WASHINGTON, D.C. – U.S. Reps. Mike Thompson (D-CA) and Kevin Brady’s (R-TX) bipartisan Small Business Efficiency Act (H.R. 3581) was signed into law on Friday by President Barack Obama.

The legislation helps reduce burdens faced by small businesses and ensures better compliance with complex federal employment tax responsibilities.

Specifically, the Small Business Efficiency Act provides clear rules for Professional Employer Organizations (PEOs) that are voluntarily certified by the Internal Revenue Service (IRS) 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 business operations, not government paperwork.

“Small businesses are the backbone of our economy and they shouldn’t be held back because of Washington regulations and piles of government paperwork,” said Thompson. “This law will remove bureaucratic burdens so that small businesses can focus on what they do best – growing their business, producing quality products and creating good-paying jobs.”

PEOs provide human resources services to small business clients. One of the most important tasks that PEOs perform for small businesses is the collection and payment of employment taxes, reducing the amount of burdensome paperwork for small businesses.

Before the bill was enacted, there was ambiguity about a certified PEO’s (CPEO) ability to assume employment tax responsibility. The Small Business Efficiency Act eliminates this ambiguity by implementing safeguards for the CPEO’s small business clients.

To become a certified PEO (CPEO) Thompson and Brady’s legislation requires a PEO to 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.

The Small Business Efficiency Act creates a voluntary IRS certification process to help PEOs become certified so they can take on small business clients and accept liability for filing payroll taxes for their clients’ employees.

Not only will small businesses benefit from the legislation, the federal government directly benefits as well.

The IRS has stated that CPEOs would improve compliance with employment tax requirements, reduce the number of returns the IRS has to process, and reduce errors in calculating and paying employment taxes.  Presidents Bush and Obama have included very similar proposals in their budget submissions.

Congressman Mike Thompson represents California’s 5th Congressional District, which includes all or part of Contra Costa, Lake, Napa, Solano and Sonoma counties. He is a senior member of the House Ways and Means Committee and the House Permanent Select Committee on Intelligence. Rep. Thompson is also a member of the fiscally conservative Blue Dog Coalition and chairs the bipartisan, bicameral Congressional Wine Caucus.