Procedures to Maintain CPEO Status Released by IRS

In News Release IR-2017-103 the IRS announced that it has finally approved the first batch of certified professional employer organizations (CPEOs)   The legislation authorizing CPEOs was passed in late 2015 and the legislation originally targeted January 1, 2016 as the date employers could begin using such organizations.

However, the IRS took time to publish the rules under which an application could be made and to process such an application, so the program got off to a late start.  Now the IRS has issued notices of certification to 84 organizations. 

The new release indicates that once an approved organization provides the IRS with a surety bond, the CPEO’s name, address and effective date of certification will be published on

The news release describes the program as follows:

Certification affects the employment tax liabilities of both the CPEO and its clients. A CPEO is generally treated as the employer of any individual performing services for a client of the CPEO and covered by a CPEO contract between the CPEO with the client, but only for wages and other compensation paid to the individual by the CPEO.

As a practical matter this means that if the requirements are met (including the organization agreeing to act as a CPEO for the employer as part of its engagement) the employer will no longer be at risk for unpaid payroll taxes.  Normally a business remained liable for the payroll taxes being paid to the IRS should the PEO fail to actually pay over the tax money it had obtained from the business.

CPEOs have to meet certain requirements to maintain that status.  As the news release notes:

To become and remain certified under the new program, CPEOs must meet tax compliance, background, experience, business location, financial reporting, bonding, and other requirements.

The release concludes by noting the IRS is continuing to process applications, and those who weren’t included in the first batch of 84 certifications should receive a decision from the IRS “in the coming weeks and months.”