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These surety bonds are general for all states.
Learn more about CPEO bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
“CPEO” is the acronym for a Certified Professional Employer Organization. This is an organization that is hired by business clients to perform certain tasks related to their human resources function, such as federal employment tax withholding and other employment reporting and payment. The “certified” designation is granted by the Internal Revenue Service, which requires a surety bond as part of the certification process. A CPEO bond guarantees payment of the CPEO’s federal employment tax liabilities.
Not all Professional Employer Organizations (also known as “Employee Leasing Companies”) seek certification. Those that don’t cannot take on full responsibility as “employer of record” for a client firm’s employees. Without certification, a PEO is restricted in terms of the tasks they can perform. A PEO that wants to provide services related to a client’s compliance with federal HR and benefits rules, such as the employee counting rules under the Affordable Care Act, must become a CPEO.
That requires the initial purchase of a CPEO bond for the payment of federal employment taxes, and a new CPEO bond every year. Note that the bond period runs from April 1 of a calendar year to March 31 of the following year.
The bond guarantees payment of the CPEO’s federal employment tax liabilities. The IRS is the obligee that requires the bond, the CPEO that purchases the bond is the principal, and the company that underwrites and issues the bond is the surety. In the event that the principal fails to remit the proper federal employment tax payment, the IRS will file a claim on the bond. The surety will pay the claim, and then collect reimbursement from the principal.
The IRS sets the required bond amount for each CPEO at 5% of the organization’s federal tax liabilities for the previous calendar year (up to a maximum of $1 million) or $50,000, whichever is greater. The new bond period begins on April 1 every year. Prior to March 1, each CPEO must determine its federal tax liability for the most recent calendar year and, if necessary, increase the bond amount for the upcoming bond period.
The premium paid by the principal purchasing the bond is only a small percentage of the required bond amount. The surety will establish that percentage (the premium rate) based on such factors as the applicant’s personal credit and business financials prepared by a CPA.
If you’re wondering how large a CPEO bond you’ll have to obtain to become certified by the IRS, give us a call to speak with one of our experienced surety bond professionals. Or simply complete our convenient online application form to get started!
