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108th CONGRESS
  1st Session
                                S. 1269

  To amend the Internal Revenue Code of 1986 to clarify the status of 
  professional employer organizations and to promote and protect the 
interests of professional employer organizations, their customers, and 
                                workers.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             June 16, 2003

 Mr. Grassley introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to clarify the status of 
  professional employer organizations and to promote and protect the 
interests of professional employer organizations, their customers, and 
                                workers.

    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 ``Professional Employer Organization 
Workers Benefits Act of 2003''.

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, 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 Individuals Purported To Be 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)(F), 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) Employee Benefits.--Section 414 of such Code (relating to 
definitions and special rules) is amended by adding at the end the 
following new subsection:
    ``(w) Certified Professional Employer Organizations.--
            ``(1) Plans maintained by certified professional employer 
        organizations.--
                    ``(A) In general.--Except as otherwise provided in 
                this subsection, in the case of a plan or program 
                established or maintained by a certified professional 
                employer organization to provide employee benefits to 
                work site employees, then, for purposes of applying the 
                provisions of this title applicable to such benefits--
                            ``(i) such plan shall be treated as a 
                        single employer plan established and maintained 
                        by the organization,
                            ``(ii) the organization shall be treated as 
                        the employer of the work site employees 
                        eligible to participate in the plan, and
                            ``(iii) the portion of such plan covering 
                        work site employees shall not be taken into 
                        account in applying such provisions to the 
                        remaining portion of such plan or to any other 
                        plan established or maintained by the certified 
professional employer organization providing employee benefits (other 
than to work site employees).
                    ``(B) Special exceptions in applying rules to 
                benefits.--
                            ``(i) In general.--In applying any 
                        requirement listed in clause (iii) to a plan or 
                        program established by the certified 
                        professional employer organization--
                                    ``(I) the portion of the plan 
                                established by the certified 
                                professional employer organization 
                                which covers work site employees 
                                performing services for a customer 
                                shall be treated as a separate plan of 
                                the customer (including for purposes of 
                                any disqualification or correction),
                                    ``(II) the customer shall be 
                                treated as establishing and maintaining 
                                the plan, as the employer of such 
                                employees, and as having paid any 
                                compensation remitted by the certified 
                                professional employer organization to 
                                such employees under the service 
                                contract entered into under section 
                                7705, and
                                    ``(III) a controlled group that 
                                includes a certified professional 
                                employer organization shall not include 
                                in the controlled group any work site 
                                employees performing services for a 
                                customer.
                        For purposes of subclause (III), all persons 
                        treated as a single employer under subsections 
                        (b), (c), (m), and (o) shall be treated as 
                        members of the same controlled group.
                            ``(ii) Self-employed individuals.--A work 
                        site employee who would be treated as a self-
                        employed individual (as defined in section 
                        401(c)(1)), a disqualified person (as defined 
                        in section 4975(e)(2)), a 2-percent shareholder 
                        (as defined in section 1372(b)(2)), or a 
                        shareholder-employee (as defined in section 
                        4975(f)(6)(C)), but for the relationship with 
                        the certified professional employer 
                        organization, shall be treated as a self-
                        employed individual, disqualified person, a 2-
                        percent shareholder, or shareholder-employee 
                        for purposes of rules applicable to employee 
                        benefit plans maintained by such certified 
                        professional employer organization.
                            ``(iii) Listed requirements.--The 
                        requirements listed in this clause are:
                                    ``(I) Nondiscrimination and 
                                qualification.--Sections 79(d), 105(h), 
                                125(b), 127(b)(2) and (3), 129(d)(2), 
                                (3), (4), and (5), 132(j)(1), 
                                274(j)(3)(B), 401(a)(4), 401(a)(17), 
                                401(a)(26), 401(k)(3) and (12), 
                                401(m)(2) and (11), 404 (in the case of 
                                a plan subject to section 412), 410(b), 
                                412, 414(q), 415, 416, 419, 422, 
                                423(b), 505(b), 4971 4972, 4975, 4976, 
                                4978, and 4979.
                                    ``(II) Size.--Sections 220, 
                                401(k)(11), 401(m)(10), 408(k), and 
                                408(p).
                                    ``(III) Eligibility.--Section 
                                401(k)(4)(B).
                                    ``(IV) Authority.--Such other 
                                similar requirements as the Secretary 
                                may prescribe.
                            ``(iv) Welfare benefit funds.--With respect 
                        to a welfare benefit fund maintained by a 
                        certified professional employer organization 
                        for the benefit of work site employees 
                        performing services for a customer, section 419 
                        shall be treated as not listed in clause 
                        (iii)(I) if the fund provides only 1 or more of 
                        the following:
                                    ``(I) Medical benefits other than 
                                retiree medical benefits.
                                    ``(II) Disability benefits.
                                    ``(III) Group term life insurance 
                                benefits which do not provide for any 
                                cash surrender value or other money 
                                that can be paid, assigned, borrowed or 
                                pledged for collateral for a loan.
                            ``(v) Excise taxes.--Notwithstanding clause 
                        (iii), the certified professional employer 
                        organization and the customer contracting for 
                        work site employees to pay services shall be 
                        jointly and severally liable for the tax 
                        imposed by section 4971 with respect to failure 
                        to meet the minimum funding requirements and 
                        the tax imposed by section 4976 with respect to 
                        funded welfare benefit plans.
                            ``(vi) Continuation coverage 
                        requirements.--For purposes of applying the 
                        provisions of section 4980B with respect to a 
                        group health plan maintained by a certified 
                        professional employer organization for the 
                        benefit of work site employees:
                                    ``(I) Termination of employment 
                                events.--Each of the following events 
                                shall constitute a termination of 
                                employment of a work site employee for 
                                purposes of section 4980B(f)(3)(B):
                                            ``(aa) The work site 
                                        employee ceasing to provide 
                                        services to any customer of 
                                        such certified professional 
                                        employer organization.
                                            ``(bb) The work site 
                                        employee ceasing to provide 
                                        services to one customer of 
                                        such certified professional 
                                        employer organization and 
                                        becoming a work site employee 
                                        with respect to 
another customer of such certified professional employer organization; 
and
                                            ``(cc) The termination of a 
                                        service contract between the 
                                        certified professional employer 
                                        organization and the customer 
                                        with respect to which the work 
                                        site employee performs 
                                        services, provided, however, 
                                        that such a contract 
                                        termination shall not 
                                        constitute a termination of 
                                        employment under section 
                                        4980B(f)(3)(B) for such work 
                                        site employee if, at the time 
                                        of such contract termination, 
                                        such customer maintains a group 
                                        health plan (other than a plan 
                                        providing only excepted 
                                        benefits within the meaning of 
                                        sections 9831 and 9832 or a 
                                        plan covering less than two 
                                        participants who are 
                                        employees).
                                    ``(II) Termination event 
                                constituting a qualifying event.--If an 
                                event described in subparagraph (vi)(I) 
                                also constitutes a qualifying event 
                                under section 4980B(f)(3) with respect 
                                to the group health plan maintained by 
                                the certified professional employer 
                                organization for the affected work site 
                                employee, such plan shall no longer be 
                                required to provide continuation 
                                coverage as of any new coverage date.
                                    ``(III) New coverage date when 
                                termination event constitutes 
                                qualifying event.--For purposes of 
                                subclause (II), a new coverage date 
                                shall be the first date on which--
                                            ``(aa) the customer 
                                        maintains a group health plan 
                                        other than a plan described in 

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