PEO 202 – The Small Business Efficiency Act: Efficiency from the Feds
Filed under “Finally, Some Good News for Small Business”, the federal government has jumped on the PEO bandwagon with regulations that go into effect in July of this year. The Small Business Efficiency Act (SBEA) was originally part of the Tax Increase Prevention Act of 2014. The Act creates a voluntary certification process for PEOs across the nation and unifies the morass of federal regulations, guidance, and procedures into a clear, cohesive program. The passage of the SBEA is a defining moment for PEOs promising even more growth to an already expanding industry.
The certification process is voluntary and provides guidelines for customers of PEOs in every state, even those without regulatory or license requirements. The provisions of the law allow PEOs to become a certified professional employer organization (CPEO) under federal guidelines. This designation provides long sought-after benefits for the industry and its client base.
Certification is not automatic. There are several requirements to achieve and maintain CPEO status under the federal guidelines:
- Bonding: CPEOs must maintain a bond equal to 5 percent of their federal employment tax liability for the previous year: minimum $50,000/maximum $1 million
- Voluntary Audits: Annual independent financial statements, prepared by a CPA, must be provided to the IRS
- Quarterly Attestations: CPEOs must attest to payment of employment taxes quarterly, along with an examination-level attestation by an independent CPA
- Fees: An annual fee is required to become and maintain CPEO status
The benefits to the PEO and its clients are myriad. Some close unclear regulatory gaps while others offer new benefits. The valuable benefits of acquiring CPEO status are:
- Recognition under federal tax law: CPEOs enjoy clarified statutory authority to collect and remit federal employment taxes for wages under the CPEO’s employer identification number (EIN)
- Tax credit eligibility confirmed: Customers of a CPEO will now enjoy certain federal tax credits that were previously denied through the PEO relationship
- State unemployment insurance tax credit: The CPEO, and by extension its customers, are eligible to receive a Federal Unemployment Tax Act (FUTA) credit for contributions made in compliance with State Unemployment Tax Act (SUTA) requirements
- Elimination of potential double taxation: FICA and FUTA wage bases do not “reset” if a customer joins or leaves a CPEO mid-year
The SBEA is a win-win for the professional employer organization industry and its client base. But don’t let the “Small Business” name in the Act fool you. Large and small employers reap the benefits of this long awaited legislation. As more and more companies discover the benefits of using a PEO, the Small Business Efficiency Act provides clarity to consumers.
The message from the federal government is clear. Using a CPEO to manage your payroll and tax liability is not only secure, it’s a smart and responsible way to run your business.
The Bottom Line
Lower Your PEO Fees by 25% or More
PEOs are prepared to negotiate, provide transparency, and lower your costs – you just need to know how to ask. That’s where Onward Advisors can help. We know the right questions to ask PEOs, so you can save money. Schedule a free consultation to see if you can lower your fees by 25% or more.
Onward Advisors combines unique perspectives and expert insights from decades of working at top PEOs. They do this through a unique, case-by-case approach, providing leading-edge analysis from their online platform to give clients unparalleled clarity and personalized analysis on which PEO solution is best for them.