>Representatives Rob Portman (R-Ohio) and Ben Cardin (D-Maryland) introduced HR 2178 to provide clarifications for the purposes of determining Federal Insurance Contributions Act and Federal Unemployment Tax Act taxes under Internal Revenue Code Sections 3121(a) and 3306(b)(1), respectively. This represents the fourth go-around for legislation of this type, as the pair introduced similar bills in 1997, 2000, and 2001, according to Washington-based legal publisher BNA.
>The rub in the current regulations deals with remuneration paid by an original employer, being treated as been paid by the successor during the calendar year. This poses a problem for PEOs – aka, employee leasing organizations – that typically enter into contracts to provide leased employees to customers at a work site while handling human resources and personnel issues for those employees. In this case, the PEO is treated like predecessor, with the “leasing” company getting credit for remuneration paid.
>Therefore, the bill seeks to make clear that a PEO entering into a service contract with a customer should be treated as a successor employer and the customer should be treated as a predecessor employer. Further, if a customer terminates a contract, then the designations would be reversed.
>To accomplish this, the bill would add to the end of tax code Section 414 – which provides definitions for employment and benefits purposes – a new subsection providing that the PEO’s benefit plan shall be treated as a single employer plan with the PEO treated as the employer. It also would provide that employees that are covered under a customer’s plan do not have to be included in the PEO’s plan.
If a PEO maintains a group health plan for work site employees, “qualifying events,” after which the PEO must offer the employee continuing coverage under the plan, would include the work site employee ceasing to provide services to the customer, switching work sites, and terminating the contract between a PEO and customer with respect to a work site employee.
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