On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law. This included the enactment of the Small Business Efficiency Act (SBEA), which amended the Internal Revenue Code to establish a certification program for Professional Employer Organizations (PEOs).This certification program, once up and running, should eliminate concerns businesses may have about partnering with a PEO.

1. On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law. This included
the enactment of the Small Business Efficiency Act (SBEA), which amended the Internal Revenue
Code to establish a certification program for Professional Employer Organizations (PEOs).This
certification program, once up and running, should eliminate concerns businesses may have about
partnering with a PEO.
A Professional Employer Organization, or PEO, is a firm that
enables employers to outsource a wide range of human resources
and employee management tasks. This includes areas such as
regulatory compliance, health insurance and employee benefits
administration, workers' compensation, safety management,
recruiting, and training and development. It also includes payroll
and tax administration.
In a PEO relationship, the PEO collects and remits employment taxes for their clients and worksite
employees. The current tax law is somewhat vague regarding who is ultimately responsible for the
withholding and payment of employment taxes in the PEO environment - the client or the PEO. The
SBEA eliminates any uncertainties by clarifying that it is the PEO which is responsible for remitting
federal payroll taxes to the IRS. As such, employers that use certified PEOs to remit their payroll
taxes are protected under the Act.
 Grants certified PEOs clear authority to collect and pay federal employment taxes on behalf of
their clients under the PEO’s EIN (Employer Identification Number) for wages the PEO pays
to worksite employees;
“This certification
program, once up
and running, should
eliminate concerns
businesses may have
about partnering
with a PEO.”

2.  Provides protections for PEO clients who pay their federal payroll tax obligations through a
PEO and states PEO clients will never be held liable for those taxes;
 Considers the PEO a Successor Employer. This eliminates the double taxation of FICA and
FUTA when a client joins or leaves a PEO mid-year. The law clarifies that employee wage
bases will not restart when joining or leaving a PEO mid-year;
 Establishes that clients, and not the PEO, can claim certain tax credits related to
employment taxes (the Work Opportunity Tax Credit, for example). This removes any
uncertainty and confirms PEO clients may claim the same tax credits that they would be
entitled to claim if there were no PEO relationship.
The SBEA tasks the IRS with creating a voluntary certification program for PEOs prior to the
January 1, 2016 effective date of the law. To qualify for IRS certification, PEOs must meet a range
of stringent standards, including:
 Specific bonding requirements - PEO must maintain either a $50,000 bond or a bond equal
to 5% of the PEO’s federal employment tax liabilities for the previous year (up to a
maximum of $1 million);
 Obtaining and providing the IRS an independent financial review from a certified accounting
firm;
 Quarterly audits by an outside CPA firm regarding payment of all employment taxes;
 Have no criminal record and a clean tax payment history.
CPEhr welcomes the passage of the SDEA and the IRS certification program. CPEhr intends to
voluntarily engage the certification process to ensure the highest standards of accountability and
reliability to its clients.
With the growing popularity of Professional Employer Organizations and the ongoing uncertainty
of many laws pertaining to the PEO/client relationship, we applaud the passage of the SBEA
which resolves many of these unsettled issues. Furthermore, many PEOs do not currently adhere

3. to any industry accreditation programs and the new law provides a strong message to businesses
across the nation that utilizing a certified PEO to manage their payroll and tax liabilities is a secure
and responsible way to run their business.
Founded in Los Angeles over 30 years ago, CPEhr is one of California’s oldest and most
experienced PEO firms. It services over 75,000 employees nationwide, in a wide range of
industries and workforces, ranging from 2 to 20,000 employees. With a retention rate that exceeds
90%, its team members are committed to our clients’ success.
With unrivaled industry experience, combined with the flexibility afforded to a privately held
corporation, allows CPEhr to deliver highly customized human resources support, while at the
same time offering benefits typically associated with Fortune 500 companies.
Areas of service include:
 Human Resources Administration
 ACA/Health Care Reform Compliance
 Employment Compliance
 Employee Benefits
 Retirement Planning
 Management Training
 Safety and Risk Management
 Workers’ Compensation Insurance
 Payroll and Tax Administration
 Recruiting
For more information regarding Professional Employer Organizations and how it may solve your
organizational needs, contact CPEhr for a complimentary Business Consultation. In this no-
obligation meeting, a senior consultant will analyze your current human resources practices and
offer a customized HR solution to meet your needs.
Email: info@cpehr.com Phone: 877-842-4987
Website: www.cpehr.com Facebook: www.facebook.com/cpehr