In recent years, more companies have moved their employees to professional employment organizations (PEOs) and then leased the employees back from the PEO. But states are cracking down on employers who use PEOs to artificially lower their unemployment insurance payments. Fourteen states have passed laws requiring PEOs to file worker tax data based on the person's most recent employer. States are acting to close a legal loophole left by a new law Congress passed making it illegal for companies to create "paper" businesses where they dump their laid-off workers. The law, which goes into effect in July 2006, didn't include PEOs.
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