With the December, 2014 signing of the Tax Increase Prevention Act of 2014 by President Obama, the Small Business Efficiency Act (SBEA) became law. Passage of this legislation serves to recognize the Professional Employer (PEO) industry on a federal level and contains some key provisions that business owners should understand, and are as follows:
- Certification – The SBEA creates a voluntary certification process within the IRS for those PEOs who wish to become Certified PEOs (CPEOs) which includes the following:
- o A CPEO must maintain a bond in the amount $50,000 or five percent of the CPEO’s federal employment tax liabilities (not to exceed $1,000,000)
o Independent financial statement audits prepared by a CPA must be submitted annually to the IRS.
o A CPA must also submit quarterly attestations to the IRS confirming the payment of all employment taxes.
o An annual fee of $1,000 per year must be paid by the CPEO to attain and maintain certification.
- CPEOs will have clear statutory authority to collect and remit taxes under the CPEOs EIN for wages paid by the CPEO to worksite employees.
- All tax credits available to CPEO clients that would have been applicable absent the PEO relationship will remain intact.
- If a CPEO or its client makes a contribution to a state unemployment fund with respect to wages paid to a worksite employee, the CPEO will receive the federal (FUTA) credit.
- FICA (Social Security) and FUTA wages bases will not restart for a CPEO’s client entering or exiting a PEO partnership mid-year.
Businesses who currently partner with a PEO can take comfort if their PEO is a member of the Employer Services Assurance Corporation (ESAC), given that the certification criteria established by this accreditation organization meets or exceeds the CPEO standards contemplated by this legislation.
At this writing, the IRS in collaboration with industry officials, are in the rule-making process, which has deadline of June 30, 2015. The law is set to take effect on January 1, 2016.
For more information on the Small Business Efficiency Act, please reach out to Genesis HR Solutions at AskUs@genesishrsolutions.com or 800-367-8367.
Genesis HR Solutions is the premier PEO provider for Massachusetts based businesses.