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Certified Professional Employer Organization Surety Bond
What is a Certified Professional Employer Organization Bond?
A Certified Professional Employer Organization Bond or CPEO Bond is a surety bond that is required to be posted in order to become a Certified Professional Employer Organization (CPEO). Professional Employer Organization is often abbreviated to PEO and is sometimes referred to as an Employee Leasing Company. The required surety bond amount shall be no less than $50,000 and shall not exceed $1 million. The surety bond amount is calculated as 5% of the PEO’s federal tax liabilities under 26 U.S.C. Section 3511 for the period April 1 of any calendar year through March 31 of the following calendar year.
The Small Business Efficiency Act (SBEA), an amendment to the Achieving a Better Life Experience (ABLE) Act, was passed on Dec. 16, 2014, and created a certification process for PEOs by the Internal Revenue Service (IRS). The SBEA gives certainty to small businesses that use CPEOs because these PEOs have been thoroughly vetted and receive a “stamp of approval” from the IRS. The SBEA provides the following benefits: gives CPEOs clear statutory authority to collect and remit federal employment taxes (Social Security, Medicare, Federal Unemployment Taxes, etc.); eliminates the wage base restart for PEO clients that join or leave a PEO relationship (FICA and FUTA wage bases will not be reset midyear), and; codifies that customers of CPEOs will qualify for specified federal tax credits that the customers would be entitled to claim if there were no PEO relationship.
A Professional Employer Organization (PEO) is an organization or firm that acts as an outsourced HR department for another business or firm. PEOs can typically handle employee payroll, benefits, workers’ compensation, recruiting, termination, training and development, regulatory compliance, and federal employment withholding, reporting, and payment functions.
Certified PEO Bonds are individually underwritten so the cost can vary and is dependent on the personal credit report of the applicant as well as personal financials and business financials. Customers with good credit scores (generally 680 or higher) and overall good financials could qualify for a rate as low as 0.5% of the bond amount. Of course, we will always provide you with the lowest rates available on the market. And can typically handle all credit types and financial situations — from excellent to poor — as such those terms vary.
The bond amount required for a CPEO Bond is based on 5% of the PEO’s tax liability from the prior year.
For example, if your PEO’s federal tax liability was $2 million during the prior year, 5% of $2 million would be $100,000. By qualifying for a market best rate of 0.5%, the bond premium for a $100,000 surety bond would be $500.
The Certified Professional Employer Organization Surety Bond is in place to ensure the Principal on the bond (the CPEO) pays any tax liabilities accrued by under Subtitle C - Employment Taxes of the Internal Revenue Code (IRC). The Principal also remains liable under Section 6501 and Section 6502 of the IRC for any taxable period occurring during the term of the Bond.
The U.S. Department of the Treasury, Internal Revenue Service (IRS) certifies PEOs and requires a surety bond to be posted in pursuant to Section 7705, Title 26 U.S. Code. The named Obligee on the bond is the United States of America.
CPEO Bonds are continuous and remain in effect from the effective date until canceled. The bond may be canceled with a 90 day written notice from the Surety to the Principal (the CPEO) and the Obligee (U.S. Department of the Treasury, Internal Revenue Service). The notice of cancellation shall state the reason(s) the Bond will be canceled. It is likely that variations in business volume each year will require a different bond amount than the prior year, in which case the IRS asks for a strengthening bond or a superseding bond to be issued. In other words, the bond amount may need to be increased or reduced through a surety rider or the issuance of a new bond.
Contact The ProSure Group. As surety bond experts in business for over 23 years, The ProSure Group has issued hundreds of PEO bonds and has partnerships with more than 30 different surety companies. This ensures that we get you the best, most competitive pricing and terms available in the marketplace. You just need to complete our simple application and one of our specialists will quickly contact you.