On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law. This included

the enactment of the Small Business Efficiency Act (SBEA), which amended the Internal Revenue

Code to establish a certification program for Professional Employer Organizations (PEOs).This

certification program, once up and running, should eliminate concerns businesses may have about

partnering with a PEO.

A Professional Employer Organization, or PEO, is a firm that

enables employers to outsource a wide range of human resources

and employee management tasks. This includes areas such as

regulatory compliance, health insurance and employee benefits

administration, workers' compensation, safety management,

recruiting, and training and development. It also includes payroll

and tax administration.

In a PEO relationship, the PEO collects and remits employment taxes for their clients and worksite

employees. The current tax law is somewhat vague regarding who is ultimately responsible for the

withholding and payment of employment taxes in the PEO environment - the client or the PEO. The

SBEA eliminates any uncertainties by clarifying that it is the PEO which is responsible for remitting

federal payroll taxes to the IRS. As such, employers that use certified PEOs to remit their payroll

taxes are protected under the Act.

Grants certified PEOs clear authority to collect and pay federal employment taxes on behalf of

their clients under the PEO’s EIN (Employer Identification Number) for wages the PEO pays

to worksite employees;

“This certification

program, once up

and running, should

eliminate concerns

businesses may have

about partnering

with a PEO.”

Provides protections for PEO clients who pay their federal payroll tax obligations through a

PEO and states PEO clients will never be held liable for those taxes;

Considers the PEO a Successor Employer. This eliminates the double taxation of FICA and

FUTA when a client joins or leaves a PEO mid-year. The law clarifies that employee wage

bases will not restart when joining or leaving a PEO mid-year;

Establishes that clients, and not the PEO, can claim certain tax credits related to

employment taxes (the Work Opportunity Tax Credit, for example). This removes any

uncertainty and confirms PEO clients may claim the same tax credits that they would be

entitled to claim if there were no PEO relationship.

The SBEA tasks the IRS with creating a voluntary certification program for PEOs prior to the

January 1, 2016 effective date of the law. To qualify for IRS certification, PEOs must meet a range

of stringent standards, including:

Specific bonding requirements - PEO must maintain either a $50,000 bond or a bond equal

to 5% of the PEO’s federal employment tax liabilities for the previous year (up to a

maximum of $1 million);

Obtaining and providing the IRS an independent financial review from a certified accounting

firm;

Quarterly audits by an outside CPA firm regarding payment of all employment taxes;

Have no criminal record and a clean tax payment history.

CPEhr welcomes the passage of the SDEA and the IRS certification program. CPEhr intends to

voluntarily engage the certification process to ensure the highest standards of accountability and

reliability to its clients.

With the growing popularity of Professional Employer Organizations and the ongoing uncertainty

of many laws pertaining to the PEO/client relationship, we applaud the passage of the SBEA

which resolves many of these unsettled issues. Furthermore, many PEOs do not currently adhere

to any industry accreditation programs and the new law provides a strong message to businesses

across the nation that utilizing a certified PEO to manage their payroll and tax liabilities is a secure

and responsible way to run their business.

Founded in Los Angeles over 30 years ago, CPEhr is one of California’s oldest and most

experienced PEO firms. It services over 75,000 employees nationwide, in a wide range of

industries and workforces, ranging from 2 to 20,000 employees. With a retention rate that exceeds

90%, its team members are committed to our clients’ success.

With unrivaled industry experience, combined with the flexibility afforded to a privately held

corporation, allows CPEhr to deliver highly customized human resources support, while at the

same time offering benefits typically associated with Fortune 500 companies.

Areas of service include:

Human Resources Administration

ACA/Health Care Reform Compliance

Employment Compliance

Employee Benefits

Retirement Planning

Management Training

Safety and Risk Management

Workers’ Compensation Insurance

Payroll and Tax Administration

Recruiting

For more information regarding Professional Employer Organizations and how it may solve your

organizational needs, contact CPEhr for a complimentary Business Consultation. In this no-

obligation meeting, a senior consultant will analyze your current human resources practices and

offer a customized HR solution to meet your needs.

Email: info@cpehr.com Phone: 877-842-4987

Website: www.cpehr.com Facebook: www.facebook.com/cpehr