How Outsourced Human Resources Makes Tax Season Easy for Small Businesses
Dreading tax season? So are many other small business owners. In fact, the IRIS estimates that Americans pay $458 billion less in taxes than they should every year, and those who don’t dot every “I” and cross every “T” face hefty fines for filing late or committing other errors like late penalty payments, inaccuracies, or even tax fraud.
In many cases, the problem isn’t that business owners intend to pull a fast one on the IRIS. It’s that they don’t keep accurate records or they don’t understand their obligations. Regardless of intentions, however, if the IRS audits you, you will spend many hours combing through documentation and will probably end up paying a sizable chunk of money in fees to your accountant – even if you ultimately end up with no discrepancies.
That’s enough to cause trepidation among even the most stalwart business owners, especially if you’re trying to manage taxes and compliance on your own.
The good news? A PEO can help.
Outsourced Human Resources and the Co-Employer Agreement
When you work with a PEO, you enter a co-employer agreement. Under this arrangement, the PEO will shoulder the burden of responsibility for tax filing and compliance (among other responsibilities). That allows you to focus on managing and growing your business while the PEO handles compliance, regulations (even in other states), employee forms, and the tedious task of processing and filing your taxes.
It’s important to note that in the eyes of the IRS, the PEO is not an employer unless it controls payment of wages (rather than simply serving as a conduit by doling out money on behalf of the client). This distinction means that a small business could be held liable for failure to pay taxes if the PEO does not meet its obligations.
Getting Ready for Tax Season: Questions to Ask Before You Partner With a PEO
So what can you do to ensure that your PEO will hold up its end of the bargain? Start by asking these questions.
- How long has the PEO been in business?
If a PEO has been in operation for many years, that’s a good indicator that they will make a reliable business partner. Of course, that doesn’t mean that a new PEO is necessarily untrustworthy, but choosing a company with a proven track record is less risky. - Are they certified by the IRS?
In 2016, the IRS implemented a certification for PEOs that was designed to document reputable PEO practices. To be certified, a PEO must submit to a number of requirements including an annual audit and quarterly confirmation of tax remittance.
PEO certification is optional, and many PEOs already practice all of the stipulations without the need for certification. Still, if a PEO has elected to pursue certification, then it has the IRS seal of approval and you have documentation that your taxes are being filed accurately. If you are considering a PEO without certification, you could ask them what checks and balances they have in place to ensure compliance.
- Do they offer documentation of taxes paid?
Regardless of whether or not the PEO is certified, it’s helpful to receive documentation that they are paying your taxes as agreed. Some PEOs include this service in their contract. If you are considering one that doesn’t, ask them about it during the negotiation process.
It is unlikely that you will be caught in a situation where the PEO has failed to pay your taxes. However, a certified letter from a CPA can provide peace of mind, and it shows proactive good faith on the part of the PEO. If the PEO will not agree to provide documentation of taxes paid, that’s not necessarily a deal breaker. It may, however, be a good reason to further investigate their stability and track record. - Who can you contact in case of questions or discrepancies?
As you research PEO options, ask how their support service operates. Will you have a single dedicated contact or do different people handle different services? Is support available 24/7 (which may make a difference if the PEO is in a different time zone)? Be sure you feel comfortable with the level of support and availability before you make your decision.
Working with a PEO gives you peace of mind in knowing that your tax and compliance needs are under control. It also relieves the burden you may feel when April 15throlls around each year, because you know there is no reason for the IRS to come knocking at your door.
