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Are company owner and employee retirement benefits connected when using a PEO?

Tonya Crittenden's Profile

I manage and co-own a small business with 3 full time (with benefits) and 3 part time (limited benefits) employees. I am considering using a PEO. Is the owner's retirement vehicle/limits connected to the employees' when using a PEO? Also, is the PEO fee based only on wages of leased employees or also include owner salary?

Answers

Scott Cadora
Title: Vice President
Company: Pinnacle Business Solutions, Inc.
LinkedIn Profile
(Vice President, Pinnacle Business Solutions, Inc.) |

Tonya

Assuming that you refer to a 401(k) plan for retirement, the answer is yes, the owner and employees are grouped together. The IRS requires that all client companies of PEO's be tested (for purposes of contribution limits) individually. So using a PEO does provide advantages in terms of accessing better 401(k) plans, reducing the admin fees and coordinating the payroll, taxes and contributions. But a PEO will not enable a company owner to contribute more to a 401(k) or any other retirement package than they would be able to on their own.

As to your question about fees, some PEO's will charge a flat fee per employee if you prefer. It will generally equate to what the percentage of payroll would be. Other PEO's will cap the amount of a percentage fee for highly compensated employees or owners to an agreed upon amount. But this is not universal. There are several PEO's that will charge the percentage of payroll on all wages. But their clients aren't stupid so most of those owners only take a partial salary via W-2 wages and take the rest through shareholder dividends. But that can be difficult and counter-productive. Better to look for a PEO that will just do a flat fee or cap the fees for owners. It makes it much cleaner.

Let me know if you have any further questions. I'm happy to help you.

jodi Besket
Title: Data Acquisition Associate
Company: HG Data
LinkedIn Profile
(Data Acquisition Associate, HG Data) |

Hi Tonya,

I have just spent the past 4 months comparing PEOs. If you'd like to talk, I'd be happy to run through what I've found.

-Jodi

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