The PEO as Employer of Record: What It Means for Taxes
When you enter a PEO co-employment arrangement, the PEO becomes the employer of record for payroll tax purposes. This is not just an administrative label — it has real tax implications. The PEO files all federal and state payroll taxes under its own Federal Employer Identification Number (FEIN), not yours.
Your employees receive W-2s from the PEO at year end. Your company is the worksite employer — you control hiring, firing, and day-to-day operations — but the PEO handles all payroll tax withholding, remittance, and reporting. This administrative burden is transferred from your company to the PEO.
For workers' comp specifically, this structure is what allows the PEO to include your workers under its master policy. The PEO is the insured employer, and your workers are covered as employees of the PEO at your worksite.
Payroll Tax Responsibilities: PEO vs. You
| Tax | Paid By | PEO Handles? | Notes |
|---|---|---|---|
| Federal Income Tax (FIT) | Employee | Yes | PEO withholds and remits under its own EIN |
| Social Security (OASDI) | Employer + Employee | Yes | 6.2% each; PEO remits both halves |
| Medicare (HI) | Employer + Employee | Yes | 1.45% each; PEO remits both halves |
| Federal Unemployment (FUTA) | Employer | Yes | PEO pays FUTA under its own FEIN — potential savings if PEO has lower FUTA rate |
| Florida Reemployment Tax (SUTA) | Employer | Yes | PEO pays under its own Florida account — rate may differ from yours |
| Workers' Comp Premium | Employer | Yes | Calculated as % of payroll, remitted each pay period |
| State Income Tax | Employee | Yes | Florida has no state income tax — no withholding required |
How Pay-As-You-Go Workers' Comp Integrates With Payroll
Traditional workers' comp requires a large upfront deposit (typically 25–33% of estimated annual premium) and an annual audit to true up the actual premium. This creates two cash flow problems: a large outlay at policy inception, and the risk of a large additional premium bill at audit time if payroll exceeded estimates.
PEO workers' comp eliminates both problems through pay-as-you-go billing. Each payroll run, the workers' comp premium for that period is calculated based on actual wages paid to each employee, applied at the class code rate for their job type. The premium is automatically remitted to the carrier as part of the payroll process.
The result: no deposit, no audit, no surprises. You pay exactly what you owe based on actual payroll — no more, no less. For businesses with seasonal or variable payroll, this is a significant advantage over traditional policies that estimate annual payroll upfront.
Florida-Specific Tax Considerations
Florida has no state income tax, which simplifies payroll tax withholding significantly. The primary state-level payroll tax in Florida is the Reemployment Tax (Florida's version of SUTA), which funds the state's unemployment compensation system.
Florida Reemployment Tax rates range from 0.1% to 5.4% depending on your employer account's history of unemployment claims. New employers pay a standard new employer rate of 2.7% for the first 10 quarters. Under PEO co-employment, the PEO pays Reemployment Tax under its own Florida employer account — your company's individual rate does not apply.
Florida also requires all employers to carry workers' compensation insurance for any employee who works in the state, with specific requirements varying by industry. Construction employers must cover all employees regardless of the number; most other industries must cover employees once they have 4 or more workers.
Frequently Asked Questions
Does a PEO file payroll taxes under my EIN or theirs?
Under a co-employment arrangement, the PEO files payroll taxes (FICA, FUTA, SUTA) under its own Federal Employer Identification Number (FEIN). Your employees receive W-2s from the PEO, not from your company. This is one of the key features of co-employment — the PEO is the employer of record for tax purposes. You remain the worksite employer for operational purposes.
Can I save money on FUTA or SUTA through a PEO?
Potentially, yes. Federal Unemployment Tax (FUTA) is a flat 6% on the first $7,000 of wages, reduced to 0.6% for employers with a good FUTA credit. Florida Reemployment Tax (SUTA) rates vary by employer based on unemployment claims history, ranging from 0.1% to 5.4%. If your SUTA rate is high due to layoffs or terminations, joining a PEO whose SUTA rate is lower can reduce your effective payroll tax burden. However, this varies by PEO and is not guaranteed.
Do my employees still get W-2s at the end of the year?
Yes. Your employees receive W-2s at year end. However, the W-2s are issued under the PEO's name and FEIN, not your company's. This is standard for PEO co-employment and does not affect your employees' ability to file taxes or claim benefits. Some PEOs issue dual W-2s showing both the PEO and the worksite employer.
What happens to payroll taxes if I leave the PEO mid-year?
If you leave the PEO mid-year, the FICA wage base resets for your employees. This means both you and your employees will pay FICA taxes again from the beginning of the new employment relationship — potentially resulting in higher total FICA costs for the year. This is a real consideration when evaluating whether to join or leave a PEO mid-year.
Does the PEO handle Florida new hire reporting?
Yes. Under co-employment, the PEO handles Florida new hire reporting requirements for all co-employed workers. Florida requires employers to report new hires to the Florida New Hire Reporting Center within 20 days of the hire date. The PEO handles this administrative requirement as part of the co-employment relationship.
How does pay-as-you-go workers' comp billing work with payroll?
Pay-as-you-go workers' comp billing is integrated directly into the payroll process. Each time you run payroll, the workers' comp premium for that pay period is calculated based on actual wages paid and automatically remitted to the carrier. This eliminates the need for a large upfront deposit and the annual audit, because the premium is always based on actual payroll rather than estimates.