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Are PEOs a Good Idea for Small Businesses?

Are PEOs a Good Idea for Small BusinessesSmall businesses are the lifeblood of America. They represent the grit, determination, and drive we associate with living the American Dream. But as every small business owner knows, no one achieves success without support from a tribe of colleagues, employees, investors, and third-party providers. That often means getting help with the parts of the business that aren’t your strong suit so you can shine in the areas that matter most.

That’s why many businesses consider outsourcing part or all of their HR function to a PEO.

Sound like you? If so, then we’re willing to bet there’s a question lurking in the back of your mind: Is this really a good idea?

Let’s talk about that.

Are You Heading for a PEO Nightmare?

Okay, stop right there. Let’s face this monster right now. If you’re worried about a PEO relationship turning into a nightmare, you’ve probably got thoughts like these running through your head:

  • Will I lose control of my business?
  • Is this a good investment?
  • Will the PEO pay my taxes on time?
  • What if they go out of business and leave me hanging?
  • What if they alter the terms of the agreement and won’t return my calls?

These concerns are understandable. The future of your business is at stake, and you need to know exactly what the relationship will look like. You also need to know you can trust the PEO to do what they said they would do.

So let’s address those fears one at a time.

Putting Your PEO Fears to Rest

Before you make any business decision, it’s wise to consider all the ways it could go wrong. Assessing pros and cons is part of building a strong business case. That’s why the questions above deserve honest answers. Here’s what you need to know to put your PEO fears to rest.

Will I lose control of my business?

No. This is a common concern, but the truth is that the PEO is your partner, not your boss. As the employer of record, they assume responsibility for payroll, benefits, taxes, and administrative functions, but you retain control of hiring and firing decisions, employee management, worksite culture and safety, and business decisions.

Is this a good investment?

This one’s a little trickier, and the best answer is: it depends. PEOs are usually a great fit for small to medium size businesses, but that’s not necessarily the whole story. You’ll want to ask more questions such as:

  • What is the PEO’s specific area of expertise?
  • Do they have other clients in my industry?
  • Can they give me a better insurance rate than I could get on my own?
  • Are they transparent about fees?
  • What is the pricing structure?

Learn as much about the PEO as possible and make sure you get an itemized, unbundled quote so that you can see all parts of the fee before you make your decision.

Will the PEO pay my taxes on time?

This is where you need to do your homework. Established, reputable PEOs can be relied on to take care of your taxes like clockwork; however, if you feel uncertain about the PEO, do a little digging to find out how long they have been in business, whether they have positive reviews, and whether there are any protections (such as CPEO certification) built into the contract. If possible, talk to other clients of the PEO to hear their experiences.

What if they go out of business and leave me hanging?

Again, do some research ahead of time and find out how long the company has been in business and what their financial status is. This will go a long way towards giving you peace of mind about your decision.

What if they alter the terms of the agreement and won’t return my calls?

Sometimes things don’t go as planned. But don’t let a worst-case scenario like this one reported by Forbes scare you too much. Any time you enter into a professional agreement, you should spend a lot of time on the front end researching the company, talking with representatives, asking questions, and making sure you understand the process. In the vast majority of cases, the relationship you establish during the research phase is a good indicator of what you can expect down the road.

Back to our original question: Are PEOs a good idea for small businesses? Answer: In most instances, yes. It’s true that sometimes the relationship doesn’t work out. If that’s the case, make sure you understand the terms of the agreement so you’re not stuck with something that isn’t working for you.

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Why PEOs Make Sense For Small Business Owners

Why PEOs Make Sense for Small BusinessAs a small business owner, you know it takes a lot of grunt work to keep your business running. The more of that work you can delegate, the more time you will have to invest in the growth of your business. Let’s look at some ways a PEO can help your business thrive:

Save Time—By delegating your HR responsibilities to the PEO, you can shift your focus to business critical tasks like strategy, marketing, and talent acquisition. If HR responsibilities take up 25% of your time, that’s at least ten hours a week you can recoup.

Save MoneyNAPEO reports that small businesses can save as much as 35% on HR administration costs when they work with a PEO as compared with the average money spent on HR by non-PEO companies. In addition, PEOs can save you money on fees and fines associated with non-compliance or missed deadlines.

