June 24, 2024

Becoming a Professional Employer Organization (PEO) or Employer of Record (EOR) can allow you to provide value to your customers and generate meaningful revenue, but there are several compliance requirements to keep in mind while creating your new offering. Here are 7 important things to consider should you decide to become a PEO or EOR.

1. Ensure your corporate structure is set up properly

The very first thing you should do, if you haven’t already, is to consider the type of company you’re going to create, from a legal perspective. When you launch a PEO/EOR you’ll want to ensure that your corporate structure and reporting requirements are clear. For example, if you want to share liability with your customers you’ll want to establish yourself as a PEO, or if you want to take on the legal liability completely you’ll want to become an EOR. 

While most PEOs and EORs set up their new entity as a Limited Liability Company (LLC), you will want to do what’s best for your specific scenario so we encourage you to touch-base with your corporate counsel as well as your accountants.

2. Register for a net new FEIN 

Once you determine your corporate and accounting structure, then you’re ready to register for a new FEIN (Federal Employment Identification Number). The FEIN  is how government agencies keep track of a business. The FEIN essentially serves as the “business entity” that the employees of your PEO/EOR program are employed by. You may already have an FEIN for your existing business, but when you create a PEO or EOR program, we recommend that you create a net-new FEIN. 

By creating a new and different FEIN, you can separate the workers on your PEO or EOR from your internal employees. This is mainly because your needs for payroll, benefits, and more might differ for your internal employees compared to your external employees. You may also wish to insure your new entity differently from how you insure the entity that your internal employees are on.

3. Create your employment document set

When you launch a new PEO or EOR your offer letters, waivers, and onboarding documents will be different from what you collect from your internal employees. You should work with your employment counsel to create templates for the paperwork that you want to collect from each employee on the PEO/EOR. 

It’s easy for employees to complete and sign their paperwork directly in the onboarding experience with Zeal’s custom paperwork functionality. Standard items like withholding paperwork can also be collected in the employee onboarding experience. Zeal’s onboarding component makes it simple to display and collect the correct forms for each employee based on their work and home location. 

If you are operating as a PEO, the customer that partners with you is also sharing the employment responsibility of the worker. You should consider having your counsel draft contracts detailing the shared responsibility in the employment relationship.

4. Qualifying employees for eligibility

As an employer, you are responsible for verifying that your employees are eligible for employment in the United States. The process of doing this is called the Employment Eligibility process, which comes with the requirement for the employee and the employer to complete a Form I-9 and review identification documents to determine eligibility.

To make this process simple, Zeal has launched a Remote I-9 product, which allows employers to effortlessly complete the Employment Eligibility process.

5. Register for a virtual mailbox 

As an employer, it’s important for you to manage notices and documents from tax agencies, garnishment agencies, and other government entities. An easy way to streamline handling physical mail is to register for a virtual mailbox service such as LegalZoom Virtual Mail

A virtual mailbox provider will receive and scan each document for you, delivering you a digital version of your mail. This makes it easy for you to act when you receive important notices. For example,child-support garnishment notices, require fast turnaround for employers to implement, and come with hefty penalties for non-compliance.

6. Offer healthcare insurance and 401K

As a PEO or EOR, Federal and state regulations  may require you to offer health insurance and 401K to workers. 

For example with healthcare insurance, Applicable Large Employers (ALE’s) are companies who employ the equivalent of 50 or more full-time employees. ALE’s must offer a healthcare insurance plan to at least 95% of their workers. With Zeal’s integrated benefits offering, you can rely on Zeal to provide the benefits, reporting, ACA and COBRA compliance, and much more.

In California, the CalSavers Act requires employers with 5 or more employees to provide a 401K program or to join the state-program. With Zeal’s integrated 401K program it’s no additional effort on your part to offer a world-class 401K program to employees.

7. Register for an Agent of Record service 

As you expand geographically with your PEO/EOR services, you will need to register for taxes for every new tax jurisdiction you employ workers in. Each tax you register for will come with codes, rates, and deposit frequencies for your taxes.

An Agent of Record service such as Middesk, makes it easy for you to outsource tax registration processes. Simply input into Middesk the taxes you need to register for, and Middesk assists with the end-to-end registration process.

Zeal’s modern payroll platform alerts you each time you need to register for a new tax based on an employee moving locations, or working at a new work-site. This allows you to have a single source of truth for tax registrations.

Scale with ease

This is not a comprehensive list of considerations for becoming a PEO or EOR, but if you follow these tips and use a payroll platform, like Zeal, that’s tailor-made for HR service providers then you should be able to create your program with ease. If you’re interested in creating a PEO or EOR, contact us and we can provide you with additional guidance.

Puzzl Group Inc. (Zeal) is a financial technology company, not an FDIC insured depository institution. Banking services provided by Bangor Savings Bank, Member FDIC. FDIC insurance coverage protects against the failure of an FDIC insured depository institution. Pass-through FDIC insurance coverage is subject to certain conditions.