- Annual Verification
- Annual Audited Financial Statements
- Quarterly Assertions, Attestations, and Working Capital Statements
- Reporting Requirements
To maintain certification, a CPEO must submit a properly completed and executed online annual verification through the IRS Online Registration System for Professional Employer Organizations. CPEOs that are members of a controlled group must each submit a separate annual verification. The due date for submitting the annual verification is 30 days before the anniversary of the date (month and day) on which the CPEO’s certification became effective. The IRS may notify CPEOs in advance to complete the annual verification. No CPEO annual verification will be processed until a user fee in the amount of $1,000 is received. Once processing of the annual verification has begun, the user fee will not be returned.
The CPEO annual verification is designed to allow CPEOs an opportunity to review their information on file, confirm its continued validity with the IRS, and provide IRS with the information it needs to confirm the organization’s suitability to remain in the CPEO program. Any material changes should be completed using the “Update CPEO Account Information” transaction prior to submission of your CPEO annual verification. Once submitted, the CPEO is required to pay the user fee. Then the submission is routed to the IRS for processing and evaluation.
To complete this transaction online, the CPEO must have submitted a PEO Certification online, which was later approved by the IRS. The CPEO must be in 'Active' or 'Suspended' status.
Once logged in to the IRS Online Registration System, select “Annual Verification” on the Main Menu under the Action Required Header to complete the submission.
The IRS will notify a CPEO upon approval of its annual verification.
In addition to the bond that must be posted within 30 days of the notice of certification, a CPEO must continue to post a bond (or bonds) from a qualified surety for the payment of federal employment taxes using Form 14751, Certified Professional Employer Organization Surety Bond (PDF), in the amount described in §301.7705-2T(g)(2) for each period beginning on April 1 of any calendar year and ending on March 31 of the following calendar year (the bond period). As prescribed by §301.7705-2T(g)(2)(i), the amount of the bond (or bonds) with respect to the bond period must be at least equal to the greater of 5 percent of the CPEO’s liability under section 3511 of the Code during the preceding calendar year (up to $1 million) or $50,000. By March 1 in any calendar year, a CPEO must determine if an increase in bond amount for the new bond period beginning on April 1 of that calendar year is necessary and, if so, increase the amount of the bond covering the new bond period.
Annual Audited Financial Statements
Beginning with the first fiscal year that ends after the CPEO’s effective date of certification, a CPEO must submit a copy of its annual audited financial statements for the fiscal year by the last day of the sixth month after the end of each fiscal year.
With its annual audited financial statements, a CPEO must submit an opinion of a CPA that such financial statements are presented fairly and in accordance with generally accepted accounting principles (GAAP). The CPA opinion must be an unmodified opinion and accompanied by a written declaration, signed by the CPA, that he or she is currently qualified as a CPA.
Either the CPA opinion or a Note to the Financial Statements covered by the CPA opinion must state that the CPEO’s financial statements reflect positive working capital (as defined by GAAP), or, if certain requirements are met, reflect negative working capital, and, in either case, set forth in detail a calculation of the CPEO’s working capital as reflected in the financial statements.
In the case of a controlled group in which more than one member of the controlled group is a CPEO, each CPEO in the controlled group must submit the annual audited financial statements, with an accompanying CPA opinion, on a combined or consolidated basis for all CPEOs in the controlled group, rather than for the CPEO individually. A CPEO that is a member of a controlled group of which other members are CPEOs must provide, in the CPA opinion or in a Note to the Financial Statements covered by the CPA opinion, a statement that the individual CPEO’s financial statements reflect positive working capital (as defined by GAAP) or, if certain requirements are met, reflect negative working capital, with the statement in either case setting forth in detail a calculation of the individual CPEO’s working capital.
Quarterly Assertions, Attestations, and Working Capital Statements
To maintain certification, by the second month after the end of each calendar quarter, a CPEO must provide an assertion that it has withheld and made deposits of all federal employment taxes for which the CPEO is liable for the quarter; an examination level attestation from a CPA stating that this assertion is fairly stated in all material respects; and a statement verifying that the CPEO has positive working capital. These documents should be submitted through the IRS Online Registration System for Professional Employer Organizations. On the Main Menu, go to the “Manage your license information” drop down menu and select “Quarterly Submission” to upload these documents.
The assertion must be signed under penalties of perjury by a responsible individual of the CPEO and state that the CPEO has withheld and made deposits of all federal employment taxes for the calendar quarter as required by subtitle C (except that the assertion is not required with respect to federal employment taxes imposed by chapter 23 of the Code).
