ABCO Payroll Services®

By Roger Reynolds

I think of the PEO industry as a Hummer driving the highways of Iraq and all it takes is one improvised explosive device (IED) to destroy it. Now every device that explodes may not destroy the Hummer. In fact, when the device goes off it may only cause minor damage, such as a radiator leak (think SUTA Dumping laws). We all know over time that what seemed to be a minor problem can turn into a major problem.

Perhaps many of you are aware of the Orlando, Florida businessman that controlled several employee leasing companies and has been indicted for $181 million in unpaid withholding taxes by the Justice Department (United States v. Amodeo, M.D. Fla., No. 176-ORL-28-GJK August 6, 2008). Remember, just because the government is charging this individual with fraud doesn't relieve the clients of the leasing companies from their liability to pay the taxes not paid by the PEO's. You may want to check this link to a precedent-setting case -- Tidy Maid court decision.

From BNA Inc.'s Payroll Administration Guide, Vol. 19, No 17, Aug 20, 08:

"There are two simple regulatory changes that would effectively curtail these incidents," according to Peter Isberg, president of the National Payroll Reporting Consortium (NPRC), a group of payroll service providers, and vice president for Governmental Affairs with ADP Inc.

"In May, NPRC and another group representing service providers, the Independent Payroll Providers Association (IPPA), sent a letter to the Internal Revenue Service urging changes to regulations that would require service providers to make all deposits electronically, because this could keep PEOs from diverting tax funds for any considerable period of time-up to a year or more, as in the case of Amodeo--without detection. In addition, the letter called for requiring all service providers to disclose to clients at least quarterly that the employer remains liable for payment of its payroll taxes."

"Having the taxes deposited electronically means clients/employers would at any time be able to check the status of payments made to IRS by service providers."

Some important things to consider – (1) The PEO client would only be able to verify tax payments made on their behalf if they were made to the client's employer identification number (EIN). (2) If the IRS follows the suggestions of the NPRC and the IPPA, PEOs would be required to pay taxes under their clients' EIN -- They would no longer be a PEO, they would be an ASO. (3) The IRS doesn't need a new law to change their regulations.

There are many other possible explosive changes that can come about with a new president that could also destroy this Hummer!

NOTE: ABCO Payroll Services is a member of the Independent Payroll Providers Association (IPPA). ABCO Payroll Services deposits all taxes electronically and has the IRS send each of our clients an inquiry PIN, making it possible for them to verify their tax payments at any time.