A New Era for the PEO Industry – Certified PEO

The IRS recently began accepting applications for professional employer organizations (PEOs) to become voluntarily certified PEOs under the Stephen Beck, Jr., Achieving a Better Life Experience (ABLE) Act of 2014.

Since this certification process has been delayed once already, it is a welcome development for the PEO industry to 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.  Becoming and remaining certified is not easy, but PEOs who 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

Additional notes:

  • The IRS will publish a list of PEOs who have become certified and those 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, further reinforcing transparency.

For more insight into the professional employer organization industry, sign up for the free eBook “The Truth About PEOs.”

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Onward Advisors combines unique perspectives and expert insights from decades of working at top PEOs. We do this through a unique, case-by-case approach, providing leading-edge analysis from our online platform to give clients unparalleled clarity and personalized analysis on which PEO solution is best for them.

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