PEOS MUST PROCEED WITH CAUTION WITH EMPLOYEE RETENTION CREDIT

Chris Chaney Chris Chaney on February 3, 2025

As a result of the COVID-19 pandemic, Congress enacted the Employee Retention Credit (ERC), to help taxpayer businesses weather the storm. But despite the genuine benefit that ERC provides to qualifying businesses, the IRS has been faced with many fraudulent and questionable claims.

As a result, the Service has initiated aggressive enforcement actions centered on this credit.

The wave of IRS audits, inquiries and assessments has spurred concern for taxpayers across the country and has even resulted in firms selling ERC insurance. Importantly, several Professional Employer Organizations (PEOs) have found themselves in a precarious situation (beyond ERC processing times) as IRS audits have started to hit their clients.

PEOs file ERC on behalf of their clients. Typically, these PEOs file Form 941s in aggregate under its own Employee Identification Number (EIN). These filings should include a Schedule R that describes aggregated wages and credits claimed for each of the PEOs clients.

As PEOs claimed ERC on behalf of their pool of clients, several issues of liability began to come into question. For example, the IRS stated in 2023 that it has the authority to satisfy a PEO’s tax liability with amounts of the PEO clients’ ERC claims.

Now, another concern has come into play. This issue rears its head when the IRS audits a PEO’s client (or client base) and finds ineligible ERCs. In this case, the IRS has made its stance clear: the PEO is jointly on the hook with its clients’ for ERC liabilities.

Although there is disagreement in terms of whether or not PEOs are liable for their clients’ claims, and the issue likely will continue to play out before the agency and in the courts, the IRS made its position clear in Chief Counsel Memorandum 2024-001.

According to the Service, when “improperly claimed credits are claimed by a PEO for its client, and the credit claim is based on the wages paid by the PEO to the client’s employees and reported on the PEO’s employment tax return, both the PEO and its client are liable for any underpayment of tax resulting from the improperly claimed credits.”

This burden has put certain PEOs, who simply cannot afford the liability for their client base in total, in a quandary.

The truth is that, for PEOs who already find themselves on the hook for an ERC liability, options might be limited. The IRS opened a supplemental claim process, offering a way for PEOs to exclude improper client claims or correct miscalculated claims, and the deadline for filing this supplemental closed on December 31, 2024.

PEOs who find themselves faced with an ERC audit should immediately seek out tax counsel to help navigate their path forward.

The reality now is that the IRS has begun to roll out ERC audits in full force as the agency has issued several rounds of tax credit denials while identifying more and more areas of high risk.

However, for those PEOs who have submitted ERC claims on behalf of their clients and are not in the midst of an IRS audit, the path forward should be tread lightly.

First, if a PEO has not yet submitted what would at this point be an amended ERC claim, it is imperative that the firm have their CPA, or a reputable firm specializing in the credit, review the underlying ERC claims for accuracy. There is still a short but open window to file a supplemental claim and correct the ERC errors.

This review should verify that the ERC claims have each been calculated correctly and that they can be substantiated should the IRS initiate an audit. Doing this sort of analysis will inevitably minimize the time and expense of dealing with a potential IRS audit down the line.

However, if a PEO firm has already claimed the ERC on behalf of its clients, it should without a doubt still conduct an extensive review of the claims before paying out credit monies received to its clients.

The statute of limitations for the final eligibility quarters for ERC, Q3 and Q4 of 2021, isn’t until April 15, 2027. The tax credit is incredibly valuable and PEOs shouldn’t shy away from claiming it. But they must do so with a critical eye and evaluate positions taken

The IRS has made clear that the number of its ERC audits will continue to grow. And again, PEO firms could very well be liable should these audits impact their clients. PEOs should take this notion to heart and conduct a thorough risk assessment to ensure they are compliant with ERC requirements.

Organizations such as NAPEO continue to work diligently on behalf of the industry when it comes to challenges surrounding ERC, and while these issues continue to play out PEOs should proactively assess their tax situation. If imposed, the ERC liability at issue will not go away. And failing to address the situation head on could be costly.

 

This article is designed to give general and timely information about the subjects covered. It is not intended as legal advice or assistance with individual problems. Readers should consult competent counsel of their own choosing about how the matters relate to their own affairs. Want to learn more about the ERTC and view NAPEO resources on the issue? Visit this page. 

DEVELOPING A TRAINING PLAN FOR HR COMPLIANCE

Chris Chaney Chris Chaney on January 31, 2025

An effective HR compliance training plan is essential for any organization committed to fostering a safe, fair, and legally compliant workplace. With ever-evolving federal and state regulations, businesses face the constant challenge of staying up to date while ensuring their workforce is properly trained on key compliance issues.

