Not Using a PEO? Be Prepared For A Lot More Paperwork

If you're a business owner, the burdens that will fall on your back when choosing to "go it alone" and not utilize a PEO for the administrative aspects of running a business or corporation. This should be quite illuminating information for you if you've even momentarily considered using a PEO. Though it is possible to run your own business without one, PEO's are becoming more and more popular.

There are many different things an employer must take on, pertinent to IRS tax records, mostly, when opting not to use a Professional Employment Organization, or PEO. Establishing a federal tax withholding account is first and foremost, and entails such things as establshing your FEIN (Federal Employer Identification Number). If you do not already have and FEIN, you need to complete IRS FORM SS-4 to make application for a Federal Employer Identification Number (FEIN). You will also need to elect a Reporting Agent. This person assists employers making required tax deposits and filings. You will need to complete IRS Form 8655, which designates your Reporting Agent. The signator needs to be an officer on your company. Most payroll companies also act as Reporting Agents. If you prefer to make the payments yourself you can set up an account through the IRS EFTPS system.

Next, you'll need to establish an Applicable State Income Tax Withholding Account(s). If you are not outsourcing your Human Resources and administrative tasks by using a PEO, then you have responsibility for making the tax withholding and deposits for employees in each state where you retain employees. Be sure to check the tax withholding requirements in your state.

Establishing your Federal Unemployment Tax (FUTA) Calendar and Establish Deposit Accounts is also paramount. Use the IRS tax calendar to create your payment schedule. Use Form 8109 when you make your tax deposit at a Federal Reserve Bank or another authorized institution for your area. Calculate amounts based on per period employee wages and make payments per the schedule rules for a company of your size. See IRS Instructions for Form 940 - Employer's Annual Federal Unemployment Tax Return for detailed instructions.

You must also establish a State Unemployment Tax Account - (SUTA). When your company has employees, it has an obligation to contribute to the State Unemployment Insurance fund for each state where you pay employees. Amounts are charged based on a percentage of each employee wages up to a capped wage amount. Amounts vary based on your state and your company's experience with your state's UI system. It is wise to read information about SUTA rates for new businesses. You will need to find your state's unemployment insurance (SUTA) regulatory body and get instructions for establishing your account, determining your rating and making your quarterly payments. Most states now require employers with over 50 employees to file electronically.

Acquiring Workers' Compensation Insurance Coverage

You must determine the risk type for workers (workers compensation classifications) and shop for a Workers’ Compensation insurance policy. Purchase Workers' Compensation coverage and pay up front for at least six months of coverage. Learn about how Workers' Compensation insurance coverage is priced and how your coverage needs are based on the type of work being performed and the number of people you employ. In addition, learn how your work comp claims will affect your work comp modification factor (also known as your experience rating or mod rate) which in turn affect the price you will pay for your policy. Visit this link for more information about the Workers' Compensation Insurance regulations in your state.

Also, ensuring your payroll system is set up to file Federal forms including W-2s, W-3s, W-4s, 940s and 941s (quarterly) is crucial.

Obtain, prepare and file Immigration & Naturalization I-9 forms (new versions) for existing staff and new hires. Mediate any respondent "no-match" letters from the Social Security Administration (SSA). The legal requirements for validating the citizenship status of ALL employment applicants are changing rapidly as the United States government places more emphasis on stopping the employment of illegal aliens. All employers should be aware of the coming requirements for the Basic Pilot and Employment Eligibility Verfication - EEV programs . While the legal form for these programs will be changing through time, all employers need to be paying attention to the rules issued by the Department of Homeland Security and Social Security Administration. Effective in 2008, a new Form I-9 is required to be complete and on file for at least 3 years and one year after employment ends for ALL employees.

