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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.

Is Your Workspace Really SAFE? The experts weigh in on what safety truly means.

By: Shraga Jacobowitz

As Memorial Day approaches, we thank those who have lost their lives in service so that we can live and work with freedom and in safety. It is in remembrance of these great men and women that we recognize that these privileges afforded to us by their sacrifice should not be taken for granted.  And as employers, we have a duty to ensure that this freedom and safety is being provided to our employees.

Any CEO will attest to the fact that a business’ employees are its biggest asset.  Innovative vision and/or superior products or service means nothing if you don’t have the workforce to implement that vision and produce, market and sell that product or service.  It’s no wonder then that providing this invaluable asset safe working environments should be our number one priority.

But besides the right of employees to work in a safe environment, providing such an environment just makes business sense. One single work accident can cause a company through both direct and indirect cost upwards of $200,000. And with an average of 3 million workplace injuries reported a year (as per the US Bureau of Labor Statistics), that is a lot of money bleeding from American companies due to unsafe conditions.  In the face of those numbers, it is understandable why so many companies are adopting the attitude of “prepare and prevent, rather than repair and repent.”

So how does a company go about preparing and preventing? Some of the safety industry’s top experts weigh in and you won’t be surprised that they all have the same things to say – in order to have a safe work environment you must create a Safety Culture.

What is a Safety Culture, you ask? Judy Agnew, Senior Vice President of Safety Solutions, explains that to truly provide a safe environment, the key rules of safety must be ingrained in the very fabric of the organization.  It is created through positive reinforcement of safe behavior, rather than discipline of unsafe behavior, and incorporating safety into every daily decisions, rather than once a year workshops. OSHA VPP, has stated that “strong safety cultures have had the greatest impact on accident reductions of any process.”

Tom Krause, CEO of Behavioral Science Technology, furthers this idea and differentiates between safety leadership vs. safety management. Safety leadership is showing employees why a safety culture is important rather than dictating the safety protocol employees should follow.  With safety leadership, employees are much more willing to get behind safety initiatives and protocols. As Krause explains, “If senior leadership gets it right, then the culture will change. If senior management doesn’t get it right, then everything else is like swimming upstream. It’s a struggle.”

Neal M. Leonhard, a manager at Safety Systems, adds to this point and stresses that a management that is committed to safety and encourages employee participation will create a stronger safety culture.  Management should provide for and encourage “meaningful employee involvement in the accident prevention system,” he notes. “Employees should be given the opportunity and should be encouraged to provide input into the design and operation of safety processes/programs and the decisions that affect their safety and health.”

Michael S. Deak, corporate director, Safety and Health, Compliance Process Safety and Fire Prevention at DuPont, takes this one step further and states that all companies should make EVERYONE accountable for safety, and he means everyone…from CEO to janitor assistant, all rules should apply equally. Higher management “walking the talk” as he says, is the number one way to get employees to walk the walk.

Donald J. Eckenfelder, a consultant for Profit Protection Consultants, has another take on safety culture. His advice, avoid SAFETY…that is, the word “safety”, at least.   He advises companies to not have anything with the word “safety” in it, i.e., safety meetings, safety committees, etc.  Instead, integrate safety into your normal business processes. This means there is an overall culture of safety and the responsibility to have a safe environment is shared by everyone rather than a select few.

Deak also feels Safety should not be a priority. He theorizes that as companies’ priorities tend to shift and change as the company grows or due to outside influences, many employees actually do not take these priorities seriously. They adopt the attitude, this too shall pass….Therefore, Deak recommends not making safety a priority, but instead just making it part of the everyday company culture.

A final way to improve your safety culture is to POLICE your safety program. And while obviously, all programs should have some form of oversight, James Kendrick, president of the American Society of Safety Engineers, uses this acronym to indicate the steps every company should take to maintain their safety culture. 

Plan

Organize

Lead

Inspect/investigate

Correct

Evaluate

Creating your safety culture is never finished; it is a constant process that involves inspecting and re-inspecting, correcting and re-correcting, evaluating and reevaluating, and is consistently changing based on these steps.

