Court Opinion

ID: 4584193
Source: CourtListenerOpinion
Date Created: 2020-11-05 22:00:33.083905+00
Date Added: 2024-06-11T13:47:03.230468
License: Public Domain

USCA11 Case: 19-10997   Date Filed: 11/05/2020    Page: 1 of 24

                                                                   [PUBLISH]

            IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT
                      ________________________

                            No. 19-10997
                      ________________________

                D.C. Docket No. 8:16-cv-01873-MSS-AEP

TRINET GROUP, INC.,
                                                          Plaintiff – Appellee,

                                 versus

UNITED STATES OF AMERICA,
                                                        Defendant – Appellant.

                      ________________________

               Appeal from the United States District Court
                   for the Middle District of Florida
                     ________________________

                           (November 5, 2020)
           USCA11 Case: 19-10997          Date Filed: 11/05/2020       Page: 2 of 24

Before JORDAN, TJOFLAT, Circuit Judges, and BEAVERSTOCK, * District
Judge.

TJOFLAT, Circuit Judge:

       This appeal arises out of a dispute between TriNet and the IRS regarding an

alleged overpayment of federal income tax in the amount of $10,567,468. TriNet

initiated this action as the successor-in-interest of Gevity HR, Inc., a professional

employer organization (“PEO”). From 2004 to 2009, Gevity claimed tax credits

based on its payment of Federal Insurance Contributions Act (“FICA”) taxes on

the tip income of its client companies’ employees. The IRS asserts that such

credits were not allowed because Gevity was not the “employer” entitled to claim

the credits as that term is defined in 26 U.S.C. § 3401(d). We conclude that, under

the statutes applicable to the period at issue, 1 Gevity was the statutory employer

       *
          The Honorable Jeffrey U. Beaverstock, United States District Judge for the Southern
District of Alabama, sitting by designation.

       1
           In 2014, Congress added §§ 3511 and 7705 to the Internal Revenue Code, specifying
that, for the purpose of employment taxes, “a certified [PEO] 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.” 26 U.S.C. § 3511(a)(1). Certain tax credits,
including the FICA tip credit, apply only “to the customer, not the certified [PEO].” Id. §
3511(d). Such entities must be certified by the Secretary of the Treasury. Id. § 7705(a).

        The District Court determined that these statutes are “new pronouncements of law that
became effective on December 19, 2014” and do not apply retroactively. On appeal, the IRS
admits that these provisions do not apply to its dispute with TriNet, and we do not consider them
in our analysis.

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entitled to claim the FICA tip credit because it—not its client companies—

controlled the payment of the wages subject to withholding. We affirm the District

Court’s grant of summary judgment in favor of TriNet.

                                              I.

       Employers are required to withhold FICA (Social Security and Medicare)

taxes from their employees’ wages and remit the taxes to the IRS. 26 U.S.C. §§

3101, 3102(a). Employers are also required to pay an employer’s share of FICA

taxes based on the wages that are paid to their employees. Id. § 3111. Tips

received by an employee are included in the wages subject to tax. Id. § 3121(q).

       Under 26 U.S.C. § 45B, an employer can claim an income tax credit for its

share of FICA taxes on excess tips received by its employees “in connection with

the providing, delivering, or serving of food or beverages for consumption if the

tipping of employees delivering or serving food or beverages by customers is

customary.” The credit is equal to the amount of FICA tax “paid by [the]

employer” on the portion of tips exceeding the amount treated as wages for the

purpose of satisfying federal minimal wage requirements. Id. § 45B(b)(1).2

       2
          The Fair Labor Standards Act allows an employer to pay less than the minimum wage
directly to a tipped employee by treating tips as part of the employee’s wages. 29 U.S.C. §§
203(m)(2), 206(a).

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       Although the term “employer” is not specifically defined in the FICA tax

provisions of the Internal Revenue Code, the Supreme Court has given it the same

construction for FICA purposes as the definition used for income tax withholding.

