of payment 
from the customer for such services, 
‘‘(D) assume responsibility for hiring, fir-
ing, 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 pro-
fessional 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 re-
spect to an individual if at least 85 percent of the 
individuals performing services for the customer at 
the work site where such individual performs serv-
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00012
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
ices are subject to 1 or more contracts with the cer-
tified professional employer organization which meet 
the requirements of paragraph (2) (but not taking 
into account those individuals who are excluded em-
ployees 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 fol-
lowing new subsection: 
‘‘(h) TREATMENT OF CERTIFIED PROFESSIONAL EM-
PLOYER ORGANIZATIONS.—If a certified professional em-
ployer organization (as defined in section 7705), or a cus-
tomer 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 contribu-
tion.’’. 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00013
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
(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 in-
serting 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 OR-
GANIZATIONS.—For purposes of any report required 
by this subsection, in the case of a certified profes-
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00014
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
sional employer organization that is treated under 
section 3511 as the employer of a work site em-
ployee, 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 add-
ing 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
OBLIGA-
TIONS.—The Secretary of the Treasury shall develop such 
reporting and recordkeeping rules, regulations, and proce-
dures as the Secretary determines necessary or appro-
priate to ensure compliance with the amendments made 
by this section with respect to entities applying for certifi-
cation as certified professional employer organizations or 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00015
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
entities that have been so certified. Such rules shall in-
clude— 
(1) notification of the Secretary in the case of 
the commencement or termination of a service con-
tract 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 de-
termines is essential to promote compliance with re-
spect 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 cer-
tified professional employer organization and its cus-
tomers, 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 OR-
GANIZATIONS.—The annual fee charged under the 
program in connection with the ongoing certification 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00016
Fmt 6652
Sfmt 6201
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS
by the Secretary of a professional employer organi-
zation 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 pro-
gram 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 de-
termined under paragraph (1). 
(h) NO INFERENCE.—Nothing contained in this sec-
tion or the amendments made by this section shall be con-
strued to create any inference with respect to the deter-
mination 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. 
Æ 
VerDate Mar 15 2010 
23:53 Nov 25, 2013
Jkt 039200
PO 00000
Frm 00017
Fmt 6652
Sfmt 6301
E:\BILLS\H3581.IH
H3581
emcdonald on DSK67QTVN1PROD with BILLS