As more employers turn to professional employer organizations (PEO) to take the burden of HR tasks, paperwork, and compliance off their plates, more PEO providers are emerging in the market. We are entering into a new era for the PEO industry to set the good PEOs apart from the excellent ones — the era of the IRS-certified PEO. Only 3% of PEOs hold IRS certification — making those that are much more attractive to potential and current clients.
Keep reading to learn more about why this distinction is so important and the benefits it brings.
Want to quickly learn more about how a PEO can specifically help your organization? Take our free PEO test here.
What is an IRS-Certified PEO?
PEOs partner with small and mid-size businesses to handle various payroll administration, HR, and tax reporting responsibilities. A certified professional employer organization (CPEO) means the PEO firm has met rigorous requirements and adheres to strict guidelines to keep its IRS certification current.
In December of 2014, the Tax Increase Prevention Act passed, which required the IRS to create a voluntary certification program for PEOs — and the CPEO program was born.
CPEO certification affects the employment tax liabilities of the CPEO and its clients.
To become and remain certified through the CPEO program, firms must meet a range of requirements, including:
- Tax status
- Background verification
- Experience
- Business location
- Financial reporting
- Bonding
- An independent surety bond guaranteeing payment of federal employment tax liabilities
By law, the IRS must publish lists of CPEOs that have received their certification under the program and those who have had their certifications revoked or suspended.
Am I Eligible for the CPEO Program?
To be eligible for CPEO certification, you must:
- Be a business entity.
- Have at least one physical business location in the U.S.
- Have a documented history of: Financial responsibility, Organizational integrity, Federal, state, and local tax compliance
- Be managed by people (the majority of whom are U.S. citizens/residents) with knowledge or experience surrounding federal and state employment tax compliance and best business practices as they relate to those compliance requirements.
Benefits of IRS-Certified PEOs
The CPEO distinction is one that truly distinguishes between PEO firms that will provide standard services and those that will go above and beyond to ensure their clients’ needs are continually met. The most significant benefits of partnering with a certified PEO include:
- Fully vetted by the IRS — As we’ve mentioned, rigorous requirements must be met in order to become a CPEO. CPEOs must submit quarterly assertions from an independent accountant that declare the CPEO continues to pay its taxes and is in good financial standing. All of these guidelines give employers greater financial protection when they partner with a CPEO.
- Zero liability for federal employment taxes — CPEO clients cannot be held liable for unpaid federal employment taxes once the employees’ tax withholding is remitted to the CPEO. This is often a concern among PEO clients because the IRS can hold them legally responsible for required tax deposits even if the nonpayment was the fault of their PEO. CPEOs provide that extra peace of mind when it comes to your business’s finances and liabilities.
- No wage base restarting — If a company switches mid-year to a CPEO, any taxes paid on the previous federal employer identification number (FEIN) will carry over. This means you don’t have to worry about a wage base restart because CPEOs are considered a “successor employer” in terms of FICA and FUTA taxes. In short, switching to a CPEO mid-year will not trigger a double tax payment.
As a leading Certified PEO, America’s Back Office has always been at the forefront of offering our clients the very best.
How America’s Back Office Can Help
America’s Back Office is part of the mere 3% of PEOs that are IRS-certified. In addition to the wide spectrum of leading services and continued support we provide our clients, we also help them achieve greater peace of mind day in and day out by knowing they are partnering with a vetted and certified PEO. If you’d like to learn more about how partnering with us can help you save time, money, and scale your business, contact us today.