See Otte v. United States, 419 U.S. 43, 51, 95 S. Ct. 247, 253 (1974). That

definition is found in 26 U.S.C. § 3401(d), which provides:

       [T]he term ‘employer’ means the person for whom an individual
       performs or performed any service, of whatever nature, as the
       employee of such person, except that—
       (1) if the person for whom the individual performs or performed the
       services does not have control of the payment of the wages for such
       services, the term “employer” (except for purposes of subsection (a))3
       means the person having control of the payment of such wages, and
       (2) in the case of a person paying wages on behalf of a nonresident
       alien individual, foreign partnership, or foreign corporation, not
       engaged in trade or business within the United States, the term
       “employer” (except for purposes of subsection (a)) means such
       person.
As is standard, we refer to the “person for whom an individual performs or

performed any service” as the common-law employer and the “person having

control of the payment of such wages,” in the case described by paragraph (d)(1),

as the statutory employer. The parties in this case agree that Gevity was not the

entity for whom its clients’ employees performed services and, therefore, was not

the common-law employer. They disagree on whether Gevity was nonetheless the

       3
          Subsection (a) defines “wages” and lists numerous exceptions for remuneration paid for
certain services.

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statutory employer.

                                         II.

      The parties cross-moved for summary judgment before the District Court.

Except where otherwise noted, the following facts were stipulated to by the parties

or are conceded by the IRS.

                                         A.

      TriNet is a PEO that acquired Gevity HR, Inc. in 2009. Gevity provided

various employment and human resource services to its clients, including payroll

processing, employment tax services, health and welfare benefits, and workers’

compensation coverage. Gevity’s clients included restaurants and other food and

beverage clients where tipping is customary.

      Gevity entered into a standardized contract, known as a professional services

agreement (“PSA”), at the start of each relationship with a client. The PSAs

provided that Gevity would assume responsibility for, among other things:

      a. “Processing and issuing employee paychecks in accordance with
         [the client’s] instructions”; and
      b. “Managing the paperwork, including [the client’s] payroll and
         payroll processing, tax filing and administration, [and] W-2
         preparation.”
On the other hand, Gevity’s clients were allocated responsibility for:

      a. “Compensating employees for their work, providing benefits, and

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           determining paid time-off policies”;
      b.   “Hiring and termination decisions”;
      c.   “Managing and supervising the day-to-day work of employees;
           providing training and development opportunities; and providing
           performance appraisals and appropriate salary adjustments”;
      d.   “Delivering rewards and incentives”;
      e.   “Informing employees of their benefit options”; and
      f.   “Running [the] business and making business decisions.”
Under the PSAs, Gevity and its clients were deemed co-employers of its clients’

employees, who were referred to as “worksite employees.” In particular, the

agreements stated that “[t]he Client shall at all times retain its status as an

employer of [the worksite employees] but the entirety of an employer’s rights and

responsibilities shall be shared and allocated between Gevity and the Client as set

forth in this Agreement, so that [the worksite employees] shall be simultaneously

employed by both parties.”

      The PSAs required clients to pay Gevity (i) the gross wages of the worksite

employees, including employment taxes; (ii) Gevity’s service fee; (iii) employer

contributions to any benefit plans; and (iv) fees for any other services not covered

by the service fee. Gevity was to provide its clients with invoices for the amounts

due each pay period, and the invoices were payable immediately upon receipt. The

PSAs specified that payment to Gevity must be made through “wire transfer,

Automated Clearing House (‘ACH’) transfer, or other method acceptable to

Gevity.”

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      Gevity’s obligation to process and issue paychecks in accordance with

its clients’ instructions was typically set forth in a separate schedule attached

to the PSA. The PSAs provided that Gevity would be responsible for “the

reporting, collection and payment of federal and state [employment] taxes on

wages paid” to worksite employees and would pay all related costs. In

addition, some but not all of the PSAs stated that Gevity “assumes . . .

responsibility for the payment of wages to [the worksite employees] without

regard to payments by Client to Gevity.”

                                          B.

