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It’s the Most Wonderful Time of the Year….to sign up for a PEO: The best time to make the switch

By Shraga Jacobowitz

The air is getting crisper, holiday music is playing nonstop and your children have 50 items written on their gift lists already….which for many can only mean one thing… it’s time to go shopping.  Shopping for a PEO that is!

I bet you didn’t see that coming….but yep, with everything else happening at the end of the year, it seems that the PEO industry is also geared towards this “magical time of the year.”

For one, many things handled by the PEO, i.e., payroll, open enrollment, health insurance renewal, and W2s fall out around this time as well, which is why 80% of PEO business is done in December. No, that’s not saying that PEOs are sitting around the rest of the year; there is still plenty for them to do all year round, but last quarter is when push really comes to shove.

For another, with the hectic end-of-the-year business, with many employees taking vacations and companies trying to meet end-of-the-year goals, business owners are even more overwhelmed with their HR tasks and are looking for a way to simplify their lives. Plus with everything going on, errors are bound to happen, and therefore having a professional take over sounds like a great idea. So obviously, it just seems natural that this time would be the best time to switch to a PEO.

But before you pick up that phone, there’s something you should know. If you’re only looking into PEOs now, most likely you won’t be taking advantage of them for this fiscal year.  Unfortunately, while Rome may have been built in a day, the process of partnering with a PEO can take anywhere from 30-90 days. And even if a PEO tells you that they can get the job done in a shorter period of time,

  1. take it with a very large heaping spoonful of salt, because in order for the process to be done correctly, it really does need to take that long, and
  2. we wouldn’t recommend rushing the process, as it can result in partnering with the wrong PEO and ending up with a contract and services that are all wrong for you. Plus with the over 700 PEOs in America, you really want to take the time to research which PEO best fits you.
  3. Similarly, a rushed onboarding equals problem, which in turn equals unhappy employees. And you know what they say, Happy Employees = Happy Work Life (hey, you try rhyming employees). But all kidding aside, rushing the onboarding process will prevent a seamless transition and most likely will result in mistakes costing you time, money and frustrations in the long run.

But you ask, isn’t it preferable to switch at the beginning of a fiscal year?

And while the answer to that is yes, to ensure that you are not being taxed twice or have other financial implications, a January 1st transition is most recommended, it doesn’t mean if you’ve missed the boat for this year (and unfortunately, as mentioned above, you have), then you have to sit around until next year waiting to make the switch.

This is where a PEO consultant or PEO Broker (such as ARC Consultants, of course) comes in handy!  When making a mid-year switch to a PEO, your consultant/broker will work with the PEOs to ensure that there is no financial impact to a company joining the PEO at any time of the year. Furthermore, if you decide that a CPEO  is the right fit for you, the IRS allows for mid-year switches without financial or tax repercussions.

So if you’re looking to switch to a PEO, really any time of the year is the ideal time to make the move.  PEOs are here to make business owners’ life less complicated, why would you wait for a specific time of the year to do so?  If you’re ready to make the switch, just do it! And do it now….because like I said, unfortunately, it’s ain’t happening overnight.

Okay, you can pick up that phone again now! Give ARC Consultants a call and let’s get started on partnering you with the right PEO for you.

The IRS has given their stamp of approval to PEOs; What does that mean for your business?

By Shraga Jacobowitz

Earlier this month, the IRS released a new standard for PEOs — the ability to become a CPEO, or a Certified PEO. With the conferring of this new, coveted title on a handful of existing PEOs, the IRS has given their stamp of approval, acknowledging that these PEOs have met specific standards set forth by the US government. Ok, this is so HUGE, it’s worthy of being repeated – the IRS is giving their STAMP OF APPROVAL to PEOs!

Why am I so excited about this news? Well for one, having the IRS certify select PEOs lends the entire PEO industry credibility. By certifying PEOs the IRS is acknowledging that there is legitimacy to the PEO business model, and that this not some “back alley” concept that is skirting around the law to manage your business’ employee related tasks, obtaining competitive employee benefits, WC insurance and administer payroll taxes and compliance.  Instead, the IRS is essentially saying PEOs are a valid and reasonable method to obtain these items and services for your business. Something I’ve been saying all along, but it’s always nice to be backed up by one of the biggest government agencies in the USA.

