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Changes Ahead for Businesses Using Payroll, Benefits and Other HR Providers

  • 20 September 2016
  • Author: Alexander Carr
  • Number of views: 2022
Changes Ahead for Businesses Using Payroll, Benefits and Other HR Providers

If you work with a provider of payroll, benefits, HR, tax administration or regulatory compliance assistance, you should be aware of a significant law change made by Congress.  Companies that offer these services—often called professional employer organizations (PEOs)—can voluntarily apply to the IRS for inclusion in an IRS certification program designed to help clarify their tax responsibilities.

Specifically, the certification is expected to offer clarity surrounding PEOs’ roles in fulfilling clients’ employment tax obligations and make tax administration more efficient. Since July 1, the IRS has been requesting information about current PEO industry practices when it comes to:

  • Financial audits by certified public accountants (CPAs).
  • Verification of payroll tax obligations.
  • Working capital and net worth requirements.
  • Number of covered employees.

For decades, PEOs have offered valuable services to small businesses by giving employees access to 401(k) plans, various forms of insurance, dependent care and other benefits they might not typically receive as employees of a small company. According to the National Association of Professional Employer Organizations (NAPEO), businesses that use PEOs grow 7 to 9 percent faster, have 10 to 14 percent lower employee turnover, and are 50 percent less likely to go out of business. 

PEOs can also help small businesses take care of payroll and paperwork and handle regulatory compliance, the areas in which the IRS is most concerned. Accounting Today’s Michael Cohn explains that PEOs often perform some or all of a client’s federal employment tax withholding, reporting, and payment functions related to workers performing services for the client. 

“To become and remain certified under the new program…PEOs must meet tax status, background, experience, business location, financial reporting, bonding and other requirements,” Cohn adds.

The main benefit for a small business client utilizing a “Certified PEO” involves payroll tax liability. As long as the business pays all fees to the Certified PEO, the new law protects the client and the IRS is precluded from collecting these taxes from either the client or a responsible person of the client.

For more information on how these changes for PEOs may affect your own tax obligations, contact us.

Image Copyright: belchonock / 123RF Stock Photo
Categories: Blog, General
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