Improve Service Offerings—PEOs can offer deeper services than most small businesses can afford to handle on their own. For example, many PEOs offer assistance with compensation planning, performance reviews, recruiting, employee training, workforce metrics and analysis, and even personality testing for improved decision making. Business owners can take advantage of these services and still pay less than they would by managing HR on their own.

Lower Turnover Rates—Small businesses that work with a PEO consistently experience between 10% and 14% lower turnover rates than their counterparts who go it alone.

Support Growth—Growth comparisons between small businesses that partner with a PEO and comparable businesses that do not consistently demonstrate stronger employment growth for PEO clients.

But Won't I Lose Control of Parts of My Business?

This is one of the most common misconceptions we hear from small business owners about partnering with a PEO. The good news is that it’s simply not true. You retain full control over hiring and termination decisions, day-to-day operations, compensation decisions, business growth and direction, employee management, performance assessments, and all other business critical activities. But you’ll be able to delegate the administrative burden of payroll, benefits administration, compliance, and other HR services to the PEO.

PEOs specialize in these responsibilities, and because they manage a pool of thousands of employees, they can often give you better rates and more options in terms of benefits and insurance. Many PEOs focus on specific industries, which means they know the details about compliance and risk in your field and they stay up to date on new guidelines and regulations.

Let Us Help You Find the Best PEO Fit For Your Small Business

At PEOCompare.com, we specialize in matching business with their perfect PEO partner. If you're ready to put up to 10 hours back in your week and save 35% on the cost of HR administration, check out our PEO Matching Tool today!

The 3 Most Important Questions to Ask Before You Choose a PEO

Questions to ask about a PEOIf you’re looking for solutions to your HR overwhelm, you’ve probably crossed paths with the PEO model. You know generally what a PEO can do, but maybe you’re still asking that basic question: Is a PEO right for my company?

To answer that question, let’s step out of the office for a minute and onto an average car lot—because (believe it or not) buying a car isn’t all that different from shopping for anything else. Even a PEO.

How Buying a Car Is Like Choosing a PEO

Before you buy a car, there are a lot of things you want to consider: gas mileage, vehicle history, tire condition, maintenance history, steering feel, brake performance, and more. You probably also have a list of nonessential extras like heated seats and a built-in DVD player for the kids. Those things are important and you need to check each one off your list before you make a decision.

But when you sit down at the dealer’s desk to talk about a purchase, there are three bottom-line things you want to know:

  • Will this car deliver the results I need?
  • Is it worth the asking price?
  • Was the salesperson effective in giving me the information I needed?

At the end of the day it’s that first question that carries the most weight. We can haggle about price and buyer’s experience, but even the best price won’t make a four-person car large enough to carry an eight-person family.

Buying a car isn’t quite as impactful as outsourcing your HR function to a third party, of course, but those three questions are still the most important things you need to know before you make a decision.

Let’s take a look.

Question #1: Will this PEO deliver the results I need?

Once again, this is the most important of the three questions. Features and service offerings are important, but the bottom line is: will the PEO drive results and value? Will it deliver the ROI you need to justify the expense? Here are just a few ways a PEO can add value and improve ROI for your HR department:

  • Hiring Practices—A PEO will help you integrate effective hiring practices that result in hiring better talent. And talent is the key driver of success for your business. 
  • Safety Procedures—Effective safety strategies and communication processes can prevent injury, reduce workers’ compensation claims, and drive down insurance costs. Your PEO will help you meet compliance guideliness and create a solid safety protocol.
  • HR TechnologyHR technology can improve data tracking and analytics, support employee engagement and retention strategies, and facilitate better record keeping and decision making. Working with a PEO gives you the benefits of an HRIS that can help you avoid penalties, save money, and increase your profit margin--without the cost of purchasing new tech.
  • Scalability—If you’re ready to scale your business, a PEO can provide the support you need to take that next step. No business owner can do everything, especially when your workforce is growing. A PEO may be the logical solution to administrative overwhelm.

Question #2: Is it the right price?

If you have determined that a PEO offers the right solution for your HR administration woes, the next thing you need to know is whether it’s worth the expense. PEOs usually charge either a flat monthly fee per employee or a percentage of payroll. Either way, it’s important to understand how the pricing structure works, and for that you need to see an unbundled quote. Here are some other questions to ask about the PEO quote as you make your decision:

  • Are services offered a la carte?
  • Does the PEO honor FUTA and SUTA caps?
  • Does the PEO require you to use their benefits package?
  • What are the terms of the contract?

