A PEO, or professional employer organization, plays an integral role in your business. Choosing one that fits your specific needs is essential. Depending on the size of your business and your industry, you may seek an extra layer of financial security and peace of mind from your prospective PEO. In this case, your best bet is to outsource a certified PEO.
A certified PEO provides additional assurance to businesses looking to reduce financial risk and liability. With a certified PEO on your team, you can gain the counsel necessary to make confident and informed decisions for your business. If you’re a business owner wanting to take your business to new heights, it’s time to consider a certified PEO. Read below to learn more about certified PEOs and the unique benefits they can offer your business.
Certified Professional Employer Organizations
A certified PEO, or CPEO, functions the same as a non-certified PEO, with the exception of their certification through the Internal Revenue Service (IRS). Through this certification, a CPEO takes additional responsibilities related to payroll administration and federal employment tax reporting and payments.
The PEO certification process was created through the Small Business Efficiency Act of 2014 (SBEA), which allows a PEO to pay wages and collect and remind payroll taxes on behalf of their client company. When going through the certification process, a PEO must provide several essential documents to the IRS, including an audit of their financial statements, CPA-affirmed documentation of employment tax payments, documentation of their positive working capital, and background information on those in charge of their employment tax payments.
What is the role of a Certified PEO?
Like a non-certified PEO, a CPEO takes on a business’ HR operations, including payroll, employee benefits, worker’s compensation, and more. However, a CPEO might take on more extensive financial responsibilities, such as the following:
Payroll Tax Liability
A CPEO oversees federal employment tax payments for your employees’ wages. In the co-employer relationship between a client company and a CPEO, the CPEO is entirely liable for payroll tax.
Maintaining Tax Credits
Partnering with a CPEO can make your employees eligible for tax credits. SBEA outlines the following tax credits for PEO client companies:
- IRC sec. 51 work opportunity credit
- IRC sec. 1396 empowerment zone employment credit
- IRC sec. 41 credit for increasing research activity
- IRC sec. 45R credit for health insurance expenses
Wage-Base Restart
Employers must pay federal employment taxes on a portion of each employee’s wage, also known as their wage base. However, a business entering or leaving a PEO partnership mid-year can cause a wage base restart, resulting in double tax payments from the employer and the PEO. If you enter a co-employment relationship with a CPEO, you are not subject to wage base restart. Instead, the CPEO gets to succeed the wage base for payment of employment taxes, eliminating double taxation.
How does a Certified PEO differ from a PEO?
A CPEO differs from a non-certified PEO in their financial liability. When working with a non-certified PEO, your business could be held responsible for your PEO’s mistakes. For example, if your non-certified PEO fails to pay payroll taxes, the IRS can hold your company liable even if you remitted the payroll taxes to the PEO. The bottom line is that choosing to work with a non-certified PEO could put your business at the financial risk of unpaid taxes or penalties.
Partnering with a CPEO grants businesses peace of mind and financial stability. In the eyes of the IRS, CPEOs and their client companies are separate entities. Therefore, the CPEO is solely liable for federal employment tax payments, and the IRS cannot punish the client company for any unpaid payroll taxes.
Simplify Your Business with peo.com
At peo.com, we make it easier to find the perfect PEO provider for your business. With access to some of the largest PEOs in the country, our agents provide high-performing options that will unlock your business’s true potential. If you’re ready to take your business to new heights, connect with our team today to shop PEO quotes and receive competitive pricing within 24-72 hours!
