In 2017, Justworks was excited to announce that we were one of the first companies to be recognized as a Certified Professional Employer Organization (CPEO) by the IRS. While this is exciting for us, we know not everyone is up-to-speed on the ins and outs of CPEOs — go figure!
Below, we’ll explain what CPEO means, and — most importantly — how it benefits the growing businesses who make up Justworks’ customers.
Get the full guide on how PEOs work for small businesses.
What’s a CPEO?
CPEOs are recognized by the IRS under the Small Business Efficiency Act, and are subject to stringent operational and financial standards. Justworks was among the first group of PEOs to be approved by the IRS after a lengthy and rigorous application process.
The CPEO designation formally recognizes Justworks as an organization that has the wherewithal and integrity to protect its customers. Why? Because as a CPEO, Justworks is subject to ongoing bonding requirements, audits and IRS reporting and review.
As a CPEO customer, there are several benefits for your growing business, including:
Confirmation of Tax Credits
CPEOs may apply for the research and development (R&D) payroll tax credit on behalf of customers. The payroll tax credit allows companies to offset expenditures related to R&D of new products and processes. You can check with your tax professional for whether your company is entitled to the R&D payroll tax credit.
CPEO customers also remain entitled to various employment-based federal tax credits.
No Federal Payroll Tax Liability
In most cases, CPEOs can take on the sole statutory liability for federal payroll taxes on wages that are processed by the CPEO. For Justworks customers, that means if there is a failure to pay federal payroll taxes on wages processed through our platform, we take responsibility rather than you, the employer.
Related Article: How the New Tax Law May Impact Your Small Business
Wage Base Restart
Customers of a CPEO also see another benefit related to federal payroll tax wage bases (FICA and FUTA taxes that must be paid on a certain amount of an employee’s wages). In particular, if the company joins or leaves a CPEO in the middle of a calendar year, they won’t be required to restart federal payroll tax wage bases. That means the CPEO customer avoids paying double taxes — always a good thing.
Related Article: The Ins and Outs of Supplemental Wages
Additional Confidence in Working with Justworks
CPEOs are subject to ongoing bonding, audits, reporting, and IRS review, so customers can continue to be confident that Justworks is being held to the highest operational standards.
“We are proud to be one of the first PEOs to achieve this certification,” said Justworks founder and CEO, Isaac Oates. “The federal government’s formal recognition is a milestone for our industry, and by meeting this standard, Justworks has demonstrated that the services we provide to our customers are at the highest level.” You can read our full press release here.
Justworks will continue to work fearlessly to support our customers, with the national recognition and benefits available to an IRS-certified PEO.
Required IRS Disclaimer: The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations, you can go to www.IRS.gov
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.