Last year, the Internal Revenue Service (IRS) rolled out a new voluntary certification for Professional Employer Organizations (PEOs), called “CPEO,” or the Certified Professional Employer Organization program. This certification program originated as a result of the Small Business Efficiency Act in 2014. Prior to implementation of the CPEO program in 2017, the IRS did not recognize the PEO relationship when it came to federal taxes, and this presented tax challenges for business owners who wanted to enter a partnership with a PEO, or transition from one PEO to another.
PEOs with CPEO status have demonstrated their stability and financial well-being, as well as their ability to meet and maintain strict requirements for financial reporting, tax status, and bonding.
Benefits of Using a CPEO
Under the CPEO program, the IRS recognizes the PEO for purposes of Social Security/Medicare and federal unemployment taxes. This keeps employers from having to restart FICA/FUTA wage bases. This is extremely valuable when employees/employers have already met their tax thresholds, preventing double tax payment and allowing much more flexibility for them to make sound business decisions regarding their PEO provider of choice.
Another benefit of working with a CPEO is that it reduces liability for the clients of a CPEO, as those clients cannot be held liable for unpaid federal employment taxes if they have remitted their employees’ tax withholdings.
How Does a PEO Become a CPEO?
For a PEO to obtain CPEO status, it must show tax compliance history, annual audited financial statements, complete background verification and an independent surety bond covering payment of federal employment tax liabilities. The PEO must then submit to independent quarterly financial review to ensure that the PEO is in a positive financial status.
By choosing to work with an IRS Certified PEO, you shift the tax liability to the PEO, reducing double tax liability and gaining the confidence that your PEO is in sound financial standing. Business owners gain more freedom to run their businesses and make decisions based on needs and not on a calendar.
Staff One HR was one of the first PEOs to achieve CPEO certification, and also holds ESAC certification. To find out what a PEO can do to help you grow your business, call 1.800.771.7823 or contact the author directly at firstname.lastname@example.org.