You are also required to handle necessary paperwork and assume employer liability for all court orders, wage garnishments and tax levies. Ensure levy deduction priorities are followed. Ensure your payroll department knows the rules for wage garnishments due to court orders for alimony, child support, IRS levies and other court orders. Rules are specific about the rights of employees when wages are being garnished. Employers found in willful violation of the provisions relating to employee termination due wage garnishment may find themselves liable for payment of back wages, payment of improperly garnished amounts and be forced to reinstate the employee. Moreover, they may prosecuted criminally and fined up to $1,000 or imprisoned for up to a year, or both. In addition some state laws and jurisdictions may be in conflict with one another over their order of priority when multiple garnishments are competing for the employee's wages. Also, certain retirement accounts may not be considered when determining the amount of wages eligible for wage garnishment. Employers with employee garnishments are expected to calculate, deduct and remit the proper amounts to the court of jurisdiction. Consulting a PEO or payroll expert is advised in these circumstances. Review the Department of Labor rules for wage garnishment.

Determine your company’s willingness to contribute to employee benefits. Your senior management staff needs to assess the necessity and affordabilty of an employee benefits package which may include:

Health insurance
Supplemental insurances (like short and long-term disabilty insurance)
Retirement and 401K plans

Failure to provide some level of employee benefits will usually mean that employees seek other job opportunities elsewhere that will offer those benefits. This results in higher employee turnover, higher recruitment costs, higher training costs, and higher State Unemployment Insurance costs. High turnover can impair your company's productivity and product quality.
Remember to do your research. Price, compare, obtain and monitor employee benefits which might include:

Prescription card
Life insurance
Disability coverage
Employee Assistance Program (EAP)
Credit Union

Each of your desired benefit products needs to be shopped individually, to determine the best options for your company. Your local insurance agent may be able to assist with your search. Health insurance plans often have wide variations in plan provisions, procedure coverage, geographic coverage, doctor networks, premium costs and deductibles. In addition, most plans require at least a 75% participation rate (percent of eligible employees) to even provide an insurance quote. Start your shopping process by preparing a benefits census that descibes the age, sex and level of dependent coverage for all of your employees. Without this information, you stand little chance of even getting a health insurance quote. Analyze the cost/benefit of electing a higher or lower deductible and ensure your employees will find it acceptable.
Determine and communicate effective date of new coverage for employee benefits. Have employees complete all required enrollment forms and elect levels of coverage. Ensure 1993's Health Care Financing Administration (HCFA) filing requirements are met along with administrative requirements associated with the new 1997 Health Insurance Portability and Accountability Act (HIPAA).

At year's end 2008, Congress declined funding in order to enforce a new reporting requirement for employers that maintain health plans. The filing requirement, known as form H-2 because it was to resemble a W-2, caught most employers by surprise and was criticized as an instant burden to small businesses. A provision of the 1993 Revenue Reconciliation Act said employers (or third-party plan administrators or insurers) must report the following health insurance coverage information to a newly established data bank any electronic depository of data to the Health Care Financing Administration (HCFA):
Name and Social Security number of each person and dependent covered under the plan.
Whether the type of health coverage elected is for single or family coverage.
The name, address and identification number of the group health plan the employee elects.
The length of time for which coverage is selected.
The name, address and tax identification number of the employer.

You must also, as an employer, recognize your liability and implement policies to ensure compliance under the ADA , Title VII (EEOC), Civil Rights Act of 199, Fair Labor Standards Act and Age Discrimination in Employment Act; Make arrangements to set up and manage reporting requirements for IRS Section 125 (Cafeteria) plan if you intend to keep this tax advantage. Make arrangements to set up a 401(k) plan; Review the IRS rules for 401K plans, being aware of the differences between Highly Compensated Employees (HCEs) and your other workers -- since you will not be part of a "large employee base" plan; file Federal IRS Form 5500 for your 401(k) plan; analyze your cash flow to account for the switch from a scheduled budget allocation for employment services to irregular payments and periodic lump-sum amounts for these services.

Also, implement a payroll solution with either an in-house software solution or a service bureau. Ensure all payroll and tax withholdings are accurate. Because a PEO offers relief from many of these business related challenges, thousands of companies across the United States are now using a PEO to help make their business more successful, as well as legally compliant. Legal issues are a major reason businesses fail.

This information is provided by and is merely for information purposes, and is not intended to act as legal advice.

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David Sheehan