Congress Recognizes Professional Employer Organizations Through Small Business Efficiency Act

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Press Release

Congress Recognizes Professional Employer Organizations Through Small Business Efficiency Act

Validation and benefits for both business owners and employees working with PEOs.

Fort Lauderdale, Fla. – Dec. 17, 2014 – On Dec. 16, Congress passed the Small Business Efficiency Act providing the first-ever federal statutory recognition of Professional Employer Organizations (PEO). The Act institutes a voluntary certification process for PEOs with the IRS and recognizes the HR outsourcing companies under the federal tax law, creating greater clarity for PEOs to collect and submit taxes on behalf of their clients.

PEOs act as co-employers to clients, handling payroll and related taxes, HR compliance, workers’ compensation and healthcare benefits. While most states have statutes legally recognizing the role of PEOs, until now there was no federal recognition of or statute applicable to the industry. Midge Seltzer, Engage PEO president and former National Association of Professional Employer Organizations chair, started a grassroots program to drive the passage of the legislation.  The passage of this legislation is due to the efforts of the NAPEO staff and countless volunteers in the PEO industry.    

“Smart business owners long have been looking to PEOs to manage their HR, benefits and payroll programs, finding the economies of scale and reduced administrative burdens greatly increase their efficiency and compliance, especially with the new regulations from the Affordable Care Act,” said Seltzer. “It’s a truly proud moment in which Congress has recognized the value PEOs bring to the critical small and mid-sized business sector, and has given greater assurances to PEO clients through this new infrastructure.”

Effective Jan. 1, 2016, the Act will impact several aspects of PEOs.  The federal law will allow for PEO certification and will recognize the accrual of tax requirements, providing security for PEO clients.  PEOs also now have clear authority under the IRS to collect and remit taxes on behalf of their clients.

The new IRS certification program is available to PEOs that meet financial standards and satisfy reporting obligations. A small number of PEOs like Engage already qualify for additional client coverage through the Employer Service Assurance Corporation’s (ESAC) financial coverage program, providing clients of accredited PEOs with protection from bonds of up to $16 million. 

“Congress’ recognition of PEOs points to a growing trend in HR and benefits outsourcing,” added Midge. “This new law is another selling point for businesses exploring working with partners like Engage so they can focus on what they do best – growing their business and strengthening our economy.”

About Engage PEO

Engage PEO delivers comprehensive HR solutions to small and mid-sized businesses, sharpening their competitive advantage. Comprised of the industry’s most respected veteran professional employer organization executives, certified HR professionals and attorneys, Engage PEO provides hands-on, expert HR services and counsel to help clients minimize cost and maximize efficiency for stronger business performance.   The company’s superior service offering includes a full range of health and worker’s compensation insurance products, payroll technology and tax administration, risk management services and best-of-breed technology as part of an extensive suite of HR services.  For more information visit      

Additional information on ESAC (or confirmation of PEO’s accreditation status), visit

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