In addition, having the IRS’s stamp of approval also ensures that these CPEO’s are secure and trustworthy. In fact, to ensure this security for PEO clients, PEOs that wish to become certified, must go through the following processes:

  • Annual Financial Audits
  • Quarterly assertions and CPA confirmation regarding payment of all employment taxes.
  • A third party surety bond of a minimum $50,000 or for an amount equal to 5% of the federal employment tax liabilities for the prior year.
  • Background checks of PEO and controlling persons at the PEO
  • Present a client service agreement that meets certain IRS standards.

But that’s not all! Besides the newfound security CPEOs will bring to this industry, this news carries with it tax implications for those looking to join or switch PEOs midyear. In the past, a midyear transition often resulted in a restart on your payroll tax calculation. That’s because in the past the IRS didn’t recognize the PEO as a continuation of your current employment status, but rather that all your employees were now employed by another entity; the PEO.

CPEOs now have clear authority to collect and remit federal employment taxes (Social Security, Medicare, Federal Unemployment Taxes, etc.) for the worksite employees and to do so under the EIN of the CPEO. In addition, because the IRS now recognizes the CPEO as a successor employer, a business joining or switching to a PEO midyear will not have their FICA and FUTA wage bases reset. But before you run out to switch midyear, be aware that while this will affect your Federal taxes positively, it will have zero impact on how your state taxes are calculated, and therefore, the state tax implications of signing up for or switching your PEO must still be taken into account.

In added good news, being part of CPEO ensures that special tax credit programs designed for small business clients will still be awarded to clients of the CPEO.  This means that your small business will still be viewed as a small business, and will not be denied these tax credits just because you are part of a larger PEO organization.

However, the final cherry on this CPEO cake is that having PEOs certified by the IRS, can help to take some of the guesswork out of choosing a qualified PEO. I repeat can, not will, because while having certified PEOs may be helpful, it is important to realize that not necessarily  are they the end all in determining what is the best PEO for you.

Firstly, there are many factors in determining the best PEO, and not necessarily will a CPEO meet your specific business’ needs. Secondly, the PEO industry has had in place already for many years means of keeping tabs on PEOs, ensuring that PEO customers are completely protected and that PEOs are meeting the needs of clients. So even before this news was announced, businesses joining a PEO had other assurances that they were working with either an accredited or at least privately audited PEO.

In fact, the Employer Services Assurance Corporation (ESAC) has been doing exactly that since 1995! ESAC provides accreditation and financial assurance programs for the PEO industry. Their process verifies the PEOs’ ongoing financial solvency and compliance with government regulations and important industry standards. Even more so, ESAC gives more security through underlying surety bonds held on behalf of each ESAC accredited PEO, plus a $15 million excess bond covering all program participants.

But even those PEOs that are neither certified by the IRS nor accredited by ESAC, are often vetted or audited by third parties or privately owned by investment firms, and therefore can be just as reliable, if not more so than a CPEO or ESAC.

After all, becoming a CPEO is a voluntary choice made by the individual PEOs, not a mandatory obligation. Which means while being a CPEO says a lot about that PEO, i.e., there is a standard you must uphold to be certified, (according to the IRS website, “To become and remain certified under the CPEO program, CPEOs must meet tax status, background, experience, business location, financial reporting, bonding and other requirements described in the statute and regulations”), it does not say anything about those organizations that are “just plain old simple” PEOs.

Which begs the question…

What really is the most important letter in this industry? The “C” or the “P”?  What is really more important to your business, the certification, i.e., the “C” or the professionalism, i.e., the “P”?

And even more so, what does the presence of CPEOs on the market mean to you? To your business? To the industry? To us as a PEO consulting firm?

But finally and most importantly, which option is really the best choice for you? A CPEO, PEO, ESAC, or some other combination of letters that we haven’t even heard of yet?

Well, I can’t give away all my secrets in one breath. Sorry, but for that answer you’ll just have to give us a call….after all having someone to help you navigate through the alphabet sea of PEOs, CPEOs, ESACs is exactly why using a PEO consultant is so important.

To find out if your PEO is the right fit for your business, or if you should sign up for a PEO, click here or contact one of the ARC Consultants today.