A bipartisan pair of lawmakers have introduced a bill that aims to ensure better tax compliance on the part of professional employer organizations and protect small businesses.

Kevin Brady

Congressmen Kevin Brady, R-Texas, and Mike Thompson, D-Calif., introduced H.R. 2466, the Small Business Efficiency Act of 2011, on Friday. The bill would provide clear rules for professional employer organizations that are voluntarily certified by the Internal Revenue Service to collect and pay federal employment taxes for their small business clients. The legislation will provide certainty for small businesses that use certified PEO services and allow employers to focus on their core business, not government paperwork. 

“America’s economic recovery depends upon our small businesses being able to create jobs and this bill helps get Washington out of their way," said Brady, a senior member of the House Ways and Means Committee and the top Republican on the Joint Economic Committee. "Our legislation provides small business owners the flexibility to do what they do best—deliver quality products and services to their customers and expand their businesses, instead of worrying about reams of government paperwork.”

PEOs provide human resources services to their small business clients, including access to retirement plans, health insurance, life insurance, and other benefits that many small businesses would not otherwise be able to afford. One of the most important tasks that PEOs can perform for small businesses is the collection and payment of employment taxes. The Small Business Efficiency Act would create a voluntary IRS certification process to strengthen the ability of PEOs to accept liability for filing payroll taxes of their clients’ employees and, in the process, reduce the amount of burdensome paperwork for small businesses. 

“Congressman Brady and I introduced the Small Business Efficiency Act to remove the regulatory burdens that stand in the way of small business success,” said Thompson, a senior member of the Ways and Means Committee. “By providing clear rules for Professional Employer Organizations to collect and pay federal taxes on behalf of their small business clients, our bill will allow small businesses to focus on innovating, growing, and creating good-paying jobs. These are the kinds of smart, targeted policies that will keep our small businesses—and our economy—on the path to prosperity.”

To become a certified PEO, or CPEO, under Brady and Thompson’s legislation, a PEO must meet certain basic financial conditions, satisfy reporting obligations, and maintain ongoing certification with the IRS. After meeting certification requirements, the CPEO would assume full and sole responsibility and liability for employment taxes due as long as they are certified.