A Professional Employer Organization (PEO) (or employer leasing company) provides a service under which an employer can outsource the burdens associated with human resources, payroll administration, and benefits negotiation. Specifically, PEOs advertise the following benefits to their services:

1. Expert payroll, employee benefits, and personnel administration—from simple payroll and benefits compliance to complete human resources administration. Many PEOs market their services as freeing businesses from payroll administration and personnel matters.

2. The ability to get larger group discounts on medical and retirement benefits, more comprehensive fringe benefit programs and, possibly, improved worker's compensation rates.

If your businesses is experiencing one or more of the following problems, you may want to look into utilizing a PEO: (1) delinquent payroll taxes; (2) payroll and/or benefit administration headaches; (3) spiraling benefit costs; (4) inability to retain key employees because of the lack of a competitive benefits program; (5) difficulty hiring good employees; or (6) exposure to discrimination, immigration, or employee benefit claims.

Relationships with PEOs can be structured in numerous ways, depending on the PEO and the business. However, up until now, regardless of the type of arrangement and even if all the employment tax obligations are performed by the PEO, the employer remained liable for employment taxes for wages the PEO paid to its employees. Fortunately, a new type of PEO that may be worth looking into has recently hit the market—a Certified PEO, or CPEO. CPEOs offer a number of benefits over a traditional PEO.Most importantly, the CPEO is solely liable for the federal employment taxes of certain workers covered under the CPEO contract. This means that you, the employer, are not liable for these payroll taxes if the CPEO fails in taking care of them.

CPEOs receive their certification from the IRS by meeting a number of requirements, including posting a bond, paying a $1,000 annual fee and submitting audited financial statements to the IRS. A list of CPEOs can be found on irs.gov on the “Voluntary Certification Program for Professional Employer Organizations (CPEOs)” page. Click on the “CPEO Public Listing” link in the left hand column. This list should continue to grow as the IRS certifies more PEOs.

If you have any questions or need assistance in this or any other matter, please give us a call. We stand ready to help.