§3511 Certified Professional Employer Organizations

Summary

Certified professional employer organizations (CPEOs) are treated as the employer for federal taxes and related duties for any work site employee whose pay the CPEO actually sends. Employer-type exemptions and rules that would apply based on employer type also apply to those taxes on that pay. When a CPEO starts a service contract, the CPEO is treated as the successor employer and the customer as the predecessor employer for sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1). When that contract ends, the customer becomes the successor and the CPEO the predecessor. For other workers covered by a qualifying contract (except work site employees and certain self-employed people), the CPEO is treated as the employer only for the pay it remits, with the same employer-type rules applying. For certain tax credits (sections 41, 45A, 45B, 45C, 45R, 45AA, 51, 1396, and any others the Secretary allows), the customer—not the CPEO—gets the credit for a work site employee. The customer must count wages and employment taxes paid by the CPEO that the customer reimbursed. The CPEO must give the customer and the Secretary the information needed to claim the credit. The rule does not apply when the customer and CPEO are related as in sections 267(b) or 707(b) (using 10 percent instead of 50 percent). Individuals with net self-employment earnings from the customer’s business (including partners) are not work site employees. The Secretary must create reporting, recordkeeping, and other rules and regulations to make these rules work and to streamline information sharing.