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PEOs. The Difference in Payroll Taxes

 

 

 

 

Payroll processing and PEOs. 

 

 

 

 

 

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PEO Payroll or a Standard Payroll Processor

Processing payroll is almost identical whether its a PEO or payroll company.  Both entities use similar software, process paycheck, pay taxes, and create year end w-2's. However, PEOs were designed to bundle payroll, HR, workers' compensation insurance, and benefits administration into one seamless package.  Payroll companies are more likely to bill on an a la carte basis and PEOs are more likely to bill an administration fee as a percentage of gross payroll.

PEO's typically charge between 2% and 4% of their clients gross payroll.  This administration charge is supposed to include payroll processing, HR services, insurance risk management services, insurance premium, and other administration costs.

Payroll companies typically charge between $1.50 and $3.50 per check.  They will often have additional fees for employee administration services such as HR, garnishments, tax reporting and more.

While PEOs tend to be a more expensive option than payroll services they may be a better overall value if they can offset other costs such as insurance premium, unemployment taxes, and HR administration.  Employers need to consider the overall PEO solution and measure it against all the employer related costs in order to determine which is the better deal for their business.

The lines between PEOs and Payroll providers continue to blur as both industries mature and adapt to market demand.  PEOs have become more like payroll services with special insurance programs and administrative services while payroll companies continue to offer more PEO like services such as Pay As You Go workers compensation and HR support.

  PEOs. Outsource Payroll- consider our payroll service.

Difference in Payroll Taxes Between Payroll Companies and PEOs

While payroll companies process and report all employee and employer matching taxes under the clients own FEIN, PEOs report all taxes under their PEOs FEIN since they are the employer of record.  However, many states now have laws in place that requires PEOs to report state unemployment tax under the client state identification number and at the clients unemployment tax rates as opposed to the PEOs.

 

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