The IRS won’t verify the viability of professional employer organizations until July 1, 2016, but you can do it today through the Employer Services Assurance Corporation.
The Small Business Efficiency Act (SBEA) was passed by Congress and signed into law by President Obama in December 2014. The law recognizes the important role that professional employer organizations (PEOs) play in the success of businesses throughout the country. The SBEA creates a voluntary program for PEOs to be certified by the IRS, which will provide employers with peace of mind and added security when evaluating potential PEO and human resources partners.
While the IRS originally intended to begin issuing PEO certifications in January 2015, that timeframe has been delayed. Now, the IRS plans to begin accepting applications for PEO certification beginning July 1, 2016, but that date may change.
So what can you do if you are shopping for a PEO partner but want to make sure that the company you select has been independently verified and meets the most rigid standards in the industry? Fortunately, you don’t have to wait months for the IRS process to begin; you can just ask if that PEO is verified by the Employer Services Assurance Corporation (ESAC).
What is ESAC accreditation and what does it mean to your business?
ESAC accreditation is a mark of financial security, operational stability and a commitment to business ethics. Fewer than 5 percent of all PEOs hold this accreditation, which is similar to the FDIC for the banking industry, SIPC for the securities industry and state insurance guaranty associations for the insurance industry.
Working with an ESAC-accredited PEO provides your company with a $15 million surety bond while ensuring that your partner is in compliance with regulatory rules and industry best practices. Alcott HR has proudly been ESAC accredited since 1998, and you can verify our standing at any time by visiting the ESAC website or clicking the logo to the left.
What about the SBEA?
The $15 million in financial protection afforded by the ESAC is a benefit that no company should be without. However, IRS certification under the SBEA offers additional advantages to companies, particularly when it comes to payroll taxes.
Today, employers working with PEOs share the responsibility of remitting federal taxes for worksite employees. If federal withholdings are not remitted in a timely manner, then the PEO and its client may be jointly liable for penalties, interest and fines. However, under the SBEA, an IRS-certified PEO would be able to assume sole liability for the collection and remission of federal taxes for wages paid to worksite employees.
- An IRS-certified PEO is permitted to be a successor of the a client’s employees for wage-base purposes
- A client of a certified PEO is able to take full advantage of all tax credits available to businesses allowed by the federal government
Do PEOs need both SBEA and ESAC certification?
When the IRS does begin the certification process, companies should insist that their PEO partners are approved by both the ESAC and the IRS in order to ensure that they receive maximum peace of mind and protection.
Alcott HR is committed to maintaining the highest quality standards in the PEO and human resources outsourcing industry. We look forward to attaining IRS certification once the IRS begins accepting applications while remaining ESAC accredited for years to come.
To learn more about our quality programs and how they protect our clients, contact us today.