      Gevity’s payroll process was structured in the following manner. The

worksite employees earned wages at least a week before the pay date when they

received wage payments from Gevity. The client was required to report to Gevity

the number of hours worked by each worksite employee, whether any new hires or

terminations occurred, any changes in the rate of pay for each employee, and any

tips received by an employee. Clients generally reported this information the next

business day following the closure of a pay period, which was two or three days

before the pay date. Gevity then calculated the payroll, including employment tax

amounts, and generated an invoice for the client.

      On the pay date, Gevity paid the net wages of each worksite employee

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through direct deposit using a debit against Gevity’s own bank accounts or through

a paper check drawn on its own accounts. The clients had no access to or authority

over any of Gevity’s bank accounts. Finally, Gevity remitted employment taxes to

the IRS for the wages paid to the worksite employees.

      There was an “inherent lag” in the payroll process for most client payments

between the time when Gevity invoiced the client and the time when Gevity

received permanent credit for the client’s payment. Approximately seventy-five

percent of client companies paid using ACH transfer. In these transactions, Gevity

initiated a debit from the client’s account for the full payroll amount, including

taxes and fees, two days before the pay date. Within one day of this debit, Gevity

received a “provisional credit” for the payment in its account; however, the credit

could be reversed at any time within five business days if the client had insufficient

funds or for certain other reasons, as when the client placed a “stop payment” order

on the transaction or when the client’s account was frozen. Gevity did not receive

notice when an ACH debit cleared. But if an ACH debit did not clear, Gevity

would learn of this fact within three to five business days through a report that it

requested from its bank showing deposits that were returned for insufficient funds

and other reasons. Consequently, Gevity would not know whether the client’s

ACH transfer had cleared until at least one day after making the wage payments to

the worksite employees. Payments from clients made by company check similarly

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took three to five days to clear. On the other hand, funds paid through wire

transfer or certified check became immediately available without a delay for the

transaction to clear.

       If a client failed to pay Gevity’s invoice when due, it appears that the PSAs

provided for a late fee of up to 1.5% of the outstanding amount per month. 4 The

PSAs also appear to have stated that “[u]nder no circumstances shall any amounts

advanced by Gevity to [worksite employees] or third parties, and which are not

paid by the Client on a timely basis, be deemed a loan to the Client.”

                                               C.

       Gevity reported federal employment tax information to the IRS by filing

Forms 941, Employer’s Federal Quarterly Tax Returns. On these forms, Gevity

reported (i) the number of employees, including both worksite employees and its

own non-worksite employees, that received compensation from Gevity; (ii) the

amount of compensation, including wages, tips, and other compensation; (iii) the

federal income tax withheld from that compensation; (iv) FICA taxes due on that

compensation; and (v) the total tax due for the tax quarter. The Forms 941 were

filed under Gevity’s own name, address, and Employer Identification Number

       4
       The PSA provisions mentioned in this sentence and the following are identical in the
two sample PSAs included in the appendix, which both parties cite to establish the content of the
agreements.

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(“EIN”). Gevity’s deposits of employment taxes to the IRS were also made under

its own name and EIN. Furthermore, the schedule to the PSAs appears to have

specified to Gevity’s clients that Gevity would file tax returns “under Gevity’s

FEIN.”5

      When filing its Forms 941, Gevity did not state, and was not required to

state, that it was operating as a PEO. The IRS processed Gevity’s Forms 941

without determining the accuracy of the information reported on the forms or

making a determination as to whether Gevity was a common-law or statutory

employer.

      Between 2004 and 2009, when Gevity filed its corporate income tax returns,

it attached certain forms, including Forms 8846, Credit for Employer Social

Security and Medicare Taxes Paid on Certain Employee Tips, in order to claim the

FICA tip credit. Gevity claimed the FICA tip credit with respect to worksite

employees at 274 to 477 client companies per year, totaling more than 1,170

clients over the period at issue. Gevity provided a rebate of the FICA tip credits to

some of its larger clients; from the figure indicated by the appellee, the rebates

accounted for about half of the total credit amount claimed by Gevity.

