New PEO Certification Positive Step for Small Businesses

Posted September 25, 2017

In Human Resources, Management, Operations

When it comes to running a small business there often aren’t enough hours in the day to get everything accomplished. There are group health plan initiatives, retirement planning and services, better work-life strategies, etc. that all take time and resources to develop and implement. Not to mention — important employee benefits activities like payroll, PTO, overtime, workers compensation, etc. that require daily consideration as well. Time for core competencies? Not in this model.

It’s why many small and mid-size business owners have looked to solutions such as outsourcing, and particularly, a professional employer organization (PEO) to handle the employee benefits piece of their business. A PEO has the ability to handle all the daily administrative responsibilities of employee benefits such as payroll, tax issues, traditional HR functions, as well as changing health care reform mandates and compliance guidelines.

In fact, the federal government recognized PEOs increasing role in helping small and mid-size businesses and established a voluntary certification process through the Small Business Efficiency Act of 2014 (SBEA). In June of this year, the IRS issued the first notices of certification to 84 organizations that applied to become Certified Professional Employer Organizations (CPEO).

CPEO Customer Benefits

Now that the certification program is operational, the SBEA will provide the following benefits for PEOs and their customers:

Give CPEOs clear statutory authority to collect and remit federal employment taxes as an employer for payroll and tax purposes;
Eliminate the wage-base “restart” for certain payroll tax purposes for PEO customers that join or leave a PEO relationship mid-year; and
Codify CPEOs’ customers’ qualification for specified federal tax credits, which customers would be entitled to claim if there were no PEO relationship.

This gives PEOs the ability to effectively provide a range of services, including health plan options for various sized organizations. A PEO increases buying power and spreads the risk among a larger group of people than a small business alone. For health insurance this creates more affordable plan options and helps maintain premiums year over year.

Additionally, small business owners can also look for a PEO to have the Employer Services Assurance Corporation (ESAC) accreditation. And a number of states require a license and regulate PEOs as well.

So employers can have peace of mind when it comes to working with a PEO. Plus, they can look forward to a range of positive results. For example, some businesses have reported that after signing on as PEO clients they experienced a growth rate between 7-9 percent, reduced employee turnover by 10-14 percent and cut their risk of going out of business in half, according to an economic analysis commissioned by the National Association of Professional Employer Organizations (NAPEO).

Six Tips to Know before Working with a PEO

Thinking about a PEO? The NAPEO provides a set of guidelines for small and mid-size employers to consider when choosing a PEO to fit their business:

Carefully assess your workplace needs regarding HR, employee benefits and risk management first.
Determine which PEOs are capable of meeting all your goals.
Look to see what accreditations the PEO has. Check to determine whether the PEO’s financial statements are independently audited by a CPA or its management practices have been independently certified.
Ask for client and professional references.
Inquire about the expertise and competence of the PEO staff. Confirm that senior staff has the appropriate professional training and designations.
Understand how the employee benefits are funded – fully insured or partially self-funded and what carriers or providers they use.

As the job market continues to improve and becomes a more competitive environment, health insurance and employee benefits become critical factors. Working with a PEO not only solves the challenge of providing health insurance, but also removes the burden of many other administrative functions and lets companies focus on their core competencies and continue to grow their businesses.

Source: Inc. Power From Your People. September 2016. Vol. 38 Issue 7 PP 1-9.