Small Business Efficiency Act (SBEA)

Definition

The Small Business Efficiency Act, enacted in December 2014 as part of the Tax Increase Prevention Act, created the IRS Certified PEO (CPEO) program. The Act's primary purpose was to clarify the federal tax treatment of PEO arrangements and eliminate the joint and several liability that had previously made non-certified PEO arrangements legally ambiguous for federal employment taxes.

Under SBEA, a CPEO assumes sole liability for federal employment taxes on wages paid under the co-employment arrangement. The IRS cannot pursue the client business for tax shortfalls — only the CPEO. This is the single most important legal benefit of working with a CPEO vs. a non-certified PEO.

Certification requires audited financials, surety bonds, ongoing tax compliance, organizational documentation, and quarterly reporting. The IRS publishes the list of Certified PEOs publicly and updates it quarterly.

Common questions about Small Business Efficiency Act (SBEA)

Related terms

• Certified Professional Employer Organization (CPEO) — A PEO certified by the IRS, which transfers federal employment tax liability from the client to the PEO.
• Professional Employer Organization (PEO) — A company that enters into a co-employment relationship with a client business to handle payroll, benefits, workers comp, and HR compliance.
• Federal Insurance Contributions Act (FICA) — The federal law that funds Social Security and Medicare through payroll taxes split between employer and employee.
• Federal Unemployment Tax Act (FUTA) — The federal employer-only payroll tax that funds the federal unemployment insurance program.

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This is one entry from our PEO glossary covering payroll, benefits, workers comp, HR compliance, and PEO mechanics. Browse all terms.