Question #3: Does the PEO culture fit my company?

How does the PEO work with clients? Do they pair you up with a consultant you can contact with questions, or will you be speaking with a different representative each time? What is their communication style and does it match yours? What technology do they use? Make a list of questions like these to determine whether the PEO’s work style will be a good fit for your company.

It’s Time to Make the Switch

In future posts, we’ll explore some of these topics in more depth, but for now let’s wrap it up with a quote from John Maxwell:

“You will never change your life until you change something you do daily.”

That's just as true for business as it is for personal goals. Partnering with a PEO may be the change you need to achieve your goals this year. If it is, let us help you take the next step.

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8 Practical Ways a PEO Can Help You Work Smarter, Not Harder in 2018

 

 
8 Practical Ways a PEO Helps You Work Smarter Not Harder in 2018.jpgAs 2017 draws to a close, we’re all looking for ways to be more productive and more profitable in the new year. For small businesses that often means finding ways to cut costs, streamline processes, or both.

But what if you could reallocate your workload so you have more time in the workday, get more done, and spend less money on workforce management?

Sound like a dream come true? That’s what a PEO can do for you.

 

 

How can a PEO make you more productive this year? Two ways:

  1. By cutting back your administrative workload so you can focus on profit-generating activities.
  2. By keeping you up to date on paperwork, taxes, compliance, and vendor management so you can avoid missed deadlines, fees, and fines.

To accomplish those two goals, a PEO partners with you to manage some of the most labor-intensive parts of HR and workforce management so you can focus your attention on the growth of your business. Take a look at 8 practical ways a PEO puts more time back in your day:

  • Payroll management—A PEO will handle online payroll processing, direct deposit, changes to employee status, PTO, time and attendance, expense management, and reporting. Eliminate errors and make sure everyone gets paid on time, every time.
  • Benefits Administration—With constant changes to laws and benefit plans, benefits administration can eat up your time quickly. A PEO will provide comprehensive benefits and can often give small businesses access to less expensive group rates.
  • Tax remittance and filing—Tax season leaves many small business owners scrambling to get all their paperwork in order and their ducks in a row. With a PEO, however, you can hand off tax calculations, W-2 preparation ad delivery, unemployment taxes, remittance, and filing so you don’t lose ground in March and April.
  • Workers Compensation—Worried about workers’ compensation claims? Let your PEO handle them. A PEO can manage the entire process from plan sponsorship to claims processing.
  • Risk and Compliance—Staying up to date on labor laws and regulatory compliance can be a full-time job. But with a PEO, you can move forward with confidence knowing that your small business has met all state and federal guidelines for employment practices, ACA compliance, employee benefits, and other risk categories.
  • Vendor Management—Perhaps one of the most overlooked benefits of working with a PEO, vendor management means you don’t have to spend several hours on the phone with various HR vendors every month. The PEO will handle interactions with insurance providers, tax professionals, and other vendors so you are free to focus on business critical activities.
  • Industry Expertise—Many PEOs specialize in particular industries, which means they know the ins and outs of insurance, compliance, and risk in your business. This can be a key differentiator as you’re choosing a PEO, so make sure your provider understands your industry before you sign a contract.
  • Cutting Edge HR Technology—Can you afford the latest in cutting edge HR technology? What if you could get all the benefits of modern technology at minimal cost? Many PEOs provide online HR self-service, robust reporting and data analytics, mobile access, applicant tracking, and other services for their clients.

Don’t let 2018 be another year of spreading yourself too thin by doing more and more with fewer and fewer resources. A PEO can help you get more done in less time by managing the time-sucking responsibilities of HR while still giving you hands-on interaction with your employees and total control over hiring and retention decisions.

This year, resolve to work smarter, not harder. It’s time to make the switch.

 

Ready to find your PEO partner? Take our survey to find the PEO vendor that meets your unique specifications!

Get Ready for 2018 ACA Open Enrollment Deadline With New SBC Form Requirements

6924678_s.jpgLooking ahead to your 2018 ACA open enrollment deadline? This year, businesses will need to incorporate updates to the Summary of Benefits and Coverage form they distribute to employees—and the changes are significant. 

In this post, we'll take a look at the major changes to the form and give you some tips on how to get rid of your compliance headaches for good.

