A certified PEO (CPEO) is a Professional Employer Organization that has met the rigorous background, financial, and reporting requirements set by the IRS. Certification ensures financial protections and tax benefits to clients of a certified PEO that clients of non-certified PEOs do not necessarily have.
- CPEOs are responsible for the payment of federal employment taxes. (If a company uses a non-certified PEO that doesn’t pay their taxes, they could be liable for the unpaid federal employment taxes, late penalties and interest related to their employees.)
- The certification program requires a CPEO to post a bond each year of up to $1 million guaranteeing payment of its federal employment tax liabilities.
- CPEO clients have express authority to continue to claim specified tax credits for which they would be entitled to claim if there were no PEO relationship.
- Certification eliminates the wage-base restart for PEO customers that join or leave a CPEO during the year. That means the client can make a change at any time and does not need to wait until January to make a change, saving thousands of dollars in taxes.
Fewer than 7% of the PEOs in the U.S. are currently certified by the IRS.1 2 ADP TotalSource is an example of a certified PEO. Note: The IRS does not endorse any particular certified professional employer organization.
Another common certification that PEOs can obtain is accreditation by the Employer Services Assurance Corporation (ESAC).
ESAC, an independent nonprofit corporation, is the official accreditation and financial assurance organization for the PEO industry. Earning accreditation demonstrates a PEO’s financial stability, ethical business conduct and adherence to operational standards and regulatory requirements.
Partnering with an accredited PEO helps ensure reliability of the service provider. Accreditation requires compliance with more than 40 industry best practices and quarterly verification of all key employer payments, including federal and state employment taxes, health and workers’ compensation premiums, and retirement plan contributions. Less than five percent of the industry has achieved this proven level of reliability.
1 CEO Public Listings, IRS.gov, 2018
2 Industry Statistics, NAPEO, 2018
