Small Business Efficiency Act of 2009 - Amends the Internal Revenue Code to treat professional employer organizations (PEOs), certified by the Internal Revenue Service (IRS), as employers for employment tax purposes (thus allowing such PEOs to pay wages and collect and remit payroll taxes on behalf of an employer).
Sets forth IRS certification requirements for PEOs, including financial review and reporting requirements. Requires a PEO to post a bond, up to $1 million, to guarantee payment of employment taxes. Limits the required bond amount to $50,000 for a newly created PEO during its three-year startup period.
[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2447 Introduced in House (IH)]
111th CONGRESS
1st Session
H. R. 2447
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
May 14, 2009
Mr. Pomeroy (for himself and Mr. Brady 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
2009''.
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>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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