Why Do You Need a Certified Professional Employer Organization Bond?
A Certified Professional Employer Organization Bond or CPEO Bond is a surety bond that is required by the IRS in order for a Professional Employer Organization (PEO) to be identified as a Certified Professional Employer Organization (CPEO). A professional employer organization (PEO) is an entity that enters into an agreement with a business client to perform, among other tasks, the federal employment tax withholding, reporting and payment functions related to workers performing services for the client. This bond is required of a PEO in order to obtain designation as a Certified Professional Employer Organization (CPEO). The Internal Revenue Service is the requiring authority, therefore the obligee.
In order to qualify as a CPEO, a PEO is required to file a surety bond (the bond form can be found here); the required amount is a minimum of $50,000 to a maximum that may not to exceed $1 million. The surety bond amount is calculated as 5% of the PEO’s federal tax liabilities under 26 U.S.C. Section 3511 for the period April 1st of any calendar year through March 31st of the following calendar year. If you would like to learn more about what surety bonds are and how they work, you can read our detailed guide here.
CPEO Certification Benefits
The CPEO certification program may increase PEOs' capacity to take on the responsibilities that are related to complying with federal human resources and benefits rules, e.g. the Affordable Care Act employee counting rules.
In the past, PEOs have been sharing the obligation for clients' workers, and attempting to establish "employer of record" relationships with clients' workers. However, federal and state legislation has restricted the PEOs' attempts in taking on full employer-of-record responsibility.
The certified PEO program allows a company to become a CPEO, and assume full responsibility for filing a client employer's federal payroll taxes.