Capitol Hill Efforts Support PEOs on Health Care Reform Act

Health Care Credits should flow to PEO clients under new Health Care Reform Legislation

Questions surrounding the impact of the Health Care Reform Act on Professional Employer Organizations (PEOs) and PEO clients took a positive step on March 30, 2010 when Senator Nelson of Florida discussed the value provided by PEOs to small business throughout the USA and the intent of the legislation to not penalize employers from joining a PEO and thus exposing themselves to the regulatory demands of larger employers. This is the dialog:

From Congressional Record, March 24, 2010 (Senate) page S1989

Mr. NELSON of Florida. Mr. President, I would like to ask the chairman of the Committee on Finance and its ranking member a question on the application of the legislation to Professional Employer Organizations or PEOs. As they know, there are millions of individuals throughout our country who are working for small businesses which are in PEO arrangements. The clear objective of this legislation is to create incentives for health care coverage and not to provide disincentives. I would like the chairman to clarify that, for purposes of the application of section 2716 of the Public Health Service Act (Prohibition on Discrimination in Favor of Highly Compensated Individuals) and for purposes of Internal Revenue Code sections 45R (Credit for Employee Health Insurance Expenses of Small Businesses) and 4980H (Shared Responsibility for Employers), to any health plans sponsored by a Professional Employer Organization, PEO, or a PEO client organization, the rules would be applied to each client organization separately and eligibility for the small business tax credits and employer shared responsibilities would also apply to each client organization separately, and not at the PEO level.

Mr. BAUCUS. If the individual providing services to the PEO client organization pursuant to the PEO arrangement continues to be an employee of the PEO client organization, the Senator from Florida is correct.

Mr. GRASSLEY. I agree with the chairman.

Thanks to NAPEO

This clarification, developed by NAPEO's federal legislative team, and offered by Finance Chairman Baucus (D-MT), Senator Nelson (D-FL), and Finance Ranking Member Charles Grassley (R-IA), will serve as guidance to regulatory agencies implementing the law that PEO clients will be eligible to receive the tax credit benefits of this legislation, and that potential mandates will apply based on client size, not PEO size. Similarly, the new non-discrimination testing requirement for health plans will apply at the client level.

Healthcare reform is a multi-part, multi-phase process. There will be subsequent technical correction bills and also implementing regulations and guidance to be issued by relevant federal agencies, including Treasury, HHS and Labor. This colloquy, or statement of Congressional intent, will guide agency rulemaking. NAPEO sought this language to protect the PEO business model from possible disincentives for small businesses to enter into PEO arrangements.

See this link (search the page for "S1989" and scoll down a few pages) for the full text of the Congressional Record section on PEOs .

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