Major Changes to The 2018 SBC Form 

Changes to the form include wording revisions, additional accommodations for non-English speakers, and modification of examples. Let’s take a look:

  • Revisions to Page 1 questions
  • Changes to “Why This Matters” answers depending on the details of your plan
  • Specific detail requirements in the section discussing “Common Medical Events”
  • Revisions to the cost data for example coverage
  • Requirement to add a third coverage example (simple fracture with emergency room treatment)
  • Modifications to assumptions for coverage examples
  • Section 1557 requirement to include a nondiscrimination notice and language-assistance taglines 

Changes must take effect by the first day of open enrollment. If your coverage begins on January 1st, you will need to distribute the new template during your November open enrollment period.

Forget the Open Enrollment Deadline – How Can You Nix Your Compliance Headaches for Good?

If you’re like most small business owners, compliance issues creates major headaches every year. It takes a lot of time and research to stay on top of regulations and make sure every form meets regulatory requirements.

That’s where a PEO can make your life easier. PEOs handle all those compliance concerns for you, and they’ll be responsible for updating forms, filing on time, and keeping all your ducks in a row. Here are a few additional regulatory issues your PEO can help you solve:

  • Overtime regulations
  • Workman’s compensation requirements
  • ACA guidelines, forms, and implementation
  • State regulations
  • Safety and risk management
  • Discrimination and harassment laws
  • Wage and hour regulations
  • Tax preparation and filing

Staying current on compliance isn’t easy. As your co-employment partner, a PEO bears the burden of regulatory compliance so you can focus your attention on the growth and productivity of your business. 

Isn’t it time to nix your compliance headaches for good?

Ask These 8 Questions When You Compare PEO Companies

8 questions to ask about a PEO company.jpgIf you’re a small business owner and you need help with HR, take comfort in the fact that thousands of others have faced that same dilemma. HR responsibilities take time, resources, and blood/sweat/tears that you may not be able to invest.

But you don’t have to hire a full-time staff to take on those tasks for you. 

When you’re struggling to keep your head above water, a professional employer organization (PEO) may be the best investment you can make in the future of your business. PEOs help you manage the tedious tasks of HR and reduce your liability concerns about compliance and taxes.

But with nearly 1,000 PEOS operating in the U.S., how do you choose the right one? Here are 8 questions you can ask as you compare PEO companies.

Eight Questions to Ask Before You Choose a PEO Company

It’s going to take some research and homework to learn the details about the companies you’re looking at, but the payoff will be worth it. While PEOs often appear similar on the surface, the nuts and bolts of how they operate and what they offer vary significantly.

Ask these questions when you’re in the research stage:

  1. What kind of company and workforce do you have (industry/size)?

PEOs often specialize in a particular industry or company size, so it’s important to know that the one you choose understands your company’s needs. If you’re a small, blue-collar company you don’t want a PEO that specializes in larger software technology firms.

  1. What credentials does the PEO have?

Start with basics like how many years they have been in business and how many clients they have served. You’ll also want to verify that their financial statements receive independent audits. Make sure you see documentation that they remit taxes on time and that they have a solid business model in place. Don’t hang your HR hopes on a company that will fold in six months.

  1. Is the company certified by the IRS?

PEO certification isn’t a requirement, but it does indicate that the PEO has passed the rigorous IRS certification process. Certification does not mean the PEO is more qualified or that they offer better services, but it does mean they have passed an annual CPA audit, received quarterly confirmation of tax payments, conducted employee background checks, and met the IRS standards for surety bonds and client service agreements. If the PEO you are considering is not certified, you should verify all of these things independently. 

  1. What is the pricing model?

PEOs quote their prices differently, so be sure you understand how the quote breaks down. Look for transparent, unbundled pricing that clearly lists all fees and prices for add-on services.

  1. What are their HR credentials?

Does the PEO company’s HR team have substantial experience in the industry? How do they handle performance reviews, handbooks, separation agreements, and other HR tasks? Make sure the provider’s process works well in your company culture and that you are comfortable with the knowledge and credentials of the team you will be working with.

  1. What is the fine print on their benefits offering?

Look further than the pricing model. Ask what carriers they work with (avoid state specific carriers if you expect to grow beyond your state borders), what kinds of plans they offer (medical, vision dental), whether they provide voluntary benefits like life insurance or disability, and whether there will be annual pricing increases based on claims.