Many of the changes to a company’s safety culture will be based on trial and error within your own organization, while others will be necessitated by the ever-changing government regulations and policies. In fact, Employee Safety and Health Compliance (ESH) has evolved into one of the most complex compliance issues for businesses, meaning many HR departments are unable to keep up with the new regulations, causing many companies to be fined and penalized for policies they aren’t even aware of.

Due to this need for constant evaluation and the complexity of government regulations, many companies are now turning to PEOs for help maintaining their safety culture. PEOs are staffed with certified risk management specialists who can help oversee and ensure that you are compliant with safety and health regulations. These experts will even come on-site to see where safety measures can be implemented and what is lacking in your current safety culture.  As an added benefit, many PEO clients receive decreases in their workers compensation insurance modifiers as a result of these services being provided by their PEO.

To find out more about how a PEO can help you with your safety culture and compliance, contact ARC Consultants today.

The Popularity of PEO’s: It’s history, growth and effect on your business.

By: Shraga Jacobowitz

A recent survey conducted by the National Association of Professional Employer Organizations (NAPEO) this past February has some not so surprising results.  Well, not surprising to anyone who is currently working for, with, or partnered with a PEO.  The survey revealed that the PEO industry is experiencing continued growth across all areas including: revenue, gross profits, operating income, average number of worksite employees, and average number of clients.  What these survey results all boil down to is one simple fact: PEOs are becoming increasingly more popular and an increasingly more common way for businesses to provide their employees with the best HR, benefit, and insurance packages.

Of the 71 PEO executives who took part in the survey, a whopping 99% are optimistic about the prospects for strong industry growth in 2017.  We assume that the remaining 1% were just having a bad day the day of the survey.  The remaining executives all agree that more and more businesses are recognizing the value of a PEO, creating a bright future for the PEO industry.

So why are PEOs becoming so popular? And more importantly, what does all this mean for your business?

Unbelievably enough, the concept of PEOs has been around since the 1960’s, then known as Employee Leasing Firms. The industry was established as a way to help companies cope with the rising costs of workers’ compensation coverage.  However, it was not until the 1980’s when regulatory laws were increased and businesses were forced to deal with even more complex legal red tape than ever, that PEOs really began to gain popularity.

A PEO firm can handle payroll, and even assist with the hiring, training, and firing of employees. With a PEO, the employer is no longer left to deal with such tedious tasks as onboarding new hires, handling all the necessary paperwork, providing employment information, conducting performance reviews, managing expenses, recruiting, conflict resolution, providing substance abuse services, conducting company policy review, dealing with OSHA and EEOC and I-9 requirements…and the list goes on and on.  Plus, a PEO allows companies to offer insurance and benefit packages that rival those of bigger companies. With a PEO, it’s no longer only the bigger fish that get the bigger benefit package.

PEOs basically take on the tasks that are too time consuming, expensive, and complicated to handle in-house, so that your time is freed up to grow your business, allowing you to save money. But even better, with a PEO, less mistakes occur, allowing you to build a better company with better employees and better incentive packages to retain employees.

But PEOs do a lot more for business owners than rescue them from HR and red tape purgatory. Since the PEO’s job is to stay on top of business regulatory laws, including all those new ones that seem to endlessly pop up, a business that partners with a PEO is more likely to always be compliant. A PEO also helps their clients navigate the hundreds of regulations and labor laws that are applicable to their specific industry, undertakes audits to determine if the company is in violation of any laws, and then helps their client address any issues they may have.

And as any business owner understands, better compliance means fewer penalties and fines, saving businesses time, money, and frustration, while increasing employee contentment, productivity, and as a result, the company’s bottom-line.

In recent years, PEOs have begun including even more sophisticated services, such as employee screening and training, safety training and audits, lawsuit protection, processing payment of premiums, certificates of insurance and injury claims, giving businesses further reason to partner with a PEO. With workplace lawsuits and increasingly complicated government regulations becoming more and more common, it’s no wonder that the idea of using a PEO to handle these tasks have also becoming more and more common.

So as I stated at the start of this article, the results of the recent NAPEO survey are not very shocking.  PEOs are definitely becoming the standard way of business for many smart businesses. The only question remains is: Is your business one of them?

To find out more about how a PEO can help your business or if you are getting the most out of your PEO partnership, click here or contact one of our PEO consultants today.