Regulations: Certified professional employer organizations (employee leasing companies)

Certified professional employer organizations

The Treasury Department and IRS today released for publication in the Federal Register temporary regulations (T.D. 9768) and, by cross-reference, proposed regulations (REG-127561-15) concerning the requirements for a certification program for professional employer organizations—“certified professional employer organizations” or CPEOs.

Related content

The temporary regulations [PDF 245 KB] and the proposed regulations [PDF 263 KB] implement a program for CPEOs pursuant to legislation enacted in 2014.

The regulations will be published in the Federal Register on May 6, 2016. Comments and requests for a public hearing concerning the proposed regulations must be received by a date that is 90 days after May 6, 2016.

Overview

The preamble to the regulations explains that a professional employer organization (PEO)—sometimes referred to as an employee leasing company—enters into an agreement with a client to perform some or all of the federal employment tax withholding, reporting, and payment functions related to workers performing services for the client. The terms of a PEO arrangement typically provide that the PEO is the employer (or “co-employer”) of the client’s employees and is responsible for paying the employees and for the related federal employment tax compliance. 

A PEO also may manage human resources, employee benefits, workers compensation claims, and unemployment insurance claims for the client. The client typically pays the PEO a fee based on payroll costs plus an additional amount. In most cases, however, the employees working in the client’s business are the common law employees of the client for federal tax purposes, and the client is therefore legally responsible for federal employment tax compliance.

Regulations

As noted in a related IRS release [PDF 18 KB], the temporary and proposed regulations implement a new voluntary certification program for professional employer organizations (PEOs).

The regulations implement the 2014 legislative mandate requiring the IRS to establish a voluntary certification program for these organizations. To become and remain certified under the new program, PEOs must meet tax status, background, experience, business location, financial reporting, bonding and other requirements described in the regulations.  The application process will open on July 1, 2016. 

The IRS release also states that a revenue procedure further detailing the application process will be released “in coming weeks” and that the IRS will publish lists of CPEOs and those whose certification has been revoked or suspended. 

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.