  1. How does the technology platform function?

You and your employees will most likely be logging into the technology platform every day to manage time punches, vacation requests, performance reviews, benefits enrollment, and self-service tasks. Make sure the technology platform is intuitive and user-friendly and that it handles all the tasks you need seamlessly. 

  1. What do their customers say?

Look for customer testimonials or reviews online. Remember, a case study provided by the PEO can be helpful, but it’s likely not going to show you any drawbacks or flaws. Get real opinions from real customers before you make your decision.

Make the Right Choice the First Time

If all of that sounds like a lot of research, it is. That’s where we come in. Our PEO Matching Tool is designed to help you narrow down your options and create your short list—no headaches required. Check it out today and find out which PEO company is right for your business!

Don’t Fall For These 3 PEO Myths

Partnering with a PEO can seem intimidating, especially for entrepreneurs. You’ve poured your lifeblood into your business, and now someone wants you to hand over the reins? Not likely

But what if I told you that working with a PEO will actually give you more time and resources to invest in your business, your staff, and your vision? What if partnering with a PEO represented freedom instead of lost control? And what if it could save you money in the process?

I bet you could get on board with that.

Good news—it’s all true. But first you have to stop believing the PEO myths.

3 Myths You Might Believe About PEOs

If you’re drowning in paperwork but still shying away from a PEO, it could be because you believe one of these myths:

  1. I’ll lose decision-making power. Perhaps more than anything else, entrepreneurs fear losing control of the business they’ve built with their blood, sweat, and tears. But a PEO partnership isn’t a hostile takeover. The PEO’s goal is to help you with administrative tasks that suck away hours of your life each week—tasks like compliance research, tax preparation and filing, employee handbook preparation, benefits administration, payroll, and risk management. And the core activities of your business? Still completely in your ball court.

  2. All HR outsourcing is basically the same. You’ve seen the acronyms: HRO, ASO, PEO. They’re all the same right? Well, no. The primary difference between a PEO and other outsourcing models is that a PEO becomes your co-employer. That means you’ll file taxes under the PEO’s tax identification number, and the PEO will share both the risk and the burden of employment. The co-employment model benefits your employees by giving them increased job security, access to better benefits and retirement plans, and increased safety oversight. If you decide to end your relationship with the PEO, however, your workers remain on your payroll.

  3. It won’t really save me money. Once you pay the PEO’s fee, will you really see any cost savings? Absolutely. Here are three ways PEOs save you money:

    • Economy of scale—PEOs can get better insurance rates based on the volume of people they employ. That translates into cost savings for you.
    • Efficiency—If you spend 10 hours per week on HR tasks like compliance and vendor management (or you pay someone else to do it for you), that’s 10 hours of productivity lost. If you turn those tasks over to a PEO, you can focus your attention (and that of your employees) on getting critical business activities off your to-do list.
    • Growth—As the business owner, is your time best spent pushing paper or investing in new ideas for growth? No-brainer, right? Let the PEO take over the paper-pushing so you can build the business you’ve always dreamed of.

One More Myth: Is a PEO Your Magic Wand?

Remember that scene in The Sorcerer’s Apprentice where the mops and buckets are merrily swishing away while the apprentice kicks back and relaxes? And then it all spirals out of control while the apprentice watches his labor saving devices destroy the room.

Don’t be the apprentice.

Yes, a PEO can save you hours of work each week. Yes, it can cut costs and give you time to grow your business. But don’t assume that it will eliminate all busy work from your life forever. If you do, you’ll be sorely disappointed—and you could see your carefully constructed plans spiral out of control.

A PEO can give you the freedom you need to focus on the most important activities of running your business, but it’s not a magic wand. It’s a partnership.

And it could be the solution you’ve been waiting for to help you cut costs and increase productivity so you can take the next step.

FAQ: What Is a Co-Employment Relationship?

What Is A Co-Employment Relationship?When you partner with a PEO, you enter a co-employment relationship. That relationship offers a lot of benefits to small businesses, including vendor management, benefits administration, recruiting assistance, and more. 

But it can also feel intimidating. Will you lose decision-making power? Will you be subject to the whims of a larger entity? Will your business become impersonal?

To answer these questions, let’s take a look at what co-employment actually means. Then, we’ll address some common concerns small business owners have when partnering with a PEO.

