Certified professional employer organizations – What you need to know

As a Certified Professional Employer Organization (CPEO), you need to know about the following sections:

• Bonding requirements
• CPEO account updates
• Public listing of certified professional employer organizations
• Electronic filing waiver request procedures for CPEOs
• Approval of the waiver request
• How to voluntarily terminate your certification

Bonding requirements

CPEO applicants are required to submit to the IRS, using their online registration system account, proof of a bond within 30 days from the date of the notice of certification. A CPEO applicant provides proof of bond by submitting to the IRS proof of a bond in the form of a properly completed and executed Form 14751, Certified Professional Employer Organization Surety Bond PDF signed by both a qualified surety and the CPEO (or CPEOs in the case of a controlled group).

The required bond amount for each CPEO will vary. All bonds must be equal to 5 percent of the CPEO liability under section 3511 with a minimum of $50,000 and a maximum of $1,000,000. All CPEO members of a controlled group are required to be covered by the same bond in the amount set forth in the previous sentence as if all such members were one organization. For a CPEO that does not have section 3511 liability for the preceding year or has section 3511 liability for only part of the year, there are special rules that apply. To determine the correct bond amount and identify who must be covered by the bond see section 301.7705-2(g)(2) of the treasury regulations for more information.

A certification will not become effective if a CPEO applicant fails to provide a properly executed Form 14751 within 30 days after the date of the notice of certification, instead the CPEO applicant will subsequently be sent a final notice of denial with no opportunity to request review of the denial.

CPEOs who are part of a Controlled Group must submit a Form 14571 through their Controlled Group account, listing all Controlled Group members on the same bond. 

If you are part of a Controlled Group but have not yet registered as a Controlled Group in the IRS Online Registration System, then visit create a controlled group license to learn how to register as a Controlled Group. All controlled groups must register as a controlled group and submit bond information through its controlled group account. 

CPEO account updates

All CPEOs 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.

Types of account updates you should include, but are not limited to, changes in:

• application submitter and/or
• responsible individuals,
• business information such as address and phone number,
• tax compliance,
• criminal background,
• professional license or registration status of the CPEO (or any of its precursor and related entities),
• the CPEO applicant's fiscal year and
• another entity being considered a precursor or related entity of the CPEO.

CPEOs make account updates via the online registration system and often need specific information about the change. Be prepared to provide the date when the change occurred and an explanation of the change requested.

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 CPEO public listings page on a quarterly basis by the 15th day of the first month of every calendar quarter. In addition, the IRS will also publish any suspended or revoked CPEO and the effective date of suspension or revocation on the CPEO Public Listings Page.

An organization will not appear on this list until the IRS has received from it a properly completed and executed bond on Form 14751.

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. Once published, please check the list of CPEOs carefully.

Electronic filing waiver request procedures for CPEOs

Under certain circumstances, the IRS may waive the electronic filing requirement. The IRS will approve or deny requests for a waiver of the electronic filing requirement based on each CPEO's particular facts and circumstances. In determining whether to approve or deny a waiver request, the IRS will consider the CPEO's ability to timely file its return electronically without incurring an undue economic hardship.

CPEOs must file waiver requests at least 45 days before the due date of the return for which the CPEO is unable to electronically file. Waiver requests pertaining to tax periods other than the current tax period will not be accepted or considered. The principal factor in determining undue economic hardship will be the amount, if any, by which the cost of electronically filing the employment tax returns and their accompanying schedules exceeds the cost of paper filing. The IRS will also consider temporary software and technological issues that prevent the CPEO from electronically filing. Temporary generally means the problem is expected to only affect the filing of one return. Waivers claiming technological issues as the explanation for continual paper filing will be denied.

To request a waiver, CPEOs must file a waiver request using the Online Registration System containing the following information:

• A notation at the top of the request stating, in large letters, the type of form followed by the words "e-file Waiver Request" (e.g., "Form 941 e-file Waiver Request" or "Form 940 e-file Waiver Request").
• The CPEO's name, federal tax identification number, mailing address, contact name, phone number and e-mail address.
• The type of form for which the waiver is requested (only one form type per request).
• The taxable period for which the waiver is requested (only one taxable period per request).
• A detailed statement which includes:
  • The steps the CPEO has taken in an attempt to meet its requirement to timely file its return electronically
  • why the steps were unsuccessful
  • a description of the undue hardship – economic, technological, or otherwise – that would result from complying with the electronic filing requirement. If the hardship is economic, then the CPEO must include the amount by which the cost of electronically filing employment tax returns and all applicable schedules exceeds the cost of paper filing. These incremental costs must be supported by a detailed computation. The detailed computation must include a schedule detailing the costs to file on paper and the costs to file electronically.
  • what steps the CPEO will take to assure its ability to file future returns electronically and the date this is expected to be achieved
  • signed by an individual authorized to sign the CPEO's return under penalties of perjury with a statement as shown below:
    
    "Under penalties of perjury, I declare that the information contained in this waiver request is true, correct and complete to the best of my knowledge and belief.”

Approval of the waiver request

The IRS will review and process waiver requests in a timely manner and will send the CPEO written notice of any approval or denial of the CPEO's waiver request. The IRS will not be considered to have waived the e-filing requirement unless the CPEO receives written approval from the IRS that the waiver request has been approved. In the absence of written approval, a failure to e-file may subject a CPEO to suspension or revocation.

How to voluntarily terminate your certification

A CPEO may request to voluntarily terminate its certification at any time other than while its certification is suspended. The request to voluntary terminate must be submitted to the IRS at least 30 days prior to the date on which the CPEO intends for the termination to take effect via the CPEO's online account. The effective date chosen by the CPEO must coincide with the first day of a calendar quarter.

Prior to sending the request, the CPEO must notify each of its customers in writing of the CPEO's intention to terminate its certification and of the proposed effective date of termination. This notification should include an explanation of the employment tax consequences of termination and a statement that the customer may also be liable (as of the effective date of termination) for federal employment taxes imposed on payments remitted by the CPEO to all employees covered by the customer's contract with the CPEO. A sample of the notification to customers referred to in the preceding sentence must be attached to the notice of voluntary termination submitted by the CPEO to the IRS.

A CPEO that voluntarily terminates its certification is, as of the effective date stated in the request, voluntarily terminated, and no longer a CPEO. The provisions of section 3511 of the Code will no longer apply to the organization and the CPEO will be removed from the list of CPEOs published by the IRS.