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IRS outlines strict rules for PEOs that handle federal employment tax withholdings, reporting and payment for companies

PEOs (Professional Employer Organizations have become an attractive alternative for many companies to administering their own payroll and benefits systems. Many PEOs also handle routine HR functions. The PEO effectively hires the company’s workers and becomes their employer of record.

The IRS has issued a new set of rules that tighten up on a PEO’s ability to become and stay certified (a “CPEO,” Certified Professional Employer Organization).

Companies utilizing PEOs should consider requiring, as part of their contract with the PEO, that the PEO be and remain a CPEO.

The IRS guidance is Revenue Procedure 2017-14.