The examination level attestation from a CPA must state that the assertion is fairly stated in all material respects and complies with the requirements of the American Institute of Certified Public Accountants’ Statements of Standards for Attestation Engagements, including the specific requirements for Examination Reports. The attestation must be accompanied by a written declaration, signed by the CPA, that he or she is currently qualified as a CPA.
The statement verifying positive working capital must be signed by a responsible individual under penalties of perjury and verify that the CPEO has positive working capital (as defined by GAAP) with respect to the most recently completed fiscal quarter. The statement must include a detailed calculation of the CPEO’s working capital and be accompanied by a copy of the CPEO’s unaudited financial statements for the most recently completed fiscal quarter, if such statements are available. A CPEO will not fail to satisfy this requirement as a result of having negative working capital if certain requirements are met. See Revenue Procedure 2017-14 for more information.
In the case of a controlled group in which more than one member of the controlled group is a CPEO, each CPEO in the controlled group must submit for each calendar quarter the assertion and the examination level attestation on a combined or consolidated basis for all CPEOs in the controlled group, rather than for the CPEO individually. The assertion must contain the name and EIN of each CPEO in the controlled group. However, the working capital statement must relate to the CPEO alone and must not be prepared on a combined or consolidated basis with other members of the controlled group.
Commencement and Termination of Contracts
Once certified, a CPEO must report the commencement or termination of any CPEO contract between the CPEO and a customer, or any service agreement described in §31.3504-2(b)(2) between the CPEO and a client, and the name and EIN of such customer or client, using Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement. A CPEO must submit Form 8973 within 30 days of the commencement of any CPEO contract or service agreement (including the conversion of an existing service agreement to a CPEO contract and vice versa). Form 8973 must also be filed 30 days after the termination of any CPEO contract or service agreement. There are special timing rules applicable to newly certified CPEOs. See Revenue Procedure 2017-14 for more information.
Employment Tax Reporting
A CPEO that is treated as an employer of a covered employee under section 3511 of the Code must meet all reporting and recordkeeping requirements described in subtitle F of the Code that are applicable to employers, in a manner consistent with such treatment. Specifically, with any Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, Form 941, Employer’s QUARTERLY Federal Tax Return, and Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, that it files, a CPEO must also file the appropriate Schedule R. Form 940 and, except with respect to the first calendar quarter for which the CPEO is certified, Form 941, along with all required schedules, including Schedule R, must be electronically filed. Additionally, with respect to 2017, a CPEO is not required to electronically file the Form 941 and its accompanying schedules for any quarter that begins on or before the date the CPEO receives notice of certification. Refer to Retroactive Responsibilities for Certified Professional Employer Organizations for more information.
See the instructions for Form 940, Form 941, Form 943, Schedule R (Form 940), Schedule R (Form 941), and Schedule R (Form 943) for additional information on filing these forms.
The IRS may waive the electronic filing requirements in case of undue economic hardship.
A CPEO must notify the IRS of any change that materially affects the continuing accuracy of any agreement or information that was previously made or provided to the IRS, including a modification or update to previously provided information, as well as new information (for example, a new responsible individual). A CPEO must notify the IRS of a material change no later than 30 days (45 days in the case of a new responsible individual) after the date of the material change. Notification must be provided through the online account of the CPEO by which the initial application was submitted. Similarly, responsible individuals of a CPEO must notify the IRS of any material changes to the information they submitted on the Responsible Individual Personal Attestation (RIPA) within 30 days of the change, by submitting an update through the online account of the responsible individual who submitted the previous RIPA. See Sections 2.06(3) and 2.06(4) of Revenue Procedure 2017-14 for more information on reporting material changes.
Reporting to Customers
A CPEO must notify a customer in writing if its CPEO contract has been transferred to another person (or if another person will report, withhold, or pay, under such other person’s EIN, any applicable federal employment taxes with respect to the remuneration of any individuals covered by its CPEO contract with the customer) and provide the customer with the name and EIN of such other person no later than 10 days after the transfer or other applicable event.
A CPEO must provide its customers with the information necessary to claim the credits specified in section 3511(d)(2) of the Code and the information necessary to properly report employee tips, as provided in section 6053(c)(8) of the Code.
If a CPEO’s certification is suspended or revoked, the CPEO must provide written notice to each of its customers within 10 days of the effective date of such suspension or revocation.
If any covered employees are not, or cease to be, work site employees, the CPEO must notify the customer in writing within 30 days following the end of the applicable calendar quarter that the customer may also be liable for the federal employment taxes imposed on remuneration remitted by the CPEO to such covered employees.