Under proposed regulations issued by the U.S. Department of the Treasury, when an employer enters into a “service agreement” with a third party in which the third party pays the employee’s wages and handles employment tax withholding, the third party generally becomes designated as an agent of the employer and is co-liable for the payment of employment taxes. To qualify as a “service agreement,” the third party must (1) assert it is the employer or “co-employer” of the employees, (2) pay the employees’ wages for the services performed for the employer, and (3) collect; report; and pay; or assume liability for, any employment taxes with respect to those wages. A third party may assert that it is an employer or co-employer by (1) either separately or together with the employer, recruiting and hiring or assigning employees as permanent or temporary members of the employer’s workforce, (2) hiring the employer’s employees as its own and then providing them back to the employer to perform services for the employer; or (3) filing employment tax returns using its own EIN that include wages or compensation paid to the individuals performing services for the employer. A third party assumes the liability to collect, report, and pay employment taxes if it represents to the employer that it will make any or all of the required federal employment tax deposits. The proposed regulations include examples demonstrating how to apply the regulations, as well as exceptions. The proposed regulations can be found here.