      Eventually, during an examination of Gevity’s corporate income tax returns,

      5
          This language occurs in both of the sample PSAs. See supra note 4.

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the IRS determined that Gevity was not eligible for the FICA tip credits on the

ground that it was neither the common-law employer nor the statutory employer of

the worksite employees. The IRS then issued notices of deficiency for the 2004

through 2009 tax years, which the appellee paid in full. After the IRS denied

claims for refund of these amounts, TriNet sued in federal court as Gevity’s

successor, seeking a refund of $10,567,468, plus interest.

                                          D.

      The District Court granted TriNet’s motion for summary judgment and held

that Gevity was the statutory employer under § 3401(d). It relied on the Middle

District of Florida’s analysis in Paychex Business Solutions, LLC v. United States,

No. 8:15-cv-1455-T24-TGW, 2017 WL 2692843 (M.D. Fla. June 22, 2017),

which, as the District Court explained, involved “nearly identical circumstances to

the case at hand.”

      In Paychex, the plaintiff, a PEO, “had assumed full responsibility for the

reporting, collection, and payment of payroll taxes with respect to” its clients’

employees. Paychex, 2017 WL 2692843, at *3. Paychex had erroneously

overpaid the employer’s portion of the Social Security tax due to mistakenly

restarting the taxable wage base and was suing for a refund from the IRS. Id. The

court held that Paychex was the statutory employer. Id. at *4. Looking to a

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number of prior decisions, the court concluded that the “trend in the case law

shows that the person or entity that controls the bank account from which wages

are paid is the § 3401(d)(1) statutory employer.” Id. at *4; see, e.g., Winstead v.

United States, 109 F.3d 989, 991-92 (4th Cir. 1997); Consol. Flooring Servs. v.

United States, 38 Fed. Cl. 450, 459 (1997); United States v. Total Employment Co.,

305 B.R. 333, 339 (M.D. Fla. 2004). Accordingly, because Paychex had exclusive

control of the bank accounts from which the clients’ employees were paid, the

court found that Paychex had control of the payment of wages. Paychex, 2017 WL

2692843, at *7. The court also rejected the IRS’s argument that Paychex was

merely a conduit between the employer and the employee, noting that Paychex

could not confirm the sufficiency of its clients’ funds prior to paying the

employees. Id.

      The District Court concluded that Paychex was not wrongly decided.

Among other things, the Court addressed the IRS’s argument that it should rely on

two earlier cases, United States v. Garami, 184 B.R. 834, 838 (M.D. Fla. 1995),

and In re Professional Security Services, 162 B.R. 901, 904 (Bankr. M.D. Fla.

1993), which had each held a common-law employer liable for unpaid employment

taxes despite the existence of a contractual arrangement under which a third-party

payor agreed to pay such taxes. In particular, the Professional Security decision

stated:

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      The law is clear that the person assessed cannot establish that he is not the
      person responsible merely by showing that he delegated the taxing
      responsibility to someone else, for the holding of employees’ taxes is
      considered an important fiduciary duty that cannot be delegated. The
      existence of other responsible parties who also control disbursement and
      have the requisite status, duty, and authority does not relieve the party
      assessed of his own responsibility.
162 B.R. at 904. According to the IRS, these two cases supported the proposition

that when the third party receives payment from the common-law employer prior

to or contemporaneously with the payment of wages, the third party is not a

statutory employer. The District Court rejected this contention, taking the position

that Garami and Professional Security “found only that the common law employer

remains liable when it contracts with a third party to pay employment taxes” and

“did not find that a third party was not also liable if it were deemed to be the §

3401(d)(1) employer.” Finding no merit to the IRS’s objections, the District Court

followed Paychex to conclude that Gevity was the statutory employer.

                                          E.

