Certified PEO (CPEO):
a Workplace Game-Changer
for SMBs

The modern business landscape is dynamically evolving and increasingly competitive. This environment is too harsh for small and medium businesses (SMBs), which are forced to struggle for survival and growth against well-established giants. Insufficient operational budgets and a lack of competent resources to manage organizations’ daily routines are probably the reasons why over 50% of businesses fail within their first five years.

If you’re an SMB, having a Professional Employer Organization (PEO) by your side is of great help to your daily HR operations. These organizations typically specialize in HR tasks, employee benefits management, payroll, risk and compliance monitoring, and reporting. Thus, a PEO can minimize your time on HR tasks and reduce employment risks, which significantly contributes to business performance in the long run.

Since the chosen PEO gets access to your sensitive employee management information, you can’t simply go for the first-best option. Yet, how can you find truly reliable professional employer organizations in a crowded market? This is where the certified PEO comes into play. This article introduces you to the CPEO concept and explains the key certified professional employer organization benefits for various aspects of your business.

Introduction to the Term: What Is a CPEO?

Simply put, a certified professional employer organization is a PEO certified by the Internal Revenue Service (IRS). The CPEO concept emerged in 2014 with the introduction of the Small Business Efficiency Act (SBEA). Among many other guidelines aimed at supporting small and medium-sized organizations, the SBEA required the IRS to establish the first-of-a-kind voluntary certification program for PEOs. The process was fruitful, with 35 PEO entities receiving the CPEO badge from the IRS based on a well-defined set of excellence criteria.

As of 2024, the IRS sets the following criteria for professional employer organization certification:

✔ Be a formally incorporated business entity.
✔ Have at least one physical office in the USA.
✔ Exhibit tax compliance at the federal, state, and local levels.
✔ Be a financially responsible company.
✔ Submit proof of positive working capital.
✔ Exhibit a high degree of organizational integrity.
✔ Should have competent individuals on its management board.

Companies meeting these standards and wishing to become CPEOs can apply via the online registration system on the IRS website. The company’s owners will have to complete the individual identity verification procedure and go through the responsible individual personal attestation (RIPA) process. All applications are processed in compliance with the CPEO Application Privacy Act and Paperwork Reduction Act.

A PEO’s Scope of Functions

Essentially, a PEO is an outsourcing company that can assume full responsibility for your payroll, employment law compliance, and HR-related business routines, such as:

• Tax administration and planning of employee benefits. A PEO can manage tax administration, your staff’s healthcare benefits, life and disability plans, 401(k) and other savings plans, and any voluntary and complemental benefits your company provides.
• Administrative tasks. This scope typically includes payroll, staff recruiting, talent management, staff retention, and employee training and development programs. A PEO can also monitor staff attendance and perform work scheduling, comprehensive performance management, and any types of HR management activities.
• Risk and compliance management. A partnering PEO can assume full responsibility for the legal side of your business functioning, from handling employee lawsuits to staff compensation and OSHA support. A PEO should also be competent in workplace safety procedures and documentation and take care of Affordable Care Act (ACA) compliance. You may also delegate I-9 verification procedures, employee policies, and notifications to your hired PEO.

Such companies provide invaluable assistance to SMBs and startups that usually don’t have standalone HR departments because of financial constraints. For them, the scope of HR routines represents an unavoidable administrative burden. Thus, outsourcing HR to a PEO allows businesses to focus on development and strategizing instead of wasting core business resources on administrative routines.

CPEO vs. PEO: Key Differences and Similarities

A PEO and a CPEO are generally the same type of organization with a similar scope of competencies and services. The main difference lies in the degree of reliability and trust associated with a certified PEO versus a non-certified PEO. Yet, due to its IRS certification, a CPEO also enjoys a bit different official status in the aspect of taxation for organizations. That’s why it preserves the client’s ability to retain specific tax credits and avoid the wage base restarts (e.g., Social Security and Medicare taxes) as soon as the contract for CPEO services is signed.

As for the distinctions between CPEO and PEO, the following table summarizes the main points that you may find significant as a business owner.

Benefits of Having a CPEO at Your Service

Recent statistics show that over 180,000 businesses in the US partner with PEOs to streamline their administrative, compliance, and HR-related routines. These figures suggest that a PEO can significantly reduce the administrative burden of any business, thus allowing companies to grow faster and maximize employee satisfaction. By partnering with a CPEO, you are sure to reduce the risk of popping at an incompetent service provider and get access to a wide range of certified PEO benefits, such as:

All these benefits, coupled with efficient compliance and accurate tax reporting, are sure to empower businesses for unprecedented growth. It’s much easier to scale up with a reliable partner ready to assume responsibility for administrative routines and cover your back in all legal and taxation terms – operational aspects that can drain any company’s scarce resources.

Alternatives to CPEO Certification

While the CPEO certification by the IRS seems to be the top level of credibility assessment in the PEO niche, companies that can’t get that badge or are only undergoing this process may verify their credentials in several other ways. You may also check the following certificates when choosing a PEO for collaboration:

• System and Organization Controls (SOC) 1 Type 2 certification is an internationally recognized certificate for businesses dealing with financial reporting, payroll, and data security. It was developed by the American Institute of Certified Public Accountants (AICPA) and also verifies a PEO’s high standing in the industry.
• Employer Services Assurance Corporation (ESAC) is another entity that can verify all critical aspects of PEO’s operations, ranging from the company’s financial health to ethical business practices and compliance with state regulations.
• Certification Institute (CI) credentials also provide added trust and confidence in the PEO businesses. CI certification proves that the company you’re considering manages risk professionally, has a safe work environment, and can address workers’ compensation losses.

Even if your chosen PEO doesn’t have any certificates mentioned above, you can conduct due diligence by contacting its previous and current clients for first-hand references or studying its reviews on trusted platforms. Any of these efforts will give you valuable information for making an informed decision.

Working with a CPEO: A Sure Path to HR Excellence

Here is everything you should know about a CPEO, starting from the CPEO meaning and ending with alternative certifications of PEO businesses. As you give a PEO company access to your administrative processes and delegate critical compliance procedures to it, you should be 100% confident in its credibility and reputation.