HR outsourcing for non-profits
Posted by Kristian Svindland on March 16th, 2009
There are various HR outsourcing models to choose. All have their benefits and detractors. One of the most obvious detraction for PEO (professional employer organization) is the fact that under the “co-employment” arrangement that a client agrees, all tax reporting is done under the PEO’s tax identification number. Thus, an entity, such as a not-for-profit, that enjoys certain tax deferrals, will be “taxed” by the PEO as the PEO is responsible for paying all taxes.
Be sure that the benefits and cost savings are worth paying these taxes. Sometimes the savings in workers compensation insurance and benefits cost outweigh the loss of these tax breaks, but sometimes not.
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Realize not for profit can loose tax benefits of 501C if with a PEO. Is there any concern for the PEO when applying for GRANTS mwhich are sometimes based on a certain number of employees? Could the grant authority be concerned that the 501′s employees are really not their employees because of the co employment arrangement with the PEO?
Comment by David Johnson — September 30, 2009 @ 1:02 pm
Thanks for your comment, David. To clarify, some PEO’s are able to allow their non-profit clients the ability to realize their own employees for grant and other tax purposes. Definitely a top 5 question to ask the PEO that is quoting how this situation is handled.
That said, I have seen also not for profits that go with a PEO even if they lose their employees to the tax id of the PEO due to the outstanding savings from benefits and hr admin they receive from the PEO.
Comment by Kristian Svindland — October 1, 2009 @ 12:34 pm