There’s an important development for businesses currently outsourcing their HR with a professional employer organization (PEO) or for any company considering that option. The IRS has developed a voluntary certification program for PEOs.
In order to be certified as a CPEO (Certified Professional Employer Organization), the organization must fulfill rigorous financial requirements and satisfy ongoing reporting obligations. For the first time in the history of PEOs, there will now be two categories: PEO and CPEO. Let’s learn more about how this accreditation can help businesses vetting a new PEO.
Benefits of working with a CPEO
Working with a PEO allows employers to focus on running their business instead of worrying about time-consuming HR tasks that are not necessarily a part of their core competency. Each PEO approaches this co-employment arrangement differently. With close to 1000 PEOs in the United States, small businesses trying to determine the right PEO for their needs can compare rate structure, services offered and legal protection provided. With the launch of CPEOs, businesses have a new tool in that vetting process and will reap additional benefits.
Reduced liability: Once employers remit their employees’ tax withholdings to the PEO, PEOs are required to pay all taxes or penalties when designated as the “agent” for a company. If the agent fails to pay, the employer is still liable for those payments. With the new CPEO provisions, a CPEO will be solely liable for payroll taxes and penalties once the employers remit their employees’ tax withholdings to the CPEO.
Increased financial security: For CPEO status, the organization is required to post a bond for employment-tax liabilities. This bond ranging from $50,000 – $1 million gives employers peace of mind knowing their IRS payment requirements will be covered by the CPEO. The CPEO process also requires an annual independent financial audit that adheres to “generally accepted accounting principals” (or GAAP) to ensure financial stability. In addition, the CPEO must provide the IRS with quarterly assertions and examination level attestation regarding compliance with federal employment taxes.
Proven expertise: Rigorous CPEO guidelines include reviewing the background, experience and tax status of the PEO owner and any key officers. With periodic reporting requirements, employers can rest assured CPEOs will sustain high standards.
Eliminates potential penalties: Employers can switch to a CPEO mid-year and no longer be penalized by having the tax wage base “restarted.” Previously when companies switched mid-year, their employees transferred to a new federal tax ID. Any taxes already paid were on a different tax ID and would have to be paid again.
An industry leader for 20 years, MidwestHR is a Chicago PEO in the process of finalizing our certified professional employer organization application (CPEO) with the IRS making us one of the first to obtain this premier status. We are 100% focused on meeting client needs and believe this new legislation provides important added protections. Unlike other PEOs, we believe clients should only pay for the services needed. That’s why MidwestHR clients can pick and choose a la carte services without long-term contracts. There are no predetermined packages where you end up paying for extra services. We want to make working with MidwestHR your easiest AND best decision. Give us a call to get started.