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Why a CPEO May Be Right for Your Business

A conversation with Steve Kellam, President

A Professional Employer Organization, or PEO, can offer companies the expertise of a full-service HR department so that company leaders can focus on core business activities without the complications of payroll, benefits, compliance, administration, and other HR challenges. It’s a great choice for many businesses, startups, and nonprofit organizations. Statistically speaking, companies that partner with a PEO are more likely to grow their business faster and have lower employee turnover. So, how can you tell if you are working with the right PEO? 

Consider working with a Certified Professional Employer Organization, or CPEO. A CPEO is a PEO that has received a certification provided by the Internal Revenue Service. Not every PEO will become a CPEO. In fact, less than 10% of PEOs have taken the rigorous steps required to meet and maintain the status of a CPEO. Once certified as a CPEO the former PEO has been given recognition by the IRS that the company is handling payroll taxes in a proper manner. The CPEO is maintained by complying with stringent requirements on a quarterly and annual basis. 

  • Once a quarter an outside accounting firm audits client tax payments made to the IRS. 
  • Annually a complete audit of the financials of the CPEO must be completed and provided to the IRS. 
  • In addition, the CPEO must maintain a bond, insurance, and key leadership must be in good standing with the IRS.  
  • Not only must the taxes be paid properly and on time but the CPEO must be able to demonstrate financial wellness each quarter of the year and on an annual basis. 

A CPEO invests the time, expertise, and expense to earn and keep the certification to assure their clients that they have the right partner for their company.

A CPEO must meet the strict auditing and reporting standards of the Small Business Efficiency Act (SBEA) and assume financial responsibility for federal employment tax payments for its eligible clients’ worksite employees. Federal payroll tax liability payments are also guaranteed as added protection. In the past years, there have been payroll companies and PEO’s that have not paid client taxes and then walked away with their client’s tax money. As a CPEO the taxes are certified as paid. With more client confidence for business leaders considering a co-employment relationship, working with a CPEO provides an IRS certified level of assurance for compliance and tax liability that you don’t get from other payroll providers or professional employer organizations. 

If you engage a PEO after the beginning of the calendar year, FICA and FUTA taxes are legally required to be reset and clients are potentially required to pay those taxes because of the reset. With a CPEO, those taxes are no longer reset, so there is no repayment requirement. 

As a Certified Professional Employment Organization, HR solutions providers serving as a CPEO must meet criteria that includes: 

  • Bonding: Maintain a bond equal to five percent of the CPEO’s federal employment tax liabilities for the previous year (up to $1 million). 
  • Background Reports: Employees of the CPEO responsible for making the tax payments are required to complete a comprehensive background report.
  • Annual Audits: Comprehensive financial audits prepared by a CPA are required by the IRS to maintain CPEO qualifications.
  • Annual Fees: Annual certification fees are required of a CPEO.

With co-employment, a CPEO must adhere to local, state, and federal laws and regulations. Look for a PEO that delivers more than just payroll, benefits, compliance, and administration. If and when an HR issue arises, how available is your PEO to help resolve your problem? Some PEOs rely on call centers to filter calls and transfer issues or simply offer “call back” services to address employee issues. Make sure you get reliable and expert advice to resolve your issues and avoid compliance risk. 

As a CPEO, HCC provides the guidance and assistance to make sure your policies, procedures, and practices help you stay compliant. We are the only CPEO, PEO, or payroll company that backs our expertise by providing an employment practices policy, and pays the deductible when the client follows the guidance of HCC on a compliant outcome. Our goal is to let you concentrate on growing your business and let us help with employee matters. 

At HCC, our individualized care and expertise from a dedicated team of experts across payroll, benefits, human resources, HR information systems, and retirement planning provides direct access to dedicated team members for answers to questions. HCC is focused on providing better service and better expertise supported by our investment in systems and people. We resolve both basic and complex matters with accuracy and expediency. Find out why CPEO Human Capital Concepts is a better choice for your business by contacting us at [email protected].