      The IRS now appeals. It argues that Gevity’s clients had control of the

payment of wages to the worksite employees because they provided the funds that

Gevity used to pay the wages and provided the information needed to determine

the payroll. Gevity, it contends, was simply a conduit for its clients’ funds, paying

the worksite employees only because its clients directed it to do so. The IRS

asserts that the special definition of “employer” in § 3401(d)(1) is a limited

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exception that was “designed solely to meet special and unusual situations,” such

as the payment of pensions by certain pension trusts, see 26 C.F.R. § 31.3401(d)-

1(f), (h), and should therefore be given a “narrow construction,” see Century

Indem. Co. v. Riddell, 317 F.2d 681, 691 (9th Cir. 1963). In addition, the IRS

argues that in interpreting Garami and Professional Security, the District Court

endorsed an erroneous co-employer theory of § 3401(d) under which a common-

law employer and an asserted statutory employer could both count as an

“employer” under the statute, even though the plain language of the section allows

for only one of these to be the “employer.”

                                         III.

      We affirm the District Court’s order. Gevity is entitled to claim the FICA

tax credits as the statutory employer because it, not its client companies, had

“control of the payment of such wages.” In reaching this result, however, we do

not follow exactly the same reasoning advanced by the District Court and by

TriNet.

                                         A.

      We begin with an important preliminary clarification. It should be observed

that the person who is entitled to claim the FICA tip credit must be the same

person who is responsible for withholding FICA taxes from wage payments. The

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statute clearly specifies that “employer” means one of two persons: either (1) it is

“the person for whom an individual performs or performed any service” (the

common-law employer), or, (2) if that person “does not have control of the

payment of the wages for such services,” then the “employer” is “the person

having control of the payment of such wages” (the statutory employer). 26 U.S.C.

§ 3401(d). These options are mutually exclusive. If the common-law employer

controls the payment of wages, then the common-law employer is the “employer”

under the statute; if the common-law employer does not control the payment of

wages, then the person who does have such control is the “employer.”

Consequently, as between the common-law employer and a party who is not a

common-law employer but purports to be the statutory employer on the basis of

having control of the payment of wages, only one of them can be the “employer”

under the statute. 6 That one “employer” is then expressly both liable for

withholding and paying FICA taxes, id. §§ 3102(a)-(b), 3111, and entitled to claim

the FICA tip credit, id. § 45B. After all, the credit is a credit for having “paid or

incurred” the FICA tax. Id. § 45B(a). A person who is not the “employer” under §

3401(d), contrariwise, is neither responsible for paying the taxes nor eligible for

the credit.

       6
          In other words, if the common-law employer qualifies as the “employer” under the
statute, there can be no such thing as a distinct ‘statutory employer’. Using this terminology in
such circumstances only creates confusion.

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                                           B.

      On the main issue of how to apply the statutory criterion of control, TriNet’s

basic position is that if a person other than the common-law employer has

exclusive control over the bank account from which wages are paid, then that

person has control of the payment of wages and necessarily qualifies as the

statutory employer. This bank-account-control interpretation has been accepted by

a number of courts and represented the principal, though not exclusive, line of

reasoning taken by the District Court. See Paychex, 2017 WL 2692843, at *4, *7;

Winstead, 109 F.3d at 991-92; Consol. Flooring, 38 Fed. Cl. at 459; Total

Employment, 305 B.R. at 339. However, we are not prepared to say that control of

the bank account used to make payments should always be determinative. The

statute speaks in terms of “control of the payment of wages,” not control of bank

accounts, and control of the payment of wages does not seem to be purely a matter

of which person is last in possession of the funds being paid. The notion of control

includes not only physical possession of a thing or physical execution of an action

affecting it, such as the transferring of money, but also the authority or

responsibility for taking such an action. See Control, n., Black’s Law Dictionary

(11th ed. 2019) (“The direct or indirect power to govern the management and

policies of a person or entity . . . ; the power or authority to manage, direct, or

oversee” (emphasis added)); see also Searock v. Stripling, 736 F.2d 650, 653 (11th

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Cir. 1984) (noting, in the context of document production, that “[c]ontrol is defined

not only as possession, but as the legal right to obtain the documents requested

upon demand”).

      Accordingly, in some cases it is possible that the person whose bank account

is used to make the payment may not be best understood as the one controlling the

payment, or even the one genuinely paying the employee. Suppose, for instance,

that a store owner whose account is low because he has forgotten to deposit the

cash received for that week needs to pay his workers after the bank has closed. He

gives a friend the amount of the pay in cash and asks the friend to write checks to

each of the employees from her own account. It does not seem likely that the

friend in this scenario, by doing a one-time favor for the store owner, thereby

becomes the person in control of the payment of wages. The friend has already

been given the money in advance and bears no risk of default from the store owner.

