Professional employer organizations (PEOs) help small businesses throughout the country meet their changing HR challenges as they grow. These organizations act as supplements or complete replacements to a business’s HR infrastructure, either assisting with or completely managing functions like payroll, benefits administration, and risk management.
A Certified PEO (CPEO) is a type of PEO that has met strict requirements set by the IRS. PEOs that have joined this voluntary program must maintain the standards set out by the IRS and take on certain tax liabilities for their clients.
If you’re searching for a PEO that your business can rely upon, NetPEO wants to help. As a PEO brokerage, our mission is to help you find a PEO you can trust to get the HR outsourcing solutions that your business needs. To speak with one of our brokers and schedule your free initial needs analysis, call (678) 376-1212 today.
Overview of the CPEO Program
With the passage of the Tax Increase Prevention Act (TIPA) of 2014, the IRS was empowered to create a voluntary certification program for PEOs. Under federal law and IRS regulations, PEOs must be able to perform the following tasks in order to remain a CPEO:
- It can cover its potential costs through a surety bond between $50,000 and $1,000,000, depending on its liabilities in the previous year.
- It must have an independent CPA attest that it has remitted all required tax payments each fiscal quarter.
- It must submit independently-audited financial statements to the IRS on an annual basis.
- It must pay an annual fee ($1,000) to the IRS for the certification.
PEOs that fail to maintain this standard may have their CPEO status suspended or revoked.
Suspended or Revoked CPEO
The IRS may choose to suspend or revoke the certification of a CPEO if:
- It fails to meet the above requirements
- The business is subject to a criminal conviction
- It comes the subject of an IRS criminal investigation
- If the business or its leadership is assessed fraud penalties by the IRS or other tax authority
- There are errors or omissions in its submitted financial documents
Suspended CPEOs still provide the benefits of a CPEO to its current clients, but not to any it takes on during its suspension. Revoked CPEOs lose all the benefits associated with the certification until they can re-earn the certification status.
The IRS maintains a public list of CPEOs in good standing, those who are currently suspended, and entities that have had their status revoked.
The IRS certification program clarifies certain ambiguities in the tax code for both CPEOs and their clients, while also providing others benefits to both types of parties. These benefits of the CPEO program include:
- Giving the CPEO clear authority to submit its clients’ employment taxes to the IRS under its own Employer Identification Number (EIN)
- Despite getting the other benefits of a large employee base for being a client of a PEO (e.g., health insurance group discount rates), PEO clients may continue to claim small business tax credits.
- The CPEO may receive a federal tax benefit for its contributions to state unemployment funds.
- Lowers costs by not resetting Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) wage bases, thus preventing higher withholdings if a small business joins or leaves a CPEO mid-year
There is another benefit for small businesses joining a CPEO: clear standards of liability for tax payments. Under the CPEO program, the CPEO is solely liable for missed tax payments. If a CPEO fails to remit the appropriate taxes, the IRS will not go after the CPEO’s clients.
Another Standard for PEO Reliability
While not all organizations can join the CPEO program, there is another, non-governmental accreditation for PEOs. The Employer Services Assurance Corporation (ESAC) is a non-profit corporation that can accredit PEOs for meeting certain financial and ethical standards. Organizations earning this accreditation:
- Show they meet certain ethical, professional, and fiduciary responsibilities
- Have help meeting federal and state regulations
- Can demonstrate their compliance through independent verification
Finding a Reliable PEO with the Help of a PEO Brokerage
If you’re a small business owner looking to partner with a reliable PEO to outsource your HR functionality and gain access to some of the benefits of larger companies, you can turn to a PEO brokerage like NetPEO.
NetPEO’s brokers take the time to learn about your concerns and business needs, so we can help you find a PEO that will fit well with your company. We work to provide you with only the best services, connecting you to partners that our industry experts have thoroughly vetted.
When you’re ready for your free initial needs analysis, call us at (678) 376-1212 or enter your preferred contact information on this site’s sidebar.