Co-Employment: A Mutually Beneficial Partnership

Co-employment means that two employers share responsibility for the same employees. Each one has specific legal obligations to meet and each shares the risk associated with employment. The business owner manages daily duties and job functions, maintains full control of all business decisions, and oversees hiring, terminations, growth activities, and operations. The PEO, as co-employer, manages functions related to HR and personnel, including payroll, taxes, benefits, recruiting, compliance, and workers’ compensation.

Answers To Your Co-Employment Questions

This definition still leaves a lot of questions unanswered for the small business owner. Here are some that we frequently encounter:

Why does HR outsourcing use a co-employment model?

Not every outsourcing model uses co-employment. The PEO is unique in that the PEO provider becomes the employer of record and will file taxes under their Tax ID number. This benefits you as the business owner in several ways:

  • Shared Risk – The PEO shares risk associated with compliance, benefits, and workers’ compensation.
  • Economy of Scale – Because the PEO acts as the employer of record for many clients, they have access to better benefits and insurance rates that are usually only available to large employers.
  • Better SUTA Rates – The PEO may be able to reduce your SUTA rate by paying employees under their experience rate. They also calculate SUTA for you so you don’t have to worry about the different rates and requirements in different states.
  • Shared Responsibility – The co-employment model shifts the burden of responsibility for compliance, reporting, tax filing, and dispute management onto the PEO. This frees business owners to focus on growth rather than getting bogged down with legal questions.

Will I lose control of my business?

No. The PEO will assume responsibility for administrative tasks and compliance obligations, but you as the business owner will retain control over daily activities and decisions for your employees and your business. This includes staffing decisions, operations, employee management, marketing, and core job functions. 

What functions will the PEO assume?

The PEO will handle wage and employment taxes, collecting and filing taxes, compliance management, reporting, workers’ compensation claims and coverage, payroll, and more. Their role relates to HR administration and personnel.

Do I get any say in hiring and firing decisions?

Yes. The PEO may offer assistance with recruiting and onboarding, but you make the final decision about which employees to hire and terminate.

How does a co-employment relationship affect my workers?

When you partner with a PEO, your workers enjoy increased job security, access to better benefits, insurance and retirement savings plans, professional human resources services, improved communications from the HR department, and increased safety oversight. If you end your relationship with the PEO, workers continue as your employees.

If you employ union workers, the PEO will abide by existing collective bargaining agreements.

Will my existing HR staff lose their jobs?

PEOs often work with your existing HR staff to strengthen the services offered to employees. Most small businesses do not have the personnel or expertise to run a fully functional HR department, and their existing staff benefit greatly from the PEO partnership.

Will my employees have access to someone who can answer their questions?

Yes. The PEO works closely with you as the business owner to ensure that your employees can access the information they need about benefits, insurance, workers’ compensation, payroll, and more. Many PEOs provide a dedicated individual or team who can assist with training and employee information.

What if I don’t want to change insurance providers?

PEOs can usually offer better insurance options than small businesses can. In many cases, they can deliver Fortune 500 level insurance and benefits to employees based on economy of scale. Although you might be required to switch insurance plans, that change is almost always to your benefit.

Will co-employment increase my risk of litigation? 

No. In many cases a PEO can decrease your risk of litigation by managing compliance and safety regulations more efficiently. In some cases, they also provide legal assistance to companies who are facing workers’ compensation claims or other legal questions.

These are some of the most common questions we hear about working with a PEO. If you have additional questions, you may want to check out this FAQ from The National Association of Professional Employer Organizations (NAPEO).

Are you ready to take the next step with your business? Our PEO Matching Tool helps you select a PEO based on your specific needs and requirements. 

Will PEO Certification Make a Difference for Small Businesses

Certified.jpgOn December 19, 2014, President Obama signed the Small Business Efficiency Act (SBEA), giving professional employer organizations (PEOs) statutory recognition. Essentially, PEOs will now have the opportunity to seek certification with the IRS in order to obtain certain benefits. 

The IRS must define the PEO certification progress and implement the program by July 1, 2016. With this deadline quickly approaching, many PEOs are prepared to seek certification; however, the SBEA does not require PEOs to be certified.

That leaves many businesses asking: What are the ramifications of PEO certification for small businesses? Will it make a difference in the services offered? Here’s what you need to know.

