On Feb. 1, the Senate passed minimum wage legislation (H.R. 2) as part of the Democrats’ agenda for their first 100 hours. The bill, if passed, will increase the federal minimum wage to $7.25 per hour over a 2-year period.
To ensure passage of the legislation, Senate Democratic leaders agreed to add a series of tax breaks, which are designed to help smaller businesses offset the cost of a wage increase. The Senate combined the small business tax breaks, which, according to estimates, will be worth $8.3 billion over 10 years, with several proposals to close some tax loopholes for larger businesses.
Other amendments include some HR-related elements—such as a provision that would establish a certificate program for professional employer organizations (PEOs). If passed, the measure under the federal tax code would explicitly allow any PEO that posts a bond, files audited financial statements and has its top executives pass background checks to collect and pay federal taxes for their small-business clients.
The inclusion of the amendment in the minimum wage bill is a huge leap forward for the PEO industry, according to Milan Yager, executive vice president of the National Association of Professional Employer Organizations (NAPEO) in Alexandria, Va. For several years, the NAPEO has been pushing for the Congress to pass legislation that would clarify the status of PEOs under the federal tax code.
“The amendment sets some standards that PEOs must meet to gain a certificate for the IRS,†said Yager. “Any PEOs earning the certification would then withhold and pay taxes for their clients and allow the IRS to formally recognize the status of PEOs. The measure, if enacted, would be a very positive step for the PEO industry and further help smaller businesses provide benefits such as health care and retirement plans to their employees.â€
The certification would require these companies to meet certain standards set by the IRS. Businesses that contract and outsource their payroll and benefits administration to certified PEOs would not be liable for any taxes already withheld or collected by the PEO.
Yager says that the measure would create a win/win situation for smaller businesses and their workers.
“By outsourcing the payroll and tax administration functions to PEOs, small businesses can then focus on making a profit,†Yager said. “PEOs also allow smaller businesses to provide their workers top-shelf benefits such as a 401(k)s and health insurance. Few workers at small businesses have access to comprehensive benefits except through a PEO.â€
Yager says the proposed PEO certificate program should come as good news to the HR profession.
“PEOs really are becoming more of a career path for HR professionals. An increasing number of businesses are outsourcing their HR functions to PEOs, which has created a growing demand for HR professionals within our industry,†Yager said.
Not everyone is for the proposed PEO certificate program. Officials with the AFL-CIO have opposed the PEO provision, saying the proposal would further hamper union organizing efforts.
Yager said that the opposition from organized labor puzzled his organization and other supporters of the measure.
“It’s really just a tax-related measure that would actually allow businesses to offer more benefits to workers, and on top of that a business that uses a PEO typically has 15 employees or less and it is unlikely that it would be subject to most union organizing efforts,†Yager said.
“The Democrats do not have the needed 60 votes to avoid a filibuster and move the bill through the Senate without including the small business tax breaks,†said Mike Aitken, director of governmental affairs for the Society for Human Resource Management. “The bill should pass if the House and Senate can reach a compromise in a conference committee. It’s going to take some work from both sides to get a final piece of legislation approved.â€
According to House and Senate leaders, negotiations have started to craft a final piece of legislation that will be acceptable to both sides. The Congressional leaders have indicated that final action on the bill could come as early as mid-February. However, if the negotiations drag out for more than two weeks, then the final drafting of a minimum wage increase might not be complete until later this spring, sources say.
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