PEOs can help with ACA Reporting

With the passage of the Small Business Efficiency Act (“SBEA”) in December 2014 that has now become effective as of January 1, 2016, Professional Employer Organizations (“PEOs”). PEOs, who act as “co-employers” with the clients that they work with are now recognized on the federal level. This is a welcome change for those small to mid-sized companies that have found complying with current human resource and benefits regulations a challenge for them.

Although PEOs were recognized by several states through licensing and registration regulations, on a federal level there was very little in terms of statues that offered guidance on how to treat them. The new SBEA regulations changes this by setting up a certification process that is voluntary and would allow the PEOP to collect and remit taxes on behalf of their corporate clients for those employees that are co-employed. The PEOs would also assume all responsibility for collecting and remitting those taxes to the federal government.

Certification for the SBEA, even though it is voluntary, still hinges upon a PEO meeting a set of financial requirements. Among those requirements are both bonding and financial audits being conducted. At this point, the IRS is still laying out what will be required with the new law. The IRS says that it will begin accepting applications for those PEO’s that want to apply for certification on July 1, 2016.

The interest in PEO’s by companies may be due in at least some part because of the requirements put forth in the Affordable Care Act (ACA). Companies are also looking to get better benefits for their employees and PEO’s can leverage their size in order to negotiate better rate available through private insurance company networks.

There are still a good many unanswered questions regarding PEO’s and the ACA that are put forth for so-called “common law employers”. Will PEO client organizations have to pay a higher fee for employees who do enroll in the health coverage that is offered by the company than those employees who choose not to enroll?

The language around this particular issue in the SBEA really does nothing to clarify it and states that “nothing in this section shall be construed to affect the determination of who is an employee or employer.”

It really rather depends whether an employee is viewed as being employed by the client company or the PEO that determines a “common law employee” relationship. One strategy is for the PEO to offer coverage to an employee on behalf of the client organization in order to satisfy the federal mandate of offering insurance as long as that client pays the PEO an additional fee that allows those employees to enroll in the PEO’s health care offering.
It will probably take, however the IRS clarifying just how certified PEOs will impact the ACA employer mandates. Until the federal government gains a bit more clarity on the issue, both client companies and PEOs will have to remain attentive to the legal ramifications surrounding the new laws.

There is still a great deal of confusion surrounding the mandate in the Affordable Care Act. Even if your company has a dedicated legal team, there can still be unanswered questions. At NetPEO, we pay close attention to ways that such rules can affect you and your company’s bottom line. Contact us today to discuss your concerns regarding health care and learn of the options that are available.