Table of Contents
A Certified PEO (CPEO) is a Professional Employer Organization that has satisfied all of the conditions for certification set out by a regulating agency (the IRS being the most well-known). These standards include stringent rules that guarantee the firm is fiscally prudent and that payroll taxes are remitted accurately and on time on behalf of its customers. Although CPEOs are more expensive than non-certified PEOs, they are an excellent choice for small firms that want to guarantee that their employment duties are shared with a reputable company.
Consider partnering with ADP TotalSource if you want to get started with a CPEO straight immediately. It’s an IRS-certified PEO that will provide you with all of the advantages of a full-service HR department, as well as health insurance (and other benefits) at a low cost.
What Does “Certification” Mean?
PEOs that are labeled “certified” have agreed to engage in a certification procedure that ensures the organization’s financial and operational integrity. Only after thorough audits of their financial reporting, tax compliance, and even officer background checks are these certificates issued. Their primary goal is to provide company owners with trust in the PEO’s stability and accountability.
Certified PEOs are also legally obligated to pay all employment taxes on behalf of the companies with whom they work. This implies that the CPEO would be liable for any unpaid employment taxes, fines, or interest, freeing the company owner from all obligations. This is critical for small companies because it enables you to outsource employer payroll tax handling while remaining certain that you will not be fined for errors.
IRS vs. ESAC on PEO Certification
The Irs is the Internal Revenue Service (IRS) and the Employer Services Assurance Company are two entities that have developed certifications for PEOs (ESAC). The IRS certification focuses exclusively on a PEO’s federal tax responsibilities, while the ESAC takes a broader approach. Its certification method examines all employer responsibilities to guarantee that the company is up to date and compliant.
Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) is the United States’ tax collecting agency, and it is responsible for enforcing the Internal Revenue Code, which was adopted by Congress. While the IRS is best recognized for collecting taxes, it is also in charge of enforcing tax regulations.
A PEO must fulfill the following conditions in order to be approved by the IRS:
- Certified PEOs must have their financials audited by an independent CPA on a yearly basis to guarantee that all reporting is correct and that there are no underlying financial difficulties that might create problems for their customers.
- Quarterly confirmation of employment tax payments: In addition to written confirmation from an independent CPA, a CPEO must submit verification to the IRS on a quarterly basis that all employment taxes have been paid.
- Bonding: Certified PEOs are required to have a $50,000 bond. These bonds guarantee that if any tax filings are missing or inaccurate, the IRS will be able to settle the penalty with available cash.
- Client service agreement that has been authorized by the IRS: Before being given to clients and used to engage for services, all client service agreements must be approved by the IRS. This is critical for company owners since it assures that the CPEO does not provide services for which they are not legally qualified.
- Employee background checks: To ensure the integrity of important actors in the corporation, the IRS may request background checks for owners and key employees.
- The CPEO must pay a $1,000 annual fee to acquire certification. This cost must also be paid on a yearly basis in order to maintain certification from year to year.
The IRS does not correlate certification with a preference for one PEO over another, and it does not recommend one PEO or CPEO over another in the market.
Tip: The IRS maintains an up-to-date list of all registered PEOs, as well as those whose certifications have been suspended or revoked, on their website. Pay careful attention to PEOs that have had their certificates revoked involuntarily; this might indicate that they have shown economic irresponsibility or that they are dealing with other challenges.
Employer Services Assurance Company (ESAC)
The second governing body that certifies PEOs is the Employer Services Assurance Company, an independent nonprofit accreditation, and financial assurance entity. Similar to the IRS accreditation, the ESAC works to ensure regulatory compliance, financial reliability, and that the owners and managers are dependable.
It focuses on a number of issues, including:
- Payments to employment agencies at the federal, state, and local levels
- Premiums for health and workers’ compensation insurance
- 401(k) and other retirement plan contributions
It’s important to note that the two certifications are independent of each other. A PEO seeking certification does not need to be certified by the Irs is the Internal Revenue Service (IRS) in order to seek certification through the Employer Services Assurance Company is a company that provides insurance to employers (ESAC), and vice versa.
The ESAC’s website provides a function that enables you to search for PEOs by legal name or federal employee identification number (FEIN) to see whether they are certified by the organization. This is an excellent resource if you’re interested in any PEOs in particular and want to know about their certification status.
Who is a Good Candidate for a Certified Professional Employer Organization (PEO)?
Certified PEOs are a great alternative for small firms in sectors with strict compliance rules, such as construction, and particularly for those without in-house HR and payroll capabilities. They keep your company compliant by remaining up to date on all legislation, and they provide you access to many of the enticing advantages that major organizations provide to their employees, making it easier to recruit and retain top people. This is a tremendous benefit that may make a significant impact on the quality and longevity of your company.
Businesses in fast development stages or trying to expand and improve their firm rapidly without needing to hire an HR manager will find Certified Professional Employer Organizations to be a valuable resource. This helps you to concentrate on the day-to-day operations of your company while knowing that your staff and workspace are well-supported.
Consider using a payroll provider if you don’t believe your company is ready to outsource any HR or payroll obligations, or if you’d rather save money by managing everything yourself. Payroll services let you automate your payroll and tax filing processes so you don’t have to. Many also provide benefits (albeit not at the same low prices as CPEOs), onboarding assistance, and even tax penalties if their salespeople make a mistake.
Pricing for Certified PEOs
When evaluating PEOs, keep in mind that Certified Professional Employer Organizations (CPEOs) are sometimes more expensive than non-certified PEOs. This disparity in price is due to the higher expenses incurred by CPEOs throughout the accreditation process. Annual costs may vary from $1,000 to over $70,000, depending on the agency they seek accreditation from. Recertification is necessary every year, therefore qualified PEOs sometimes have to raise their prices to pay the expenses.
In general, PEO price is determined in one of two methods. The first method is based on a monthly flat price per employee, while the second is based on a percentage of the overall monthly payroll amount. PEO expenses are estimated to be about 3–10 percent of pay on average, according to industry experts.
Conclusion
A Certified PEO is a Professional Employer Organization that has completed all of the certification standards, ensuring financial integrity and tax compliance. While PEO certifications are optional, working with a CPEO gives small company owners peace of mind that all aspects of their HR administration will be handled efficiently.
Frequently Asked Questions
How many certified PEOs are there?
According to the National Association of Professional Employer Organizations (NAPEO), there are over 900 PEOs in the United States providing services to 175,000 small and midsize businesses.