Requirements for Certification

In order to be certified by the IRS, a PEO must meet the following requirements:

  • Annual CPA Audit
  • Quarterly Confirmation of Employment Tax Payments
  • Minimum $50,000 Surety Bond
  • Employee Background Checks
  • IRS-Approved Client Service Agreement
  • Pay Annual Fee

Reputable PEOs already have many of these items in place to ensure the best service for their clients. The IRS requirements will simply need to be documented and submitted for review in order receive and maintain certification.

How Does the PEO Benefit?

Certification brings with it some associated costs. Since it isn’t required, PEOs will have to weigh the benefits of certification against those costs in order to determine which direction they will go. Benefits include:

  • Statutory Authority—Certified PEOs (CPEOs) will have the authority to collect and remit taxes on behalf of their clients. While PEOs do this already, certification will give this activity official IRS recognition.
  • Eliminate Wage Base Restarts—Currently, if a business joins a PEO mid-year, FICA and FUTA wage bases are reset, which results in higher costs for tax withholding. These wage base restarts will be eliminated for CPEOs, which will act as successor employers.
  • Tax Credits—Small businesses that partner with a CPEO will still qualify for small business tax credits. Without certification, the larger employee base of the PEO may affect the ability of some small businesses to benefit from these tax credits.

Will Small Businesses Be Affected?

The working relationship a business has with a PEO will remain virtually unchanged. The SBEA ruling does not change how a PEO will interact with clients or which services may be offered. It simply provides official recognition of the PEO and provides some tax benefits. 

The bottom line is that businesses will still receive significant benefits from a PEO partnership whether or not that PEO has official certification. Costs may fluctuate slightly among providers since there will be an annual fee associated with voluntary certification.

If you are ready to partner with a PEO, our comparison selector tool helps you compare individual providers based on your business requirements.

 

Employee Health Benefits: now and into the future

employee_benefits.jpgThe future of employer sponsored medical benefits lies in what’s happening now. Regardless of what happens in the upcoming elections, no leadership is in a position to unwind history or throw babies out with the bathwater. It’s just the way government works. You can expect - whoever is in place and sits on whatever side of the aisle – medical costs, Medicare operations, and the Affordable Care Act to undergo some scrutiny.

That’s a big ship to turnaround, and revolutions are not likely. But, you might get a better handle on things if you look at the numbers prepared by Benefitfocus® for SHRM:

  • 52% of large employers surveyed offer one HDHP (high-deductible health plan). Its inclusion provides an apparently lower cost to the employee. Most have transitioned to this offering option, and more are considering making the HDHP their dominant offering in the next few years.

  • 41% of employees have opted for the HDHP. When given the choice, employees – especially younger workers – opt for the higher risk presented by the HDHP. Given the options, the HDHP allows for a lower employer premium, but it may not suit individual or family needs.

  • HDHPs also reduce the employer’s cost. In doing so, it positions the company better to avoid the Cadillac tax provisions of the Affordable Care Act by lowering the average paid per enrollee. But, the Cadillac tax may never see the light of day before its 2020 implementation, and health care inflation may wipe out that advantage by then.

  • HSAs (health savings accounts) are not performing well. The most effective HDHP assumes an offset by personal savings accumulated for health spending. Even where the employer subsidizes the savings contributions, employees are not using the accounts fully. Opting out of this behavior leaves employees vulnerable now and into their retirement.

  • Voluntary benefits go begging. Critical illness coverage, hospital indemnity, accidental injury policies, and more could fill some of the gaps presented with HDHPs. As of 2015, only 14% of employees enrolled in voluntary plans offered by only 36% of large employers.

Current behavior describes future outcomes, and some of this activity is not encouraging for employees or employers. Absent any miraculously workable solutions, you have to acknowledge the impact of decisions made now. These decisions are shaping an insecure status quo, much of which has secured footing as an entitlement.

If cost management continues to drive employer offerings, it continues to strengthen employee dissatisfaction. If corporate cost management concerns do not drive the benefits market, remedies will remain unexplored and untried.

Sometimes moving to a benefit plan offered through a PEO or professional employer organization can lower employer costs and offer more plan choices based on their leverage of high employee numbers. This economy must have the will and wherewithal to structure innovative solutions in employee sponsored medical benefits.


The results reported here come from the Benefitfocus® 2015 study of large businesses.  Benefitfocus® is a publicly traded employee benefits management platform.

Other research is found at:
National Bureau of Economic Research  
Bureau of Labor Statistics  
International Federation of Employee Benefit Plans

 

 

 

 

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