Currently businesses bear the responsibility when PEOs have failed to pay all wages and taxes, even when they may have already been paid to the PEO beforehand.
Under a new voluntary certification effective January 1, 2016, when a Certified PEO (CPEO) Regulation (H.R. 5771, Division B, Title 2, Section 206) contracts with a business, the CPEO becomes solely responsible for paying wages to employees, and collecting employment taxes on those wages. The CPEO is still responsible even if the client business has not made sufficient payment to the CPEO.
Prior to this Act, when a business enters or terminates a PEO agreement, at a time other than the beginning of a year, the business had to restart the taxable wage base for FICA and FUTA taxes. Now, CPEOs become successor employers and restarts are not necessary. The Act also establishes that certain credits apply to the client business and not to the CPEO, including Work Opportunity Tax Credits (WOTC), Research & Development Credits (R&D), Empowerment Zone Credits (EZ) and Indian Employment Credits (IEC). Previously it was at the PEOs discretion whether to take these credits themselves, or pass them on to their client companies.
Employee Benefit Advisors provides employee benefits, tax-advantaged healthcare, compliance guidance for ACA and Health & Welfare DOL Audits, and PEO Advisory & Consulting Services.
The U.S. Treasury Department and Internal Revenue Service has issued the final regulations on the employer mandate under the Affordable Care Act. The new 6055 & 6056 regulations are 227 pages long and Employee Benefit Advisors believes will prove to be the most cumbersome and costly part of Obamacare. We say costly because we believe this will prove to be far more complicated, and thus burdensome than employers realize. Employers with part-time, seasonal and variable hour employees (as an example a bus driver who also works maintenance; so he would have hours under two different pay codes or a temporary that works temp to perm etc.) will particularly have difficulties and will need a managed solution.
Software is available to help manage your employees and meet the new Healthcare Reform guidelines. This system is fully automated to your specifications and will complete all the necessary reporting documents. Contact Employee Benefit Advisors for a demo.
The laws reporting requirements fall under sections 6055 and 6056 of the internal revenue code. Under section 6056, large employers subject to the employer mandate must file a return with the IRS and provide a statement to each full-time employee with information regarding their offer of employer-sponsored healthcare coverage. Under section 6055, employers who offer self-funded plans and insurers generally must file a return with the IRS and provide a statement to each individual who is covered by plans that constitute minimum essential coverage.
Here are the nuts and bolts of the full regulation:
- Employers that have between 50 and 99 full-time equivalents will have until 2016 to provide health insurance, not 2015. So if you have 100 or more full-time equivalents in 2014, Jan. 1, 2015 is still your target. But if you have 99 or fewer, you get a one-year extension.
- Transitional relief is now available for non-calendar plans. There was some confusion over whether the 2014 transition relief would apply for 2015 and now it appears that it does. Employers with non-calendar year plans are subject to the mandate based on the start of their 2015 plan year rather than on Jan. 1, 2015.
- Large employers (those with more than 99 full-time employees) have to comply in 2015, but for the first year, they will only have to offer coverage to 70% or more of their full-time employees. The 95% requirement will not go into effect until 2016.
- For large employers that contribute to a multi-employer plan, an employer will not be subject to shared responsibility penalties with respect to employees for whom the employer is required by the collective bargaining agreement or appropriate related participation agreement to make contributions to the multi-employer plan.
- Some categories of employees are better defined:
- For volunteers for a government or tax-exempt entity (like emergency response personnel), hours they volunteer will not count in consideration of their full-time employment status.
- For teachers and other educational employees, they will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer. Also, for adjunct faculty, employers of adjunct faculty may credit them with 2 ¼ hours of service per week for each hour of teaching or classroom time.
- For those in traditionally seasonal positions where annual employment is customarily six months or less, they will not be considered full-time employees.
- For students in work-study programs, these hours will not be counted in determining whether they are full-time employees.
Payroll contains all the information needed to run the analyses need to comply with the complexities of PPACA. Thus your PEO should be able to run the reports to navigate through the ACA. Some PEO providers offer insight into only the parts of the law their system can interpret, the top tier vendor’s offer a comprehensive solution Support needs to include:
- Eligibility – Measurement periods under Shared Responsibility and per-month detail of hours and average hours per week and month over the defined date range.
- Affordability – Ability to calculate the percentage of federal poverty level earned by the employee over the date range to estimate Medicaid eligibility. View results of all affordability safe harbor methods including a count of how many employees exceed the affordability threshold.
- FTE Determination Report – This report will calculate the number of FTEs for an entire organization or subset of employees within a group.
The ACA introduces numerous laws, safe harbor provisions and reporting requirements. To make the complexities of this act easier to understand and to effectively manage your company’s needs, be sure your PEO vendor can help you and your broker navigate across all these areas.
Get a clear understanding of the health insurance. How is it rated? Ask about tier placement and get a guarantee you can only be moved down a few tiers in any one year. Ask for claims/utilization records supporting the decision. Key points for Health Insurance Renewals
- What rate increases have your clients experienced in the past 3 years?
