§3511 Certified Professional Employer Organizations

Summary

Certified professional employer organizations (CPEOs) must be treated as the employer for federal payroll taxes and related duties for any work site employee when the CPEO pays that employee. Rules that depend on the type of employer still apply to those wages. For the rules in sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1), a CPEO that starts a service contract is treated as the successor employer and the customer is the predecessor while the contract runs; if the contract ends, the customer becomes the successor and the CPEO becomes the predecessor. For tax liability only, a CPEO is also the employer of other people covered by contracts that meet section 7705(e)(2), but only for pay the CPEO actually sends. People with self-employment income from the customer’s business (including partners) are not work site employees. 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. The customer must count wages and employment taxes that the CPEO paid and was reimbursed for. The CPEO must give the customer and the IRS the information needed to claim those credits. Customers related to a CPEO under sections 267(b) or 707(b) are excluded from these rules, but for that test “10 percent” is used instead of “50 percent.” The Secretary must make rules for reporting, recordkeeping, notifications (including start/stop of service contracts and the customer’s employer ID), and any other steps needed to enforce these rules.