Legislation creating a voluntary certification program for professional employer organizations within the IRS received approval from the US Senate last night, the National Association of Professional Employer Organizations announced. It passed the House two weeks ago.

The legislation, the Small Business Efficiency Act, was part of a tax extenders bill passed by the Senate, according to NAPEO.

“This is truly a historic moment for the PEO industry,” said NAPEO Chairman Brent Tilson, president and CEO of Tilson HR in Greenwood, Ind. “We urge the president to sign the extenders bill and we look forward to working with the administration on the regulations so we can get the necessary framework in place to broaden our reach within the small business community.”

Under the legislation, PEOs could become IRS certified by meeting financial standards (including bonding and independent financial audit requirements) and satisfying reporting obligations and other standards set by the IRS, NAPEO reported.

Once certified, a PEO would take sole liability for the collection and remission of federal employment taxes for worksite employees. Businesses that contract with PEOs would be assured they would not be liable for employment taxes once they remit their employees’ tax withholdings to the PEO, according to NAPEO.

The legislation was backed by Sen. Chuck Grassley, R-Iowa; Sen. Bill Nelson, D-Fla.; Rep. Kevin Brady, R-Texas; and Rep Mike Thompson, D-Calif.

Approximately 250,000 businesses use PEOs, according to NAPEO.