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Staying Compliant: How PEOs Help Businesses Adhere to Employment Regulations
Published: October 31st, 2023
As a business owner, you have a lot on your plate. From managing day-to-day operations to generating revenue and maintaining satisfactory customer relationships, it can be challenging to keep up with the ever-changing employment regulations. This is where Professional Employer Organizations (PEOs) come into play.
PEOs help companies, especially small to medium-sized businesses, manage their human resources responsibilities, including compliance with employment and data security regulations. They work alongside businesses to give them the benefit of a fully-staffed HR department, which includes the sharing of specific employer responsibilities like regulatory compliance.
In this blog post, we will discuss what PEOs are and how they can help small businesses navigate complex employment regulations. We will also explore how PEOs facilitate regulatory compliance while mitigating employer liability.
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Understanding the Role of PEOs
Such providers offer numerous benefits for businesses by essentially co-employing their workforce, automating HR services, and taking over various other administrative functions. By partnering with one, smaller businesses rely on the PEO to provide core functions such as payroll administration, tax filing, hiring and onboarding, and employee benefits management. Additionally, they lend their expertise in compliance services involving risk management, data protection, employee administration, corporate taxes, and other financial matters. With a PEO, businesses can focus on their core competencies while leaving HR management to the experts.
PEOs share regulatory compliance obligations with their clients in a co-employment relationship. With the help of expert HR professionals, PEO clients, especially small business owners, gain guidance on compliance and employee management. But while PEOs offer advice and instructions on how to remain in compliance, it may still be up to the business itself to take any necessary actions to meet the requirements. That being said, a PEO that has certain industry certifications and accreditations will take on more responsibilities for you, especially for tax purposes.
Decoding Employment Regulations
There are many workplace regulations that a business must follow, which stem from federal and state employment and tax laws, as well as safety standards. Regulatory bodies play a crucial role in enforcing employment regulations and ensuring HR compliance. These bodies include the U.S. Department of Labor, the Equal Employment Opportunity Commission, and the Occupational Safety and Health Administration. Each body oversees specific areas of compliance, such as wage and hour laws, workplace safety, and anti-discrimination regulations.
To ensure compliance with employment regulations, it is important to be familiar with federal laws like the Fair Labor Standards Act and the Family and Medical Leave Act. Additionally, understanding state-specific regulations such as minimum wage laws and anti-discrimination laws is crucial. You should always stay up to date with changes in employment laws, as compliance is essential for business operations, no matter the size of your company.
By consulting a PEO, which can provide expert guidance on navigating complex employment laws, businesses can ensure they follow all necessary regulations. They provide expertise, resources, and peace of mind regarding compliance, helping businesses avoid penalties and streamline their HR management.
The Areas of Compliance Served by PEOs
The PEO model assists businesses by ensuring compliance with federal, state, and local employment laws. This includes regulations related to wage and hour, health care, data, and workplace safety, and there are different ways in which they can help a business adhere to such regulations. Of course, there may be some specific complexities based on your location or state, and those are best discussed in full when you contact such a provider to inquire about their services.
Taxes
PEOs offer their extensive knowledge and expertise to help businesses stay compliant with payroll tax regulations and ensure timely payment of all federal, state, and local taxes. By partnering with a PEO, businesses can focus on their core operations while leaving employment-related legal and tax compliance to the experts.
A PEO can remit and file your income, unemployment, and trust fund taxes on your behalf using their Employer Identification Number (EIN). It’s crucial for a PEO to fulfill their tax filing obligations; otherwise, the company they represent will be held liable for any legal and financial penalties.
Your company must closely monitor all tax filings and payments while specifying the duties of both the PEO and the company in the Client Service Agreement (CSA) to avoid such consequences. The PEO agreement indicates which employment tax withholding, reporting, and payment the PEO is responsible for on behalf of the client.
Healthcare
PEOs assist businesses in complying with healthcare regulations, including the Affordable Care Act (ACA) and other healthcare laws. The primary way they can do so is through their benefits administration services. They can offer access to comprehensive benefit packages that may not be accessible through traditional service providers. This includes health insurance coverage for medical, vision, dental, life, and so on. It also encompasses retirement plans, disability insurance, and more.
Additionally, PEOs take care of all administrative work related to employee enrollment in these plans and ensure timely payments.
Employment and labor-related matters
PEOs are required to maintain compliant practices in regard to labor-related items such as collective bargaining agreements, union organizing, and more. US companies are required to comply with many labor regulations at the federal, state, and local levels. The US Department of Labor (DOL) is responsible for administering and enforcing over 180 federal laws, including the Fair Labor Standards Act (FLSA), which establishes minimum wage and overtime pay requirements, and the Family and Medical Leave Act (FMLA), which allows eligible employees to take up to 12 weeks of unpaid leave per year for specific family and medical reasons. Other federal laws cover workplace safety, discrimination, and more.
Apart from federal laws, every state and local jurisdiction has its own set of labor laws and regulations that businesses are required to abide by. These laws address various issues such as wages, work hours, overtime pay, employee rights, labor relations, discrimination, and so on.
