Perils Of Employing Professional Employer Organization

Ways in which PEOs are useful

PEOs that is, Professional Employer Organizations, are companies that hire employees to work for your business. An international PEO co-employ your employees by becoming an employer of record for tax purposes. Thus, a PEO files the W2s for your employees. Even then you retain control and oversight over your employees.

EOR stands for Employer-of-Record. In EOR, the employment contract is between the EOR vendor and the employee.

PEOs employ many employees for various companies. By blending a large number of employees, they lower the cost of health insurance and unemployment taxes. PEOs charge a fee based on a percentage of employee’s gross payroll. They charge around 3% to 15% of the gross payroll.

In the USA, ObamaCare has turned PEOs an excellent option for companies. With International PEO, the cost of employee health insurance, human resource administration, and unemployment insurance is easily managed.

How PEOs can bring trouble

As we’ve seen so far, PEOs are an excellent way for businesses to lower employer costs. Now PEOs that fail to file taxes properly for employees can be annoying. And ultimately the responsibility lies with the PEO to file tax. But, there is a real peril in employing a PEO—when, as an entrepreneur, your relationship changes with PEO.

A recent incident happened between Horizon and a co-employment firm called Insperity. Horizon appointed Insperity as their PEO for co-employment. Horizon received an email from Insperity that they would need the payroll two weeks in advance. This caused a significant cash flow disruption for Horizon.

Insperity changed the terms of the contract without prior notice. The sudden change became a serious issue for Horizon. Horizon fulfilled the obligations to fund the account in advance for two months. Later, Horizon refused to accept terms of Insperity to pre-fund the account and returned to in-house payroll.

IRS CPEO program

Companies bear the risk of the vendor not being able to remit or file taxes on behalf of the company when using a PEO. The IRS has unveiled a Voluntary Certification Program for PEOs. This is great for businesses looking to employ PEOs. The IRS’ CPEO program helps with this problem. If you hire an IRS Certified PEO, and if it fails to fulfil its obligations, you will not be responsible for the PEO’s failure.

Conclusion

This incident isn’t supposed to discourage entrepreneurs and make them avoid PEOs. PEOs are a reasonable payroll option that lowers employer costs. But, as you employ them, it’s essential to understand the risks involved. If the co-employment relationship turns bitter like the Horizon‘s case, then it has an impact on your employees as well.

Also, it is crucial to hire certified PEOs. So, you must consider using a certified vendor when you apply co-employment.