As we have explained in an earlier blog, a PEO can be the unlocking key for your business expansion and growth. A good Professional Employer Organisation will be the partner you can rely on, to take care of tasks like payroll management, HR, and business compliance. However, in the United States of America, there are Certified PEOs (CPEO) which go one step beyond in their roles and capabilities.
Certified PEOs are PEO services in America which have met stringent financial and reporting requirements set by the IRS (Internal Revenue Service). Becoming a CPEO means your clients get additional tax benefit and protection from liability.
The certification process for a regular PEO involves submitting extensive financial information to the IRS, pertaining to the PEO’s employment tax payment track record
- How is a CPEO different than PEO?
If as an organisation wanting to collate human resources, you join a PEO agency, the IRS considers the PEO to be your employees’ employer of record. Now, their wages are reported with the PEO’s official federal Employer Identification Number (EIN).
With a non-certified PEO, if the employment taxes aren’t paid, the IRS is within rights to go after both the PEO agency itself and the client company for the unpaid tax liability. You are still liable to be prosecuted even if you paid the taxes to the PEO agency already.
However, once a non-certified PEO becomes CPEO, it assumes the whole and sole ownershop for paying the federal employment taxes, for the salaries paid to worksite employees.
- What are the responsibilities and benefits of a CPEO?
1. As discussed, CPEOs take on the onus of paying federal employment taxes.
2. Moreover, the certification program requires a Certified PEO to post a bond each year of up to $1 million to guarantee the payment of its federal employment tax liabilities.
3. Further, clients of a CPEO have full entitlement to tax credits for their PEO employees, as they would be in the absence of a PEO partnership.
4. Certification also eliminates the wage rate restart for PEO customers who join or leave a CPEO during a financial year. This allows CPEO clients to make a wage-base change at any point in time, rather than waiting for the start of the next financial year (January in the USA). This can save lots of money in taxes.
5. One of the major benefits of a CPEO is peace of mind. Not only in protecting you from tax litigation but also in the quality of the PEO agency you are about to enter into business with. The process of becoming certified is strenuous, and the mere fact that the agency has taken the efforts to become certified successfully is a mark of their integrity and work ethics.
- Can PEO Agencies in India become certified?
Professional Employer Organisations in India are as of now not eligible to undertake certification, because the process is only applicable in the USA.
However, PEO companies in India have some bureaucratic changes to look forward to.
This is because Indian GST law is making provisions for a similar certification in India. When it becomes official, all Indian PEO agencies must register themselves under this GST code to become eligible. Because we care about protecting our clients against any unnecessary tax litigation, rest assured Remunance will be among the first in line to become certified.