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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.
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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
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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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