The friend might not have any idea about what employment taxes are to be paid;

indeed, she would not even need to know the specific purpose of the payments—

perhaps some might be for employees and some for vendors. In such a scenario it

would appear that the friend is a mere conduit, whereas the owner is the person

really paying the employees and thus must be the one controlling the payments.

This example illustrates how control depends on who is actually responsible for the

payment of wages, as informed by the parties’ understandings of their

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arrangement.

                                         C.

      The proper approach to the inquiry recognizes that control of the payment of

wages is something that the parties can allocate between themselves through their

agreement. Because both liability for employment taxes and entitlement to credits

follow control, the parties’ understanding of who will bear the responsibility for

tax withholding or who will be able to claim tax credits is strong evidence of who

has control of the payments. The allocation of such liability and entitlement may

be either implicitly or explicitly part of the bargain between the parties. Important

aspects of the parties’ understanding of their bargain may be revealed by how the

parties carry out the agreement in practice. Restatement (Second) of Contracts, §

202(4) (Am. Law Inst. 1981) (“Where an agreement involves repeated occasions

for performance by either party with knowledge of the nature of the performance

and opportunity for objection to it by the other, any course of performance

accepted or acquiesced in without objection is given great weight in the

interpretation of the agreement.”); see Alabama v. North Carolina, 560 U.S. 330,

346, 130 S. Ct. 2295, 2309 (2010) (course of performance may be “highly

relevant”).

      This observation does not mean that the employer under § 3401(d) can

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“relieve[] itself of the obligation to pay employment taxes by delegating that

function” by contract. Prof’l Sec., 162 B.R. at 904; see Garami, 184 B.R. at 838.

A person cannot delegate the tax responsibility to another party as long as the

person remains the “employer” according to the statute. But the statute places the

duty to withhold and pay taxes on the person who controls the payment of wages.

If the common-law employer does not have such control, the tax liability falls by

law on the party with control, without needing to be delegated. The parties’

contract can certainly affect who has control of the payments, and hence the

contractual arrangement must be taken into account in determining who is the

employer under the statute.

                                          D.

       In this case, it was part of the bargain between Gevity and its clients that

Gevity would control the payment of wages and would be responsible for the

withholding of taxes. This conclusion follows from a consideration of the totality

of the parties’ agreement as it functioned in practice, most importantly the fact that

Gevity generally issued wage payments before receiving cleared payment from its

clients.

       Gevity’s PSAs committed payroll and tax reporting matters to Gevity rather

than to its clients. The agreements made Gevity responsible for “payroll and

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payroll processing, tax filing and administration, [and] W-2 preparation.” Gevity

computed pay and withholding amounts, remitted taxes to the IRS, and issued

checks for net pay to worksite employees. Moreover, the PSAs provided that “the

entirety of an employer’s rights and responsibilities shall be shared and allocated”

between Gevity and its clients and purported to render the worksite employees

“simultaneously employed by both parties.” While, as explained above, Gevity

and its clients could not both qualify as the “employer” under § 3401(d), the fact

that the agreements envisioned a co-employment relationship is relevant. It

supports the idea that the parties conceived of Gevity as having a responsibility of

its own to pay the employees’ wages and not just acting as a conduit for its clients’

funds.

         The PSAs also specifically stated that Gevity would be responsible for “the

reporting, collection and payment of federal and state [employment] taxes on

wages paid” to worksite employees and would pay all related costs. Gevity

reported tax withholdings on its own tax forms under its own name and EIN, and

the PSAs appear to have made it explicit that “Gevity’s FEIN” would be used.

