Why You Need a PEO Broker

PEOs make money in various ways, such as charging administrative fees, marking up insurance premiums, and managing payroll taxes like SUTA rates, which can sometimes lead to overcharges. Without proper knowledge of industry standards, small businesses risk overpaying for services, falling victim to hidden fees, or locking themselves into restrictive contracts with high termination penalties that are astronomical. By leveraging a broker’s expertise, businesses can find a PEO partner that offers fair pricing, flexible terms, and tailored services—without the risk of being overcharged or under-served.

PEOs Filing ERC Claims

When businesses partner with a PEO, employment tax reporting is consolidated under the PEO’s EIN, encompassing payroll, taxes, and employee data from all its clients. This consolidation means that Employee Retention Credit (ERC) claims for these businesses are filed as a single line item on the PEO’s Form 941, leaving individual businesses without transparency. Unlike businesses that file ERC claims independently, those using PEOs are left waiting for updates with little visibility into the process. On the IRS side, reviewing ERC claims on a PEO’s return can be daunting, requiring the agency to unravel multiple claims at once. While each business’s claim is itemized on Schedule R, the complexity slows the review process, leaving many businesses playing the waiting game. Adding to the challenge, many PEOs do not actively assist their clients in substantiating ERC claims. In audits, some PEOs rely on external firms to coordinate documentation requests, leaving clients to fend for themselves in proving eligibility, calculations, and supporting evidence.

PEOs Overcharging SUI/SUTA Tax

When joining a PEO, it will charge an administrative fee ranging from hundreds to thousands of dollars per employee per year. Sometimes, the PEO charges their fee as a percentage of your total payroll expense. Many times, the PEO collects much more payroll tax money than it should. For example, the employer tax for unemployment insurance is on the first $7,000 of wages in Florida. Most PEOs collect this tax on every dollar your employers earn and don’t cap it at $7,000. So, if you have an employee that makes $60,000 at a tax rate of 5.4%, you just overpaid $2,862 in tax for that one employee. How about all your other employees? Do they earn more than $7,000 per year? This is a large expense you may not have realized you’re paying.

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