Educating employees on the benefits of your new professional employer organization (PEO) have paid off. They are eager to get started. Management is also enthusiastic knowing that employee turnover at companies using a PEO is 23 – 32% lower1 compared to other businesses. Everyone is excited about the enhancements but additional questions are popping up.
With 20+ years helping clients, MidwestHR is always looking for opportunities to improve the transition process. In the past, some of the answers to clients’ concerns left us wondering what more could be done. When the IRS launched a certification program for PEOs, MidwestHR became one of the first to complete the rigorous, voluntary process to become certified.2 As a CPEO, we are thrilled to offer our clients additional protections.
Our CPEO status helps us provide better answers to questions from clients and their employees. We have compiled those questions and how working with a CPEO changes some of the answers.
Q: Will our company have to pay employer taxes again? If joining a PEO midyear, not Certified by the IRS, already paid FUTA and FICA taxes will be forfeited and you’ll have to repay all of those dues. For companies that want to transition midyear, that double payment can be cost prohibitive. However, if you choose to work with a Certified PEO (CPEO), such as MidwestHR, the IRS recognizes the money paid for these taxes and you avoid a tax wage base restart.
Q: Will our company be liable for unpaid federal employment taxes? This is a common concern for PEO clients because they can be held legally responsible by the IRS for required tax deposits even if nonpayment was their PEO’s fault. As a CPEO, MidwestHR is liable for federal employment taxes. Once employers remit employees’ tax withholdings, we are solely responsible for payroll taxes and penalties because we are designated the “agent” for your company.
Q: What happens when we switch health coverage? If you switch health insurance midyear, PEOs/CPEOs will try to negotiate a health insurance deductible credit. That way, deductibles built up throughout the year may not be lost. If you switch health insurance at the beginning of the calendar year when all deductibles are re-set, then it’s a non-issue. Another important consideration, employees may secure higher value health coverage at lower monthly premiums with the purchasing power of a PEO/CPEO.
Q: Are PEO/CPEO fees tax deductible? Yes. PEO/CPEO administrative fees are deductible as a business expense. It is a cost to operate your business, therefore it is deductible.
Q: Do I have to put all my employees with you? Yes, all employees (whether exempt or non-exempt) typically must be a part of the PEO program.
Q: Will my company still have to comply with local, state and federal regulations? Yes. Using a PEO/CPEO doesn’t change compliance requirements. You will, however, have the added protection of experts providing an action plan to ensure compliance.
Q: Do I have to offer FMLA? Your company will reap the benefits of being part of a larger group, but not suffer the consequences. What that means: if you have less than 50 employees, being a part of a PEO/CPEO doesn’t bump you into a larger headcount category. Your company will NOT be required to offer FMLA if <50 full time employees. Your employees will, however, benefit from the increased purchasing power that comes with being in a larger pool as it relates to health insurance options, 401k, and more.
Q: Does it affect flexible spending accounts (FSAs)? You can still spend your flexible spending account limits before your company switches. You cannot carry over any unspent funds.
Q: Can a PEO/CPEO fire an employee at my company? No. Even though they are listed as the employer of record that doesn’t impact decisions related to: hiring, firing, salary raises, bonuses, and daily management.
MidwestHR, a leading CPEO in Chicago, has always been client focused. We believe full transparency is the only way to establish a trusting partnership. Our 96% client retention rate reinforces the value of our customer service. If you have additional questions we didn’t answer here, give us a call at 630-836-3000.
1Bassi, Laurie and McMurrer, Dan. National Association of Professional Employer Organizations (NAPEO). The State of the PEO Industry 2016: Markets, Value, and Trends. Alexandria, VA: 2016. Print.