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CPEO Customers – What You Need to Know

What does contracting with a CPEO mean for my business?

Employers may enter into a service contract with a certified professional employer organization (CPEO) in which the CPEO agrees to take over some or all of the employer’s federal employment tax withholding, reporting and payment responsibilities and obligations. The start and end of these contracts must be reported to the IRS on Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement. Form 8973 also notifies the IRS of the tax returns the CPEO will file reporting wages or compensation paid to employees performing services for the customer.

A CPEO files aggregate employment tax returns for all its customers using the CPEO’s employer identification number (EIN). The CPEO must attach the appropriate Schedule R, Allocation Schedule for Aggregate Filers, to its employment tax return to allocate to each customer the aggregate information reported on the employment tax return. The CPEO deposits and pays for tax liabilities the CPEO has aggregated and reported using the CPEO’s EIN, according to the CPEO’s deposit requirements. CPEO customers cannot view federal tax deposits and payments made by the CPEO using the Electronic Federal Tax Payment System (EFTPS).

Generally, the CPEO is solely liable for paying the customer's employment taxes, filing returns, and making deposits and payments for the taxes reported with regard to remuneration it pays to work site employees (as defined in IRC 7705(e)). However, a CPEO and its customer may both be liable with regard to remuneration the CPEO pays to non-worksite employees. For a detailed definition of work site employee, see section 1 of Revenue Procedure 2017-14.

For additional information on employers outsourcing their payroll responsibilities, see Outsourcing Payroll and Third Party Payers.

Public Listing of Certified Professional Employer Organizations

The IRS will publish a list of all organizations that are certified as CPEOs, and the effective date of their certification on the Voluntary Certification Program for Professional Employer Organizations (CPEOs) page.

The names of many CPEOs are similar. A single brand name can represent more than one business entity in a group. Please note: a CPEO contract must contain the exact name and Employer Identification Number (EIN) of the CPEO fulfilling the federal employment tax obligations covered by the contract.