The IRS recently began accepting applications for a professional employer organization (PEOs) to become a voluntarily certified PEO under the Stephen Beck, Jr., Achieving a Better Life Experience (ABLE) Act of 2014.
Since this certification process had been delayed once already it is a welcome development for the PEO industry to finally have the program protocol in place. In an earlier article we discussed the value certification brings to the industry and its clients, and clarification of this process further reinforces its benefits.
Customers can significantly reduce their exposure to financial risk by choosing to do business with a Certified PEO. To become and remain certified is not easy, but PEOs who choose to go through the certification process will have a competitive advantage over their non-certified rivals.
Below are highlights of what it will take to become a Certified PEO:
- Pass background and tax compliance checks
- Criminal and financial checks conducted on responsible individuals (owners/officers)
- Tax payment background check for current, previous or related entities and responsible individuals
- Secure an approved surety bond
- 5% of the CPEO’s annual federal tax liability but not more than $1,000,000
- Satisfy financial review requirements
- Submit annual audit documentation reflecting positive working capital
- Provide quarterly assertions and attestations regarding federal employment tax compliance
- The CPEO must attest in writing each quarter that it has complied with all requirements
- Abide by the terms of their client service agreements
- Pay an annual user fee up to $1,000
- The IRS will publish a list of PEOs who have become certified and also whose certifications have been suspended or revoked
- Audits must be conducted using the accrual method of accounting
- A CPEO gives the IRS consent to disclose its confidential tax information to customers, which further reinforces transparency