This past December, President Barack Obama signed the Tax Increase Prevention Act of 2014. Contained within the Act was another law, the Small Business Efficiency Act (SBEA), which created a certification process for professional employer organizations (PEOs). This is an important development for small businesses and PEOs.
PEOs serve small businesses by providing comprehensive, customizable human resources (HR) solutions consisting of: payroll processing, HR administration, training and development, employee benefits design and administration, risk management and regulatory compliance. PEOs also provide many value-added employee offerings such as employee assistance programs (EAP), tuition assistance, adoption assistance and discounts for mass transportation, travel, entertainment and shopping.
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By working with PEOs, small business owners can focus on their core competencies and revenue-producing functions instead of time-consuming, complex and expensive HR tasks. They are also able to benefit from the PEOs economies of scales in terms of the benefit offerings they can provide their employees. This, in turn, places them on a more equal footing with larger companies when it comes to attracting and retaining employees.
Prior to the enactment of the SBEA, 39 states had PEO licensing or registration statutes. Now, the SBEA legislation represents nationwide legitimization of the PEO model at the federal level and recognizes the important role PEOs play in facilitating greater efficiencies for small businesses.
The SBEA, creates a voluntary certification process within the IRS for PEOs to become certified (CPEOs). CPEOs will be required to meet financial standards, including bonding and independent financial audit requirements, as well as satisfy certain reporting obligations and other appropriate standards set by the IRS.
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Additionally, CPEOs will be solely liable for collection and remission of federal employment taxes for their worksite employees, protecting clients from liability once they remit their employees tax withholdings to the PEO. Further, the law codifies that the clients of CPEOs now qualify for specified federal tax credits that they would be entitled to claim in the absence of a PEO relationship. This was not previously the case. In short, the SBEA gives small business owners the confidence that in choosing to partner with a CPEO, they will be afforded the full benefit of this relationship without compromise.
According to the National Association of Professional Employer Organizations (NAPEO), the organization has an estimated 350 members operating in all 50 states, which represents 85% of the industrys estimated $81 billion in gross revenues. Among the most progressive and quality-oriented PEOs are those that hold Employer Services Assurance Corporation certification the equivalent of what FDIC is to the banking industry for the PEO industry.
To achieve certification, a PEO must meet stringent financial, professional and ethical standards. Upon meeting these criteria, the PEO joins an elite group of other PEOs nationwide whose clients are covered by a $15 million surety bond. There are also other key certifications held by high quality PEOs, specifically those offered by the
Louis Basso is president of Alcott HR and was actively involved in advocating for the passage of this legislation. For more information, visit
