Summary: An Accredited Professional Employer Organization (Accredited PEO) is one that has been formally recognized by ESAC as meeting certain operational standards.
In this guide we explain how PEO accreditation works and why you might consider engaging a Professional Employer Organization that has met this standard.
What Is an Accredited PEO?
An accredited PEO, or professional employer organization (PEO), is a firm that provides outsourced human resource (HR) services to businesses. Accreditation is a mark of quality and reliability, indicating that the organization has met specific standards set by an industry-recognized body. This process involves a rigorous evaluation of the PEO’s practices, financial stability, and compliance with employment laws.
Businesses partnering with an accredited PEO, like those certified by the Employer Services Assurance Corporation (ESAC) in the US, can expect a higher level of service and assurance in their HR operations. Accreditation ensures that the PEO company adheres to best practices and provides reliable and compliant HR services, giving businesses peace of mind and allowing them to focus on their core operations.
What is the difference between an accredited PEO and a certified PEO?
The primary distinction between an accredited PEO and a certified PEO is the certification process and the regulatory body involved. An accredited PEO is accredited by a professional body or industry association, like ESAC, which assesses the PEO against established performance standards, financial stability, and service quality. These standards aim to ensure best practices within the industry.
In contrast, a certified PEO is recognized by a government entity, such as the Internal Revenue Service (IRS) in the US, under the Small Business Efficiency Act. This certification requires the PEO to meet specific tax status requirements, demonstrate financial health through periodic audits, and maintain specific bonding or escrow arrangements. The IRS certification offers legal and tax advantages, like relief from certain employment tax liabilities on a federal level.
Partnering with a certified PEO (CPEO) may offer certain legal protections and tax benefits unavailable with an accredited PEO. However, an accredited PEO, validated by industry-specific standards like those set by ESAC, might offer higher assurance in terms of quality and adherence to best practices within the HR and payroll industry.
Pros and cons of an accredited PEO
Enhanced quality assurance
Accredited PEOs adhere to rigorous industry standards, ensuring a higher level of service quality and reliability in HR services.
Financial security
ESAC accreditation means the PEO maintains robust financial practices, offering businesses greater security and peace of mind.
Verified compliance expertise
Accredited PEOs demonstrate proven expertise in adhering to complex employment laws and regulations, significantly reducing compliance risks.
Cost implications of enhanced services
The higher quality and compliance standards of accredited PEOs might come with a higher cost compared to non-accredited counterparts.
Limited choices
There are fewer accredited PEOs than non-accredited ones, potentially limiting options for businesses seeking specific services or cultural fits.
Stringent contractual obligations
The rigorous standards of accredited PEOs may translate into more stringent contractual terms for their clients.
Engage an Accredited PEO
If you are thinking about engaging a PEO company as a co-employer in the United States, the ESAC accreditation process is a useful way of vetting potential partners. By choosing an accredited PEO, it is more likely that the PEO company will meet high operational and compliance standards.