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Regulation and Compliance > Federal Regulation > IRS

IRS pushes ahead with PEO certification program

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The Internal Revenue Service is pushing ahead with efforts to certify professional employer organizations, or companies that provide human resources and benefits services for a client’s workers.

The PEO certification program could increase the PEOs’ ability to assume responsibility for complying with federal human resources and benefits rules, such as the Affordable Care Act employee counting rules.

The IRS has fleshed out its new federal PEO certification rules in Revenue Procedure 2017-14. The agency explained how PEOs could get certified in regulations and batches of guidance issued earlier this year. This is where the IRS talk about how PEOs can stay certified, and problems that could lead to loss of certification.

PEOs have been sharing responsibility for clients’ workers, and attempting to establish “employer of record” relationships with clients’ workers, for years. But conflicting and unclear federal and state laws have limited PEOs’ efforts to assume full employer-of-record responsibility.

When Congress passed the Stephen Beck Jr. Achieving a Better Life Experience Act of 2014, it included a provision that calls for the IRS to set up a PEO certification program. Once the certified PEO program is fully operational, a certified PEO will be able take full responsibility for filing a client employer’s federal payroll taxes.

A bigger PEO industry could hurt benefits brokers in some ways and help them in other ways. PEOs often buy their own insurance through insurance brokers, and some pay sales commissions to insurance brokers who help them find clients. TriNet Group Inc., a San Leandro, California-based PEO, has been active in sponsoring agent and broker events.

But a PEO may also increase the level of competition benefits brokers face, by putting many small employer groups into large PEO group.

Related: Special needs account bill includes PEO provision

The IRS began taking PEO certification applications this summer. It’s supposed to provide 2017 certification for any PEO that got a complete and accurate application in by Oct. 1, 2016.

The IRS suggests in the new revenue procedure that some PEOs that got their applications in on time might receive their official certification notices late.

The effective date of certification will still be Jan. 1, 2017, but the PEOs that get their certification notices late may have to use transitional methods, described in the procedure, when filing client employers’ payroll taxes for the first quarter of 2017, officials say.

The new PEO certification program requires a certified PEO to have a surety bond, and to use IRS Form 14571 to describe the surety bond. The bonding period normally will start April 1. This year, to avoid requiring newly certified PEOs to scramble to find surety bonds to cover the period of 2017 they are certified before April 1, the IRS will let a PEO submit just one Form 14571 for both the early 2017 bonding period and the bonding period that runs from April 1, 2017, through March 31, 2018, officials say.

Whenever a PEO gets its certification notice, it will have 30 days to submit its Form 14751, officials say. 


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