PEOs Enhance Compliance with Employment Laws and Regulations
By becoming co-employers, PEOs fundamentally alter the relationship between worksite employees and clients. PEOs assume substantial liabilities as employers and in undertaking human resource functions on behalf of their clients. PEOs provide worksite employees with coverage under the entire spectrum of employment laws and regulations. Some of these liabilities include federal, state, and local discrimination laws, such as Title VII of the 1964 Civil Rights Act, the Age Discrimination in Employment Act, Americans with Disabilities Act, and Pregnancy Discrimination Act. In addition, PEOs assume liability under the Fair Labor Standards Act, Immigration Reform and Control Act, COBRA, the Health Insurance Portability and Accountability Act ("HIPAA"), Employee Retirement Income Security Act ("ERISA"), Federal Insurance Contributions Act ("FICA"), Federal Unemployment Tax Act ("FUTA"), and state unemployment compensation and workers' compensation laws.
In many cases, these laws would not apply without the PEO relationship. Generally, the determination of whether an employer is subject to a particular employment statute is based on the number of employees employed during the year. As such, some workers employed by a PEO are protected by these laws only because they are included in the larger work force of a PEO. PEOs develop policies and procedures to ensure compliance with employment laws, supervise and discipline worksite employees with respect to these policies and procedures, exercise discretion related to hiring new employees, and ultimately terminate worksite employees who do not comply with requirements established by the PEO.
PEOs Enhance Compliance with Employment Tax Requirements
PEOs assume responsibility and liability for payment of wages and compliance with rules and regulations governing the reporting and payment of federal and state taxes on wages paid to its employees. By assuming this liability, PEOs accelerate the reporting and payment of taxes. Prior to entering into a relationship with a PEO, most small to medium-sized businesses accumulate tax liability in an amount requiring only monthly deposits. Because a PEO assumes this obligation, it is not uncommon for its daily tax liability to be over $100,000, thereby requiring daily electronic fund transfers.
Moreover, there is generally a higher rate of compliance with these laws by a PEO than by its clients prior to entering into a PEO relationship. As stated, PEOs are in the business of monitoring and ensuring compliance with these laws. PEOs employ a full-time, specialized staff that is responsible for complying with federal and state employment tax laws. This staff is charged with monitoring changes in these laws and with assuring that employment taxes are calculated correctly and remitted on a timely basis.
State-by-State Expansion of Legal & Operational Certainty
PEO or Employee Leasing-specific registration or licensing requirement was enacted.
State law recognition generally as an employer without a registration or licensing requirement.
Pending licensing or registration legislation.