Many brokers and small business leaders have heard of professional employer organizations (PEO).However, it is still common within the industry to not fullyunderstand how to distinguish one PEO from another.

Until recently, one way this was done was through the EmployerServices Assurance Corporation (ESAC), which accredited qualifiedPEOs as being held to the highest financial and operating standardswithin the industry.

Then on June 1, 2017, the Internal Revenue Service (IRS)designated a select few PEOs as Certified Professional EmployerOrganizations (CPEO). This group of PEOs became the first to everbe certified under the IRS Certification Program.

The program established another regulatory benchmark for PEOs toreach. Just as important, this program provides both brokers andtheir clients greater financial assurance when considering a PEOpartnership.

How does a PEO become certified?

To be recognized by the IRS, a PEO must apply for thecertification and provide extensive background information,including financials. In addition, once the certification statushas been established, PEOs must maintain specific records andprovide the IRS with ongoing independent financial reviewreporting.

Some of the steps to becoming a certified PEO include:

• Meeting IRS-set expectations around tax status, background,experience, location and annual financial audits

• Satisfying certain bond and financial review requirements

• Providing background reports of any individuals responsible foremployment tax payments

• Agreeing to verify to the IRS. on a periodic basis that itcontinues to meet certification requirements

Being recognized as a CPEO means that the organization meets thestrictest guidelines set by the United States government.

What makes a certified PEO different?

The most significant difference between a CPEO and anon-certified PEO has to do with financial assurance and peace ofmind for clients and their brokers. When working with anon-certified PEO, the IRS views that both the PEO and the clientare jointly liable for the payment of payrolltaxes.

This means that the IRS can go after the client for taxes owed,even if that client has already remitted the payroll taxes to thePEO, should the PEO fail to pay its client’s payrolltaxes.

A CPEO, however, is viewed by the IRS as solely liable foremployment tax payments. As mandated in the Small BusinessEfficiency Act (SBEA) — which created the PEO certification program— the IRS cannot go after a client to collect any unpaid payrolltaxes. This liability falls completely on the certified PEO (aslong as the client has remitted the payroll taxes to theCPEO).

Certified PEOs help brokers grow their book and providetheir clients financialassurance

With the complexity and uncertainty surrounding today’s healthcare market, and insurance premiums rising to record highs, smallbusinesses are facing numerous challenges when it comes to healthinsurance and employee benefits.

For brokers looking to help their clients gain access toimproved health care and benefit options, a PEO partnership could prove to be beneficial.These benefits don’t just apply to brokers, as PEOs help smallbusinesses in a few critical areas.

While PEOs may be a new concept for some brokers and theirclients, those who are interested in adding a PEO solution to theirofferings can grow their book of business and differentiate fromtheir competition. This is why understanding the importance of ESACaccreditation and CPEO designation is critical. They set PEOs apartin today’s market, and help instill confidence in clients that thissolution is best for the future of their business.

Michael Altiero is the Digital Marketing Managerat Extensis Group, a regional Professional EmployerOrganization headquartered in the NYC area.