26 U.S.C. § 7705 — Certified professional employer organizations

(a) In general: A "certified professional employer organization" is a person who applies to be treated that way for purposes of section 3511, and who the Secretary^* has certified as meeting the requirements of (b).

(b) Certification requirements: A person meets (b) if they: (1) show that they, and any owner, officer, or other person regulations may specify, meet requirements the Secretary sets covering tax status, background, experience, business location, and annual financial audits; (2) agree to keep meeting the bond and independent financial review requirements of (c) on an ongoing basis; (3) agree to meet whatever reporting duties the Secretary imposes; (4) compute their taxable income using an accrual method of accounting, unless the Secretary approves a different method; (5) agree to periodically verify, on a schedule the Secretary sets, that they still meet (b)'s requirements; and (6) agree to notify the Secretary in writing, within a time the Secretary sets, of any change that materially affects the accuracy of an agreement or information they previously provided.

(c) Bond and independent financial review:
(1) In general: An organization meets (c) if it meets both the bond requirement in (2) and the independent financial review requirement in (3).
(2) Bond: (A) In general: A certified professional employer organization meets this if it has posted a bond, in a form the Secretary accepts, for payment of taxes under subtitle C, in at least the amount set in (B). (B) Amount of bond: For the period April 1 of any calendar year through March 31 of the next year, the required bond equals the greater of: (i) 5 percent of the organization's liability under section 3511 for subtitle C taxes during the preceding calendar year, capped at $1,000,000, or (ii) $50,000.
(3) Independent financial review requirements: A certified professional employer organization meets this if it: (A) has, as of the most recent audit date, gotten and given the Secretary, in the manner the Secretary prescribes, an independent certified public accountant's opinion on whether its financial statements are presented fairly under generally accepted accounting principles; and (B) gives the Secretary, no later than the last day of the second month after each calendar quarter ends, an assertion about its federal employment tax payments and an examination-level attestation on that assertion from an independent certified public accountant. The assertion must state that the organization withheld and deposited all taxes imposed by chapters 21, 22, and 24 for that quarter, following the Secretary's regulations, and the attestation must state that the assertion is fairly stated in all material respects.
(4) Controlled group rules: For the requirements in (2) and (3), all certified professional employer organizations that are members of the same controlled group, as defined in section 414(b) and (c), are treated as a single organization.
(5) Failure to file assertion and attestation: If a certified professional employer organization fails to file the assertion and attestation required by (3) for a calendar quarter, it's treated as not meeting (3) for that failure, starting on the due date for that attestation.
(6) Audit date: For (3)(A), the audit date is six months after the organization's fiscal year^* ends.

(d) Suspension and revocation authority: The Secretary may suspend or revoke a person's certification under (b), for purposes of section 3511, if the Secretary determines the person isn't satisfying the agreements or requirements of (b) or (c), or fails to meet applicable accounting, reporting, payment, or deposit requirements.

(e) Work site employee^*: For this title:
(1) In general: A "work site employee" means, for a certified professional employer organization, an individual who (A) performs services for a customer under a contract between the customer and the organization that meets (2)'s requirements, and (B) performs those services at a work site that meets (3)'s requirements.
(2) Service contract requirements: A contract meets this if it's in writing and provides that the certified professional employer organization will: (A) take responsibility for paying that individual's wages, regardless of whether or how adequately the customer pays for the services; (B) take responsibility for reporting, withholding, and paying any applicable subtitle C taxes on that individual's wages, regardless of the customer's payment; (C) take responsibility for any employee benefits the service contract requires it to provide, regardless of the customer's payment; (D) take on responsibility for recruiting, hiring, and firing workers, in addition to the customer's own responsibility for that; (E) maintain employee records relating to the individual; and (F) agree to be treated as a certified professional employer organization for section 3511 purposes with respect to that individual.
(3) Work site coverage requirement: This is met for an individual if at least 85 percent of the people performing services for the customer at that individual's work site are covered by one or more (2)-qualifying contracts with the certified professional employer organization — not counting "excluded employees" within the meaning of section 414(q)(5).

(f) Public disclosure: The Secretary must make public the name and address of (1) each person certified as a professional employer organization under (a), and (2) each person whose certification is suspended or revoked under (d).

(g) Determination of employment status: Except as needed for section 3511, nothing in this section changes who counts as an employee or employer for other purposes of this title.

(h) Regulations: The Secretary must prescribe whatever regulations are necessary or appropriate to carry out this section's purposes.