In order to adhere to those regulations, businesses can rely on a PEO for their expertise and resources to navigate the complex world of employment laws and regulations. Not only do they make sure your company offers mandatory benefits such as unemployment insurance, but they can also help businesses stay compliant with ever-changing labor laws, avoiding penalties by providing up-to-date information on changes in regulations or laws.
Workplace safety
PEOs provide safety compliance services to assist businesses in adhering to safety regulations. These services include safety audits, training, and associated program development. PEOs can help keep track of all Occupational Safety and Health Administration (OSHA) regulations and can answer any questions that employees or employers might have. Furthermore, PEOs can provide risk and safety consultants who can help businesses recognize and reduce hazards.
PEOs may need to provide access to workers' compensation coverage. They can also conduct safety compliance audits to evaluate how a workplace conforms to specific national compliance standards. They review not only the conditions on-site but also all of the business's safety policies and procedures.
Data security
Many laws on federal and state levels regulate data protection. The FTC Safeguards Rule requires companies to maintain an information security program. The FTC also provides guidance for businesses on how to ensure security in products connected to the Internet of Things (IoT). Additionally, companies must comply with various data security regulations and standards, such as GDPR in the EU and CCPA in the US. Failure to comply can lead to severe consequences, including fines, legal action, and harm to a company's reputation.
To ensure the security of sensitive data, PEOs can create an Information Protection Plan. This documented policy outlines the proper processing, storage, and safeguarding of sensitive data. Additionally, PEOs maintain strict cybersecurity practices and use cutting-edge technologies to protect client data. They are often committed to adhering to strict compliance standards to ensure that client data remains secure.
Policy and documentation
PEOs help businesses maintain accurate and comprehensive HR records and documentation to meet compliance requirements. This includes maintaining personnel files, employment contracts, and documentation related to employee benefits. PEOs can also assist in developing policies such as vacation or sexual harassment policies that comply with applicable laws and regulations. They provide access to competitive benefit packages and continuously monitor regulatory changes to ensure businesses remain compliant with all applicable laws and regulations.
Compliance is an ongoing process, not a one-time task. PEOs proactively monitor regulatory changes and update processes to avoid penalties.
PEOs as Compliance Navigators
PEOs guide employee benefits administration and leverage their group buying power to make mandatory and optional benefits affordable for smaller businesses. They also handle payroll compliance and tax filings, helping small companies stay up-to-date with changing regulations to reduce the risk of compliance violations.
Additionally, PEOs offer compliance training, resources, and expertise to owners and employees. By partnering with a PEO, small businesses gain access to administrative services, ensuring that specific employer responsibilities are handled efficiently. This allows owners to focus on their core competencies while outsourcing regulatory compliance to experts.
PEOs & Employer Liability
PEOs are vital in mitigating employer liability by assuming specific employer responsibilities. When small businesses partner with a PEO, the PEO becomes the employer of record (if so specified in the signed CSA), sharing responsibility for compliance and employee claims. This contractual agreement allows small business owners to manage risk effectively and protect their businesses. PEOs bring expertise in compliance, risk management, and employee administration, reducing the risk of compliance violations and providing peace of mind. Additionally, partnering with a PEO offers financial stability, access to HR expertise, and the ability to navigate employment regulations with ease.
The value of certification and accreditation
Some PEOs may stand out against their competitors through their industry credentials. One of these credentials is the Employer Services Assurance Corporation's (ESAC) accreditation, which verifies a PEO's ongoing financial stability, ethical business conduct and compliance, and adherence to operational standards, government regulations, and important industry standards. ESAC provides PEOs and state regulatory agencies access to online compliance services, allowing for quick state licensing compliance using secure data submission.
Some PEOs may also be certified by the IRS, giving them CPEO status. Although not an endorsement, the certification program ensures that the PEO complies with federal tax regulations and meets specific standards. Certified PEOs act as the employer of record and are solely responsible for any federal tax liability and penalties. Additionally, they are required to post a bond of up to $1 million annually to guarantee payment of their federal employment tax liabilities. By using a certified PEO, clients significantly reduce their risk of non-compliance. On the other hand, if a company uses a non-certified PEO that fails to pay their taxes, the company may be held liable.
Top US-based PEOs like ADP TotalSource will likely be both IRS-certified and ESAC-accredited, and many of them will also be members of the National Association of Professional Employer Organizations (NAPEO). To learn more about how providers with these credentials can offer better service, read our post on the best ESAC and IRS-approved PEOs.
Can a PEO Help Your Business Stay Compliant?
The short answer is yes! PEOs can help businesses navigate these regulations through expertise, resources, and support. They can ensure data security with their technological capabilities and get you the necessary employee benefits affordably by leveraging economies of scale, thereby helping you stay compliant with employment laws.
It is essential for businesses to stay compliant with employment regulations to avoid legal and financial consequences. By partnering with a PEO, your business can mitigate employer liability and focus on your core operations while leaving the complexities of employment regulations to the experts, all by paying a monthly fee related to your total number of employees. If you're interested in employing the services of a PEO, we recommend you start by reading about the various top PEO providers. We also provide a dedicated comparison tool that allows you to pit companies against each other. Once you discover a good fit for your business, it may become easier to concentrate on corporate growth instead of worrying about all workplace laws and regulations.