More and more smart business owners are reaping the benefits of partnering with a Professional Employer Organization. The numbers are just too good to ignore. A 2019 industry study shows annual ROI from using a PEO is 27.2% (and that’s just cost savings alone). Employee turnover among PEO clients is almost 20 percentage points lower than turnover nationally. And the finding that seems too good to be true: 98% of PEO clients would recommend using a PEO to a small business colleague.*
In this day and age, getting 98% of people to agree on any one thing is nothing short of a miracle!
Once you start looking for the best PEO fit for your company, remember to consider your PEO as one of your business’ trusted advisors. As with the rest of your advisors, certifications are important and protect you legally and financially. Your lawyer has to pass the bar. Your accountant is a CPA. And your PEO should be a CPEO.
Only a select group of PEOs are Certified by the IRS.
In 2017, the IRS awarded the first designations of Certified Professional Employer Organization (CPEO) to only 34 PEOs in the country (out of nearly 1000), and only one PEO in the Carolinas was Certified in the first round. (Guess who!)
Benefits of Certification
I know what you’re thinking. How exactly does an IRS-Certification really benefit a business?
IRS Qualification Process. A CPEO has been thoroughly vetted by the IRS so you can be assured that they are a reputable, compliant, and stable Professional Employer Organization.
Sole Payroll Tax Liability. The CPEO (and not your company) is 100% liable for federal payroll taxes. A certification designation means that the IRS cannot look to the client for federal payroll taxes, but only to the CPEO. This is not true for a non-certified PEO, although that benefit is often implied in the sales process.
Bonded. CPEOs are required to have a bond of up to $1 million to cover federal taxes, just in case something goes wrong. Rest assured, a CPEO has you covered.
FICA and FUTA Wage Base Restart. Your business will not have a wage base restart on federal taxes even if you begin a relationship with a CPEO in the middle of the year. The CPEO is deemed a successor employer, and your company will have no wage base restart at the beginning of the relationship.
Federal Tax Credits. Your company may be entitled to federal tax credits, and a CPEO is required to give you information necessary to claim any applicable credits.
When you enter into a PEO agreement, you’re entering into a partnership of mutual trust. The strict vetting process and CPEO designation by the IRS not only adds another layer of protection for your business, but also highlights the PEO’s trustworthiness and reputation as an industry leader. Make sure your trusted advisors are certified. Make sure your PEO is a CPEO.
Is your business growing? Are you looking for more ways to become more cost-efficient and reduce liability, then it may be a good time to consider a certified PEO.
For additional information and guidance, download The Small Business Guide for Choosing the Right PEO. This free 16-page E-Guide takes the guesswork out of finding the right PEO for your business.