Certified PEO vs. Non-Certified PEO: What's the Difference?

Global employment has many benefits for both your business and your employees. But it can also introduce an extra layer of complexity to your business operations. One potential solution is using a Professional Employer Organization (PEO).

Prevalent in the U.S. and UK, these organisations can help to serve almost as an external HR department, taking care of many of the complexities of hiring abroad, from processing payroll to ensuring legal compliance.

While partnering with a PEO service can streamline your global hiring considerably, it’s important to keep in mind that not all PEOs are the same. For example, in the USA, some PEOs are certified, while others are not. So, what’s the difference between a certified PEO vs. non-certified PEO? Read on to find out.

What is a PEO?

Before we discuss the value of certification, let’s briefly recap what a PEO is. A PEO is a professional employer organisation that establishes a co-employment relationship with its clients. In this arrangement, the client company delegates its HR tasks to its PEO while staying in charge of its business's daily operations and organisational framework.

Some of the global HR services provided by PEOs include:

• Hiring and recruitment
• Onboarding
• Training and development
• Benefits and compensation management
• Time tracking
• Payroll processing
• Employment tax filings
• Legal compliance
• Risk management
• Terminations
• HR consulting

Due to their large customer bases, a professional employer organisation can negotiate better rates for insurance and other benefits than individual employers. They often partner with local legal compliance experts in the jurisdictions they serve. By leveraging PEOs’ robust resources and economies of scale, companies can offer their employees better benefits and more compliant HR support.

Significance of PEO Certification

Certified PEOs and non-certified PEOs fulfil the same functions but differ in their trustworthiness and tax advantages. Organisations must fulfil the standards laid out by their government’s regulatory bodies to become a certified PEO. In the United States, that regulatory body is the Internal Revenue Service (IRS).¹

The PEO certification process is quite thorough. PEOs that apply for certification must complete comprehensive background checks and financial audits to verify that they have a proven record of being financially stable, ethical, and legally compliant. Since the PEO certification process is so involved, only 15% of U.S. PEOs are certified by the IRS.²

Benefits of Choosing a Certified PEO

So, why should you choose a certified PEO over a non-certified PEO? Here are three benefits of a certified PEO:

Tax Advantages

In some jurisdictions, certified PEOs can provide their clients with special tax benefits. For example, in the USA, companies that partner with PEOs that meet all of the IRS’s certification requirements maintain their ability to claim specific tax credits and avoid costly wage base restarts.³ Just keep in mind that laws regarding PEOs and tax advantages can vary from one country to the next.

Liability Protections

As an employer, you’re responsible for your employment tax compliance, filings, and compensation. Failing to complete these HR tasks accurately can result in fines and penalties.

Luckily, you can let go of this liability by working with a certified PEO. Unlike non-certified PEOs, certified PEOs are solely liable for their client companies’ federal employment taxes and wages. Thus, if they make any mistakes, their clients won’t be penalised.

Peace of Mind

Certified PEOs have been thoroughly evaluated by a third party and proven to operate with high levels of integrity. They also must maintain their high standards and undergo periodic evaluations to sustain their certified status. For these reasons, certified PEOs are considered more trustworthy than their non-certified counterparts.

Risks Associated with Non-Certified PEOs

While certified PEOs offer their clients more confidence in their credibility, special tax benefits, and liability protections, non-certified PEOs can’t say the same. These organisations may even present risks to the companies they serve.

For example, if you partner with a non-certified PEO company, you may:

• Be held liable if they mismanage your employees’ tax filings.
• Miss out on certain tax credits that you would be entitled to claim otherwise.
• Risk providing your employees abroad with substandard HR support.

Due to these differences, it’s clear that certified PEO services are the safer choice.