- When? Annually? Quarterly?
- How far in advance are clients notified of the renewal?
HR & Benefit Compliance is more and more important with required SBC distribution, increase in ACA & DOL audits resulting from Obamacare. I have asked several PEOs to show the support provided for these audits. Repeatedly I’m told “Our Benefits Department has advised that this information is provided to the employee in the package that is mailed to them from the carrier after enrollment and advises they may visit the carrier website or contact the carrier’s customer support to obtain a copy of the SPD.”
SPDs and Wrap documents are not provided by the carrier, SBCs ares. However, SBC distribution is the obligation of the PEO. – Whoever answered the question either did not understand or does not know what an SBC or SPD is. It is the responsibility of the group to provide the SPD and Wrap. I this case, if a PEO is undertaking the compliance for their clients, it would be the PEO’s responsibility.
We recommend working with a PEO broker like Employee Benefit Advisors. The experience brought to the table can save headaches that you otherwise might not have seen.
Many variables exist when choosing a PEO. – The first step is deciding IF a PEO is the right decision. It’s never always yes or no. You may have the goal of being in a PEO for the short term or long term. If short term you may be trying to correct WC, health insurance or administrative problems. If long term, be sure to choose a strategic partner. Regardless, always consider the opt-out clause; i.e. lengthy contract obligation, one year, 30 day opt-out, terminate anytime or only at renewal…
Questions for a PEO and the right fit for each PEO will be different depending on the potential client. Is price the primary concern? What’s their culture? Do they value customer service? Do they provide training; HR, WC, etc…? Performance reviews? Are they strategic? Tactical?
Employee Benefit Advisors places transparency right at the top of the list. – Ask to see a sample bill and ask to see all rates you are being charged, not a bundled rate. What are they trying to hide that they cannot tell you? Many PEOs hide their cost within the margins of the billing points and charge an artificially low administration rate. What are the transparent points in evaluating a PEO?
- Payroll Tax; FICA, Medicare, FUTA, SUTA
- Tax cutoff points – Does PEO continue to charge?
- Does the PEO make the ER/EE whole if contracted mid-year?
- Is the PEO passing on Work Opportunity Tax Credits (WOTC) you may be eligible for?
- Is the PEO SSAE 16 Type 2 certified? (formerly known as SAS70. This is an independent audit vendors should obtain to verify their systems, processes and data security.)
- Restaurants: Is the PEO passing on FICA Tax Tip Credits you may be eligible for?
PEOs receiving federal and state tax credits should be offering this tax savings opportunity to their clients.
You want your PEO to be financially stable. The best PEOs are accredited by the Employer Services Assurance Corporation and have a current Statement on Standards for Attestation Engagements No. 16 audit (formerly known as SAS 70). Do your homework, make sure your PEO has a strong presence in your industry. Talk to references.
Final IRS regulations clarified PEOs can offer eligible employer-sponsored coverage on behalf of an employer. In the introductory statement to the final regulations it unambiguously states that organizations such as PEOs can offer coverage under an eligible employer-sponsored plan on behalf of an employer, yet not be viewed as the employer by reason of offering such coverage. This is true for group fully-insured and self-funded health insurance coverage offered on behalf of an employer to an employee.
Excerpts from The National Law Review Posted August 30, 2013
Payroll vendors and PEO providers have all the information needed to run the critical analyses need to comply with the complexities of PPACA. Your companies partnership with your payroll or PEO vendor should equip you with tools to help consult and support you through the many phases of the PPACA. While some providers offer insight into only the parts of the law their system can interpret, best-in-class vendor’s offer a comprehensive solution providing the flexibility and functionality to ensure you are covered in all aspects of the law. Support needs to include:
- ACA eligibility analysis with
- Comprehensive employee demographic detail consistent with allowable groupings for measurement periods under Shared Responsibility
- Optional employee age information (effective as of a user-defined date) assists in determining eligibility for parental dependent coverage or Medicare
- Statistical detail over user-defined date range includes optional per-month detail of subject hours and average hours per week and month over the user defined date range along with variances from Shared Responsibility full-time standards
- ACA Affordability Analysis including
- Ability to calculate the percentage of federal poverty level earned by the employee over the user defined date range to estimate Medicaid eligibility
- View results of all proposed affordability safe harbor methods on a single report Including a count of how many employees exceed the affordability threshold. Individual employees will be highlighted on this report as well as having potentially unaffordable coverage
- ACA FTE Determination Report
- This report will calculate the number of FTEs for an entire organization or subset of employees within a group as allowed within safe harbor Determination Report
PPACA introduces numerous laws, safe harbor provisions and reporting requirements, some of which must be addressed now and some that will affect processes in the future. To make the complexities of this act easier to understand and to effectively manage your companies needs through PPACA, be sure your payroll or PEO vendor can help you and your broker navigate across all these areas.