The National Association of Professional Employer Organizations (NAPEO) hailed the passage of legislation defining professional employer organizations (PEOs) in the federal tax code and creation of a voluntary certification program for PEOs within the IRS. PEOs provide comprehensive HR, benefits, tax administration, and compliance services for small and mid-size businesses.
“PEOs play a key role in helping small businesses grow and thrive, and now Congress has recognized and codified a key element of that role so that even more small businesses can benefit from the services and expertise PEOs provide,” said NAPEO President and CEO Pat Cleary. “The economic data proves that small businesses using a PEO grow faster, have lower employee turnover, and are much less likely to go out of business. We are thrilled that Congress has now passed this legislation to formally recognize and certify PEOs so that small business owners have the assurance they need to let a PEO handle employment tax issues along with back office administrative and HR tasks while they focus on running a successful business.”
The legislation (the Small Business Efficiency Act/SBEA) was part of the tax extenders bill passed by the Senate this evening after having passed the House two weeks ago, and a proposal similar to the SBEA was included in President Obama’s 2014 budget. It creates a voluntary certification program for PEOs within the IRS. To become IRS-certified, a PEO would have to meet financial standards (including bonding and independent financial audit requirements) and satisfy reporting obligations and other appropriate standards set by the IRS. Once certified, a PEO would take on sole liability for the collection and remission of federal employment taxes for worksite employees. Small and mid-sized businesses that contract with certified PEOs would be assured that they would not be liable for employment taxes once they remit their employees’ tax withholdings to the PEO.
“This is truly a historic moment for the PEO industry. We urge the President to sign the extenders bill and we look forward to working with the administration on the regulations so we can get the necessary framework in place to broaden our reach within the small business community,” said NAPEO Chairman Brent Tilson, president and CEO of Tilson HR in Greenwood, IN. “Our heartfelt thanks and appreciation go out to the key champions of this bill, Reps. Kevin Brady (R-TX) and Mike Thompson (D-CA), and Sens. Chuck Grassley (R-IA) and Bill Nelson (D-FL). They should be commended for their commitment to and support of small businesses nationwide.”
Approximately 250,000 businesses use PEOs, and PEOs provide access to healthcare coverage for as many as six million people. Through a PEO, the employees of small businesses gain access to employee benefits such as 401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits typically provided by large companies. According to a recent study, by noted economist Laurie Bassi, businesses in a PEO arrangement grow 7-9 percent faster, have 23-32 percent lower employee turnover, and are 50 percent less likely to go out of business than companies not using a PEO.
The National Association of Professional Employer Organizations (NAPEO) represents about 85 percent of the industry’s estimated $92 billion in gross revenues. NAPEO has some 300 PEO members, ranging from start-ups to large publicly held companies with years of success in the industry, as well as some 200 service provider members. PEOs provide payroll, benefits, and other HR services to small and mid-sized businesses. Approximately 250,000 businesses and more than 2.5 million people are part of PEO arrangements. For more information about NAPEO, please visit www.napeo.org.