HR compliance isn’t just about meeting legal requirements—it’s an opportunity to engage employees, foster trust, and build a thriving workplace culture. For professional employer organizations (PEOs), delivering engaging and effective HR compliance training can set the tone for their clients’ organizational success. When done right, compliance training becomes a tool for empowerment, connection, and shared responsibility.

WHY ENGAGING HR COMPLIANCE TRAINING MATTERS

Think of HR compliance training as a strong foundation for a building—without it, the entire structure is at risk. Businesses that fail to prioritize it expose themselves to costly lawsuits, reputational damage, and even regulatory penalties.

While it can sometimes be seen as a dry necessity, HR compliance training has the potential to drive meaningful engagement. It helps employees:

  • Understand their roles: Clear expectations create confidence and clarity.
  • Feel valued: Training reflects an organization’s commitment to their well-being and professional growth.
  • Contribute to culture: Engaged employees actively support a fair, inclusive, and compliant workplace.

A 2023 survey by the Society for Human Resource Management (SHRM) revealed that 81% of HR professionals identified maintaining employee morale and engagement as a top priority for their organizations. Compliance training that engages employees also helps build trust, boosts morale, and strengthens workplace relationships.

KEY AREAS OF HR COMPLIANCE TRAINING

Sexual Harassment Prevention

Preventing sexual harassment is about more than following regulations—it’s about creating a safe and respectful workplace. Engaging employees in this effort requires more than a traditional lecture format.

Engagement strategies:

  • Use real-world scenarios and role-playing exercises to illustrate concepts.
  • Incorporate interactive elements like polls or group discussions.
  • Offer clear and relatable examples of acceptable and unacceptable behaviors.

Training objectives include: Define sexual harassment and legal standards, explain how everyone plays a role in creating a safe workplace, and Emphasize the importance of immediate reporting and support mechanisms.

Key laws: Title VII of the Civil Rights Act, the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA).

Anti-Discrimination Policies

Anti-discrimination training fosters a sense of belonging and inclusion when employees see it as a shared commitment rather than a mandated requirement.

Engagement strategies:

  • Use storytelling to highlight the impact of discrimination and the benefits of inclusion.
  • Facilitate open dialogues to encourage employee participation.
  • Highlight success stories of diverse and inclusive workplaces.

Training objectives include: Identify protected classes under federal and state laws, recognize and prevent discriminatory practices, and promote equity and inclusivity in day-to-day operations.

Key areas to address: Recruitment, promotions, performance reviews, and workplace culture.

Key laws: Civil Rights Act of 1991, Pregnancy Discrimination Act, and Uniformed Services Employment and Reemployment Rights Act (USERRA).

Substance Abuse Awareness

Addressing substance abuse is vital for maintaining a safe and productive work environment. Engaging employees in this area requires sensitivity and support.

Engagement strategies:

  • Provide interactive resources such as self-assessment tools.
  • Highlight available support programs, such as Employee Assistance Programs (EAPs).
  • Use multimedia content to illustrate the impact of substance abuse on individuals and teams.

Training objectives include: recognize signs and symptoms of substance abuse, understand the company’s substance abuse policy, and promote resources for seeking help.

Key laws: Drug-Free Workplace Act (DFWA), Occupational Safety and Health Act (OSHA), and the Family and Medical Leave Act (FMLA).

Wage And Hour Compliance

Ensuring fair compensation is essential for employee trust and satisfaction. Engaging employees in wage and hour compliance training can create transparency and understanding.

Engagement strategies:

  • Create engaging visual aids, such as charts or infographics, to explain wage computations and make the process easier to understand.
  • Conduct Q&A sessions to address common concerns.
  • Incorporate interactive elements to reinforce key concepts.

Training objectives include: clarify employee rights and responsibilities regarding wages, address key wage and hour laws, including the Fair Labor Standards Act (FLSA), and promote transparency in compensation policies.

Best practices to keep in mind: regularly audit payroll practices to ensure accuracy and fairness, maintain clear communication about wage policies and updates, and encourage employees to ask questions and provide feedback on policies.

STEPS TO CREATE ENGAGING COMPLIANCE TRAINING

Transforming compliance training into an engaging experience requires creativity and focus. Here’s how PEOs can make training more impactful:

  1. Tailor training to your audience. Understand the unique needs of your client’s workforce. Customize training content to reflect their industry, workforce demographics, and organizational culture.
  2. Use interactive technology. Leverage tools like Learning Management Systems (LMS) to deliver dynamic and engaging training experiences.
  3. Make it relatable. Use real-world examples and relatable scenarios to connect with employees. Tailor training to address common challenges and experiences within their roles.
  4. Incorporate feedback. Regularly collect feedback from participants to understand what works and what doesn’t. Use this data to continuously refine and improve your training program.
  5. Celebrate the wins. Recognize employees who actively participate in and support compliance initiatives. Celebrate milestones to reinforce the importance of ongoing engagement.

