What is a CPEO?

Posted by HR Division of Propel HR on 10/16/18 2:07 PM
HR Division of Propel HR
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Posted on: October 16, 2018

Keeping up with growing employment-related laws, changing regulations, and associated HR paperwork can shutter the productivity of any business. By taking over these time-consuming tasks, Professional Employer Organizations, or PEOs, have stepped in to help small businesses get back to business and focus on productivity and growth.

How? Basically, PEOs act as co-employers with a business, meaning that there’s a contractual allocation and sharing of employer responsibilities. The business still maintains control over operations and managing employees, while the PEO oversees HR responsibilities, such as payroll, workers’ comp, and benefits administration. 

PHR_Blog_CPEO_101618_5As the popularity of PEOs grew, so did the demand for accountability.  After all, PEOs are trusted with a body of sensitive information, such as employee data, Social Security numbers and financial information. 

One way to establish trust, as well as peace of mind, is through certification.

PEO Certification Raises the Standards

In 2014, Certified Professional Employer Organizations, or CPEOs, entered the marketplace with the Small Business Efficiency Act. The new legislation required the IRS to develop a certification program for PEOs. Once certified, the CPEO had the authority to collect and remit federal employment taxes. 

Today, out of nearly 1,000 PEOs in the U.S., less than 50 are CPEOs. To be eligible, PEOs must meet the following requirements:

  • Prove sound financial status.
  • Provide documentation of positive working capital.
  • Provide CPA-administered documentation of paid employment taxes
  • Must agree to a thorough background check, as well as follow up audits.

Choosing the Right PEO

Why Certification Matters

A few years ago, a home improvement company settled a multi-million dollar class action for misclassifying independent contractors. Who is responsible? OSHA issued over $250,000 in penalties to a company for failing to protect its warehouse employees. Who pays? A healthcare professional, paid by three different agencies under one employer, worked under 40 hours a week for each agency. Is the employee eligible for overtime? What happens when the PEO fails to pay employment taxes? Who is liable?

Navigating the complexities of today’s workforce requires businesses to be more equipped than ever before. Under a PEO arrangement, both the PEO and the business share liabilityCertification provides businesses with another level of added protection. In the CPEO arrangement, if something goes wrong, the CPEO is responsible, not the business.

Advantages of a CPEO

Assurance. The designation provides businesses the assurance of working with a reputable, compliant, and stable PEO.

FICA and FUTA Wage Base Restart. Employers are required to pay federal employment taxes on a portion of each employee’s wage – known as the wage base. Under the CPEO relationship, the CPEO is designated as the successor and the business no longer has a wage base restart at the beginning of the relationship.

PHR_Blog_CPEO_101618_3Federal Tax Credits. Certification opens more opportunities for federal tax credits for the company, not  the CPEO.

Sole Payroll Tax Liability. A certification designation means that the IRS looks to the CPEO for federal payroll taxes, not your company.

Bonded. CPEOs are required to have a bond, up to $1 million, to cover federal taxes.

(Note: The IRS does not endorse any particular professional employer organization. You can find more information about certification at www.irs.gov.)


By raising the bar, the CPEO designation brings companies and PEOs closer together in a relationship based on trust. For businesses, it helps with making more informed decisions about the PEOs to partner with. For PEOs, it’s an opportunity to demonstrate exceptional business practices.

As a leading provider of human resources and payroll solutions for more than 20 years, we know first–hand about the IRS vetting process. In 2017, Propel HR was one of the first PEOs in the country to receive certification. Currently, we are the only CPEO in the Carolinas. We believe in transparency and are proud to be part of a distinguished group of respected and trustworthy industry leaders.

Read more: Propel HR becomes one of the first CPEOs in the U.S.

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 trusted PEO.

Choosing the right PEO for a small business can bring new profits

Topics: PEO, HR, CPEO

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HR Division of Propel HR

The HR Division is made up of a team of professionals with a vast level of experience and HR expertise, assisting organizations of all sizes and within a wide variety of industries. They readily partner with clients to address strategic and compliance challenges surrounding the employment life-cycle and the ever-changing laws that regulate it. Inquire below about how they can help you!