Small Business Efficiency Act of 2006

The Small Business Efficiency Act of 2006 proposes to change how the Internal Revenue Service (IRS) treats Professional Employer Organizations (PEOs), which are companies that handle payroll and human resources for other businesses. Under this bill, the IRS would officially recognize certified PEOs as the legal employers for tax purposes, allowing them to collect and pay federal employment taxes on behalf of their small business clients.

For small business owners, this change is intended to simplify administrative tasks and provide greater legal certainty that their tax obligations are being met by their HR partner. To protect the government and the businesses involved, the bill requires these organizations to meet strict IRS certification standards, undergo financial audits, and post a bond of up to $1 million to guarantee that all payroll taxes are paid correctly.