§3511 Certified professional employer organizations

Summary

A certified professional employer organization (CPEO) is treated as the employer for federal taxes and related obligations for any work site employee when the CPEO pays that worker. The same employer-based exemptions and rules apply to those taxes as if the CPEO were the employer. For certain tax rules (sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)), a CPEO becomes the successor employer when it starts a service contract and the customer is the predecessor; when the contract ends, the customer becomes the successor and the CPEO the predecessor. For other people covered by a qualifying contract, the CPEO is also treated as the employer only for taxes on pay the CPEO actually sends. For a set list of tax credits (sections 41, 45A, 45B, 45C, 45R, 45AA, 51, 1396, and any others the Secretary allows), the customer—not the CPEO—claims the credit, counts wages and employment taxes the CPEO paid and was reimbursed for, and the CPEO must give the customer and the IRS the information needed to claim the credit. Definitions: Certified professional employer organization — a company certified to provide payroll and employer services; Work site employee — a worker who performs services for a customer and is paid by the CPEO; Customer — the business that hires the CPEO. The rule does not apply when the customer is related to the CPEO as described in sections 267(b) or 707(b) (using 10 percent instead of 50 percent for the related-ownership test). People with self-employment earnings from the customer’s business (including partners) are not work site employees for these taxes. The IRS Secretary must set up reporting, recordkeeping, notification (including start/stop of contracts and the customer’s EIN), and other rules to enforce these rules and the credit requirements, and must issue any needed regulations.