If you’re a small business owner looking to save time and grow your company, you may want to turn to a professional employer organization (PEO). PEOs help small businesses by allowing them to have outside experts handle key HR functions. Given the sensitive nature of HR, along with the potential costs if there are mistakes, small business owners should have trust in the quality of their PEO partner.
One option to help build trust is to turn to a Certified Professional Employer Organization (CPEO). A CPEO is an organization that has met the rigorous standards required by the IRS to earn the designation. The IRS makes it easy to know if a PEO is certified, as their website has public listings available to check.
However, while having a certification from the IRS is a signal that the organization may be trustworthy, it is by no means the only way of indicating a PEO is right for your business. The right PEO will be a good fit for your company culture, offer services that you need, and will have measures in place to protect your business.
If you need help finding a new PEO to trust, NetPEO’s brokers are here for you. When you call (678) 376-1212 for your free initial needs analysis, our brokers will listen to your concerns and will help you find a PEO partner you can rely on to properly handle your company’s most sensitive information.
How PEO Certification Works
PEOs may apply with the IRS to become CPEOs. In order to obtain the IRS’s certification, a PEO must show:
- That it has enough assets to cover a tax shortfall from its clients (achieved through a surety bond of $50,000 or 5% of its previous year’s liability)
- It can pay an annual fee to the IRS of $1,000.
- It will submit annual audited statements to the IRS.
- A CPA has verified their ability to submit tax payments each quarter
Once a PEO has achieved certification, the IRS begins treating it and its clients differently than they did prior to the certification. These differences include:
- Shifted liability: The CPEO may submit tax payments under its Employer Identification Number (EIN), but is also liable for any missed payments or underpayments of employees’ tax requirements.
- Designated tax credits: Clients can be guaranteed small business tax credits they would qualify for if they weren’t part of a co-employment structure, while the PEO can receive federal tax credit for any money they contribute to a state unemployment fund.
- Cost savings: Wage bases under FICA and FUTA don’t reset if a business joins or leaves a PEO in the middle of the year, resulting in lower withholdings.
Checking Whether a PEO Is Still Certified
You will know that a PEO is in good standing if it is listed as complying with the rules for certification on the IRS’s website. The website is updated regularly to include newly certified PEOs, as well as those that have been found to violate one of the requirements to stay in good standing.
A CPEO may have its certification suspended or revoked if:
- The CPEO does not properly fund its liabilities
- It submits financial statements containing errors or omissions
- The CPEO comes under criminal investigation by the IRS
- The IRS or other tax authority (e.g., a state government) assess a fraud penalty against the CPEO
- The organization fails to pay its annual fee
CPEOs are required to notify their clients of changes to their CPEO status, particularly if it has been suspended or revoked, within 10 days. Suspended CPEOs may be reinstated when they correct whatever earned their suspension, but revoked CPEO status may only be regained by going through the application process once again.
There’s More to a PEO Than Its Certification
A certification can give you some additional peace of mind about tax liabilities and credits, but there is more to trusting a PEO than a given designation. If you’re shopping for a new PEO, or are just starting to investigate your HR outsourcing options, you should:
- Conduct research about the PEOs services
- Look into the organization’s retention and client satisfaction data
- Whether it regularly subjects itself to independent audits of its financial statements
- What their costs are for clients
NetPEO has a history of finding the right PEO service providers for small businesses just like yours. As a PEO brokerage, we work with clients throughout their entire PEO search and beyond. We follow up regularly with our clients to make sure their PEO partnership continues to fit their company as it grows. It’s one reason why we have an industry-leading 100% client satisfaction rating and a 95% client retention rate.
The National Association of Professional Employer Organizations (NAPEO) finds that businesses grow better, keep more of their employees, and survive better with a PEO partner. If your business can benefit from faster growth and better retention, call us at (678) 376-1212.