In late 2014, the U.S. Congress passed the Small Business Efficiency Act. This landmark piece of legislation takes huge strides forward in establishing the scope of PEO companies and clearly defining the abilities and authority HR outsourcing firms enjoy.
While PEO companies have been helping small-business owners manage HR solutions and administrative resources for a while now, the new legislation further cements HR outsourcing as a beneficial turnkey solution for startups. According to the National Law Review, the SBEA allows for a new category within the Internal Revenue Code under which PEO companies can claim official certified status. These CPEOs will be able to provide additional benefits to their clients that weren't previously available. For instance, CPEOs will now be able to collect and remit federal employment taxes, acting as an "employer" under tax considerations. Additionally, CPEOs will be able to help expedite small business' approvals for various federal tax credits based on their relationship with the PEO company.
This is not only good news for the PEO industry, but for small businesses that take advantage of their services as well. The new legislation may equate to more cost-effective services, more streamlined operations and easier and more hassle-free access to tax credits for organizations that employ the services of PEOs.
PEOs a more attractive option than ever
Up to this point, many small businesses have had to wrestle with maintaining a balance between limited resources and the need to stay current with federal compliance issues. Changing laws and updated legislation - a notable example being the Patient Protection and Affordable Care Act, which continues to impact company health care spending - have created difficult and sometimes labyrinthine channels of HR administration for companies to navigate. PEO companies have been able to serve as a resource to these businesses without requiring extensive payroll spending needed to support in-house HR services.
According to CNBC, around 250,000 businesses in the U.S. currently use PEO services. In fact, HR outsourcing offers health care access to an estimated 6 million employees through their licensed benefits specialists. The source also noted that companies using a PEO experience faster growth and lower turnover, and are up to 50 percent less likely to go out of business than companies that don't use HR outsourcing.
The additional freedoms and authority offered to PEO companies by the SBEA may very well see these services becoming an even more integral part of the small-business landscape in the near future.