Does it matter if state law provides that the PEO is a co-employer?
No. State legislatures cannot change federal tax law. Federal tax and pension law focuses on the realities of the employment relationship, generally not on the labels any person puts on that relationship, including a state government. [See, e.g., Audit Guidelines, p 1-33; BL 137.] That does not mean state laws are totally irrelevant. For example, state laws can define the duties of the parties, and courts have looked at that in determining the underlying realities. But federal courts are free to ignore state characterizations of the relationship between the parties.
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- Does it matter if state law provides that the PEO is a co-employer?