These considerations suggest that the parties would have understood Gevity to be

liable to the government for employment taxes. That understanding also carries a

suggestion, in turn, that Gevity would be entitled to any tax credits associated with

those taxes, absent other contractual provisions to the contrary. This is the case

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even though we have not been directed to any provision in the PSAs expressly

giving Gevity the right to claim such tax credits. 7

       Some of the PSAs provided that Gevity assumed responsibility for

paying wages “without regard to payments” by its clients. Not all of the

PSAs included this language, and the IRS disputes whether the ones that did

actually obligated Gevity to issue paychecks if a client failed to make

payment of the wage amounts, arguing that the agreements gave Gevity the

right to remove employees from its payroll when a client notified Gevity that

it would not be able to pay. The parties’ dealings as they implemented their

arrangement, however, establish that Gevity in practice placed its own funds

at risk in making wage payments. For the roughly three-fourths of clients

that paid using ACH debit, Gevity systematically issued payroll to worksite

employees at least a day before funds for the payroll were fully cleared by

the client’s bank, and thus made wage payments even when the client

ultimately would not be able to pay. The parties’ practice in this regard is

crucial in demonstrating that the bargain between the parties afforded Gevity

7
  The record includes a PSA addendum for one client with a provision indicating that, at the
client’s request, Gevity would provide “reimbursement” of the FICA tip credit. However,
Gevity’s practice of refunding tip credits to some clients does not affect our larger conclusion
that Gevity’s PSAs made Gevity responsible for tax withholding and provided it with control of
the payment of wages. The major consideration in the above discussion is responsibility for
taxes, which the PSAs clearly place on Gevity.

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         USCA11 Case: 19-10997       Date Filed: 11/05/2020   Page: 22 of 24

actual control of the payment of wages.

      The IRS maintains that client defaults were rare and that as a matter of

economic reality the payroll funds were provided by the clients, who were

contractually responsible for “[c]ompensating employees for their work.” Thus, it

contends, client funds in substance simply flowed through Gevity, leaving the real

control with the clients. This argument is not sustained by the facts of the case.

The IRS is basically asserting that Gevity acted as a bank, providing financing for

payments that its clients instructed it to advance to worksite employees. Yet a

bank would have preferred to receive guaranteed payment from its clients first, and

it would have charged interest on any money being disbursed on its clients’ behalf

whenever it could not confirm the receipt of funds by the payroll date; it would not

have accepted the risk of default without compensation. Gevity, by contrast, gave

its clients the option to use a payment method, ACH debit, for which payments

could not be confirmed until after Gevity was scheduled to send payroll and for

which Gevity was not even notified of the exact date when payments cleared.

While Gevity charged late fees for past-due invoices, it did not charge and indeed

could not have calculated interest for the number of days for which payroll funds

would have effectively been on loan to clients whose payments eventually cleared.

Its PSAs appear to have specifically sought to ensure that unpaid amounts

advanced to worksite employees would not “be deemed a loan” to the client. More

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           USCA11 Case: 19-10997         Date Filed: 11/05/2020      Page: 23 of 24

generally, Gevity was clearly not in the business of finance for its clients but

instead in the business of managing payroll. Given these facts, it did not function

as a mere conduit.8

       For the above reasons, we conclude that Gevity, rather than its clients, had

“control of the payment of wages” to worksite employees. As a result, Gevity was

the statutory employer under § 3401(d), and summary judgment was properly

granted.

       AFFIRMED.

8
 Because we find that Gevity qualifies squarely as having control of the payment of wages, we
need not further address the IRS’s argument that § 3401(d)(1) should be given a narrow
construction.

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         USCA11 Case: 19-10997       Date Filed: 11/05/2020   Page: 24 of 24

JORDAN, Circuit Judge, concurring:

      The U.S. Tax Code has been called a lot of things, but I doubt that anyone

has characterized it as a font of equity. I join the Court’s opinion not only because

its construction of 26 U.S.C. § 3401(d) seems correct to me, but also because the

result here approaches “rough justice” in tax terms. As the Court points out, only

one entity—the common law employer or the statutory employer—is responsible

for withholding FICA taxes and can then claim the FICA tax credits. As a result,

there is little danger that the IRS will be subject to competing and inconsistent

claims for FICA tax credits.

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