By now, many benefits and insurance brokers have heard of professional employer organizations (PEO
). As the industry has boomed over the last 20-30 years, more brokers and small business leaders have partnered with PEOs for HR and employee benefit assistance.
However, it is still common for brokers, HR professionals, and clients to not fully understand how to distinguish one PEO from another.
For many years, checking if a PEO held an accreditation from the Employer Services Assurance Corporation
(ESAC) was one way to tell PEOs apart.
But last summer, another industry standard was created, this time by the Internal Revenue Service (I.R.S.) and the United States government. The IRS Certification Program designated a select few PEOs as Certified Professional Employer Organizations (CPEO)
, the first group to ever be recognized.
How Does a PEO Become Certified?
The process to becoming certified isn’t easy. A PEO must apply for certification and provide the I.R.S. extensive background information, which includes financials. Once the certification status has been established, the CPEO must maintain specific records and provide the I.R.S. with ongoing independent financial review reporting.
A few of the steps to becoming a certified PEO include:
- Meeting expectations set by the I.R.S. around tax status, background, experience, location, and annual financial audits
- Satisfying certain bonds and financial review requirements
- Providing background reports of any individuals responsible for employment tax payments
- Agreeing to verify to the I.R.S. on a periodic basis that the PEO continues to meet all certification requirements
A PEO that has been granted CPEO status has met the strictest guidelines set by the United States government.
What Makes a CPEO Different from a Non-Certified PEO?
The most significant difference between a certified PEO and a non-certified PEO involves the financial assurance and peace of mind for clients and their benefits brokers. When working with a non-certified PEO, the I.R.S. views that both the PEO and the client are jointly liable for the payment of payroll taxes.
This means that the government can go after a client directly for taxes owed, even if the client has already remitted payroll taxes to their PEO, should the PEO fail to pay its client’s payroll taxes.
On the other hand, a CPEO is viewed as solely liable by the I.R.S. for employment tax payments. As mandated in the Small Business Efficiency Act (SBEA) – which established the certified PEO program – the United States government and the I.R.S. cannot go after a client to collect any unpaid payroll taxes. This liability falls completely on the CPEO (as long as the client has remitted the payroll taxes to the certified PEO).
Partnering with a CPEO Helps Brokers Grow Their Book
Given the uncertainty and complexity surrounding healthcare in the United States today, many small businesses face numerous challenges with finding and offering affordable, quality healthcare (and other benefits) to their employees.
Often, these small employers look to their benefits and insurance brokers for guidance and assistance with finding the best alternatives and solutions to overcome their healthcare obstacles. This is where offering a certified PEO solution can provide numerous advantages for both brokers and their clients.
Adding a PEO solution to their list of services can help brokers gain new clients
and compete more effectively against national, direct-selling PEOs as well as larger brokerages. However, partnering with a CPEO gives brokers peace of mind that they are providing their clients with added financial assurance.
Brokers and small business leaders exploring PEO solutions should be sure to look for organizations that are ESAC accredited
and designated by the I.R.S. as a certified PEO. They set PEOs apart in today’s market, and help instill confidence in clients that this solution is best for the future of their business.
A version of this article originally appeared on the Benefits PRO Broker Innovation Lab blog. Click here to view the article.
Want to learn more about PEOs? Check out our eBook, How Well Do You Know PEO? This eBook provides an overview of the PEO industry as well as helpful information for brokers and employers!