Accounting for PEO Payroll: What Employers Need to Know
Accounting for PEO payroll is an important part of the payroll preparation process that professional employer organizations take care of for their clients. However, companies still have certain legal responsibilities with regards to accounting for PEO payroll, even when a PEO handles the majority of the payroll process.
Keep reading to learn more about PEO payroll accounting and how your small business could benefit from Canal HR’s employer services.
Basics of Accounting for PEO Payroll
If you’re a small business owner looking to hire a professional employer organization (PEO) to handle your company’s payroll, you may wonder what accounting for PEO payroll entails. Payroll accounting is the collection, organization, and filing of records related to employee payment. This includes tracking how much money is withheld from each employee’s paycheck for benefits or taxes. But when you hire a PEO to handle your company’s payroll, who holds the responsibility of payroll accounting?
Learning about accounting for PEO payroll will require you to understand the relationship between a PEO and the business that seeks out their services, also known as the client company.
PEO as Co-Employer
Co-employment describes the relationship outlined in the client service agreement (CSA) between a PEO and the client company. In this CSA, the client company will agree to have their employees registered as employees for both the company and the PEO who provides employer services for the company.
But why is co-employment part of the CSA between a client company and a PEO? The answer is that co-employment helps define which rights and responsibilities of the client company will be taken on by the PEO. PEOs such as Canal HR can take on a wide variety of responsibilities related to human resources and business management. Depending on the needs of the client company, some of these responsibilities can include payroll distribution, benefits management, workers’ compensation, and even compliance management.
Because PEOs take on aspects of a business’s legal responsibilities and must deal with confidential employee and client information, co-employment establishes which rights the PEO will hold in regards to the management of the client company, while also establishing which rights the company’s owners and leaders hold.
Responsibilities of Accounting for PEO Payroll
The CSA outlines what responsibilities the PEO will take on as a co-employer for the client company, which also clarifies what legal responsibilities each party will have in accounting and filing taxes with the IRS. When a client company gives the responsibility of payroll to the PEO, they are only giving the PEO certain responsibilities of accounting for PEO payroll.
Typically, the accounting and tax responsibilities that a PEO will take on in this arrangement include:
- Recording wages, including payroll taxes and reports
- Payroll processing and issuing paychecks
- Defining payroll policies for the client company
- Calculating payroll deductions for any taxes and benefits
- Filing and preparing payroll taxes
According to federal tax law, third-parties (such as PEOs) who manage a client’s wages and compensation duties are legally required to also handle any tax-related responsibilities that the client would normally perform themselves. However, the client company will likely be responsible for the following duties related to accounting for PEO payroll:
- Payment of payroll taxes and filing returns with the IRS (though some co-employment arrangements may call for a PEO to share some tax responsibilities with the client company)
- Payment of worksite employees
In a CSA between a small business and a PEO, accounting for payroll is largely the responsibility of the PEO. With a PEO like Canal HR, small business owners can focus on growing their business and building relationships with their clients and customers.
Get Reliable Payroll Preparation Services through Canal HR
Canal HR is a professional employer organization serving a variety of small business clients across the southeastern United States. From payroll preparation and workers’ compensation to employee benefits and 401k plans, Canal HR can bring reliable management and competitive benefits to your small business.
If you’re looking for assistance in managing your company’s human resource needs, Canal HR may be the PEO you have been looking for. Get in touch with us today through the Canal HR website to learn more about the PEO services we can offer your small business.
You can also visit the Canal HR blog to learn more about PEO payroll accounting and other key topics in benefits management and human resources.