MEASURING THE IMPACT OF ENGAGEMENT

To ensure ongoing improvement, it’s critical to measure the success of your compliance training efforts. PEOs can:

  • Track participation rates: High attendance is a good indicator of interest and buy-in.
  • Assess knowledge retention: Use quizzes and follow-up surveys to test understanding.
  • Gather employee feedback: Identify strengths and areas for improvement through anonymous evaluations.
  • Monitor compliance metrics: Look for reductions in compliance violations or related complaints.

THE ROLE OF ENGAGEMENT IN LONG-TERM COMPLIANCE

Engaging compliance training is not just about ticking a box; it’s about creating a culture of accountability and respect. When employees feel connected to the mission of compliance, they are more likely to: Retain information and apply it in their daily roles; report issues promptly and responsibly; and contribute to a positive and inclusive workplace environment.

For PEOs, developing a robust HR compliance training plan is more than a service offering; it’s a strategic advantage. By proactively addressing compliance risks and fostering a culture of accountability, PEOs can empower their clients to thrive in an increasingly complex regulatory environment.

Investing in comprehensive, ongoing training isn’t just about avoiding penalties—it’s about building a workplace where employees feel valued, respected, and safe. With the right tools and strategies, PEOs can lead the charge in creating compliant, productive, and inclusive workplaces for their clients.

2025 PREDICTIONS: 5 BIGGEST TRENDS PEOS CAN EXPECT IN THE NEW YEAR

Chris Chaney Chris Chaney on January 31, 2025

Even though D.C. might be friendly confines for the PEO community in the new year, that doesn’t mean 2025 will be a cakewalk for businesses. State lawmakers and regulators will pick up the slack. They’ll continue to create a patchwork of legal compliance measures – and PEOs will be caught in the middle.

NAVIGATING POLITICAL AND REGULATORY SHIFTS IN THE PEO INDUSTRY

Chris Chaney Chris Chaney on November 8, 2024

Political and regulatory shifts inevitably influence how we operate and advise our clients.  In our role as strategic advisors, we must plan for all scenarios. Whether regulations tighten or loosen, businesses will need our guidance to implement sustainable workforce strategies that work within the regulatory framework.

3 WAYS TO SAVE UP TO 85% ON CA LITIGATION COSTS THANKS TO PAGA REFORM

Chris Chaney Chris Chaney on August 29, 2024

There are three actions PEOs and their customers can take to save up to 85% in California litigation costs thanks to a recent legislative compromise. Anyone doing business in California is no doubt familiar with the Private Attorneys’ General Act – or PAGA, the scariest four-letter word in the state for employers.

PREGNANT WORKERS FAIRNESS ACT: EEOC’S FINAL RULE AND TIPS FOR PEOS

Chris Chaney Chris Chaney on August 29, 2024

The Pregnant Workers Fairness Act (the “PWFA”) requires covered employers to make reasonable accommodations to qualified employees or applicants known limitations related to, affected by, or arising out of pregnancy, childbirth, or related medical conditions unless doing so would cause undue hardship on business operations.

MANAGING COMPLIANCE WITH A HYBRID WORKFORCE 

Chris Chaney Chris Chaney on May 8, 2024

In recent years employers have been left to deal with an unprecedented business environment. There are currently more hybrid and remote employees than ever, yet the implications of employee migration across state lines are not well understood by many employers.

KEEP AN EYE OUT: NEW DATA PRIVACY RULES

Chris Chaney Chris Chaney on April 4, 2024

The bottom line – if you have not updated your CCPA notices since 2022 or earlier – or if you have never provided such notices – you should act quickly to implement new notices and stay compliant with the ever-changing law.

PAY TRANSPARENCY CONTINUES TO GAIN MOMENTUM IN 2024

Chris Chaney Chris Chaney on March 6, 2024

Focus on pay transparency is showing no signs of slowing down. The pay transparency movement, which started with a couple of states, continues to steadily spread across the country and is now a focus at the federal level. PEOs and their clients must remain vigilant of current and proposed laws and developing trends.

WHEN IT RAINES IT POURS

Chris Chaney Chris Chaney on November 10, 2023

The California Supreme Court’s recent decision in Raines v. U.S. Healthworks Medical Group could create additional exposure for PEOs under California’s employment discrimination laws.