For many business owners, handling payroll responsibilities, including calculating and paying the related taxes, can be overwhelming. This stress is one reason why so many businesses have turned to professional employer organizations (PEOs) for help with their payroll and tax needs.
Finding the right PEO for your business can be as stressful as handling payroll by yourself. Not all PEOs offer full-service payroll functionality, while others might not offer a payment structure that works for your business. With over 900 PEOs operating in the U.S. today, you could be spending an inordinate amount of time vetting potential partners.
Instead, call us at (678) 376-1212. Our PEO brokers are standing by to learn more about your business needs and help you find the PEO with the right skills and experience to help your company grow.
How a Co-Employment Agreement Affects Taxes
When you settle on the right PEO partner, you sign a contract known as a co-employment agreement. The co-employment agreement sets the terms of your business relationship with the PEO. This contract lays down what services the PEO will provide to your company and what fees you’ll pay for those services.
While PEOs offer a variety of services for small businesses, handling payroll functions for employers is perhaps one of the most common areas of service. This may be as simple or involved as you would like. Many business owners opt to outsource all their payroll functionality to their PEO partner, allowing them to focus on the more immediate concerns of their company.
As part of their responsibilities, the PEO will calculate any associated taxes associated with your company’s payroll. That means calculating the federal and state payroll taxes for all your company’s employees. In many cases, PEOs will take responsibility for forwarding the tax payments to the appropriate tax agencies.
Understand Your Tax Liability
As a business owner, it’s important that you understand your liability in case something goes wrong with your payroll taxes. Some business owners believe that they are shielded from tax liability just because they partner with a PEO. The truth is a bit more complicated than that.
Your tax liability will depend on the terms of your co-employment agreement and the sort of PEO your partner organization is. If your PEO partner fails to forward the payroll tax payments to the appropriate agency, you may be the one to face legal repercussions. For example, the IRS may send you a letter letting you know about delinquent payments if your PEO failed to submit payroll taxes in a timely manner.
As the co-employment agreement changes the employer of record to allow the PEO to handle its payroll responsibilities, you should know that this could affect what tax credits you may be able to claim. Without the right sort of agreement, you might be unable to qualify for certain tax credits for your employees. Instead, the PEOs may be able to claim the tax credits, as they are legally the employer for your employees.
As part of the Small Business Efficiency Act (SBEA), Congress established a system that allows some PEOs to become certified professional employer organizations (CPEOs). Under a co-employment agreement with a CPEO, businesses can rest easier knowing that liability for incorrect or missed payroll tax payments falls on to the CPEO, rather than the business.
While CPEOs will still be the employers of record for your employees, the SBEA does allow you to maintain access to certain tax credits. These tax credits, including the credits for health insurance expenses and work opportunity, will still be available to you when you partner with a CPEO.
NetPEO Can Help You Partner with the Right PEO
Making sure that your company runs properly is one of the highest priorities a business owner can have. This means making sure that the people you work with are right for the job and right for your company.
NetPEO believes that you know what works for your company. Our PEO brokers listen to your story and get to understand your fundamental HR outsourcing needs. We vet PEOs from our national network of providers to help you find the right one for your unique business needs.
If you’re ready to find a PEO partner to help you with your payroll taxes, call (678) 376-1212 today!