PEO for a transportation company: what co-employment covers at a NEMT fleet, and what stays your job

How co-employment works

A professional employer organization becomes a second employer of your existing staff. You keep running the company and directing the daily work. The PEO takes over the employer paperwork you would otherwise set up when you hire your first employee: paychecks and employment tax filings and deposits, and it can also handle workers’ compensation and benefits. The IRS describes PEOs as handling payroll administration and tax reporting for business clients, typically for a fee based on payroll costs.

State law spells out the split. Florida, which licenses PEOs as employee leasing companies, is a useful example. Its statute defines employee leasing as an arrangement that divides direction and control over the workers between the leasing company and the client. It requires every client contract to say the leasing company:

• Pays wages whether or not the client has paid the leasing company.
• Takes full responsibility for payroll taxes.
• Keeps authority to hire, fire, discipline, and reassign the leased workers. The client can still turn down or end a particular worker’s placement.
• Manages safety and risk, including workers’ compensation claims.
• Gives each worker written notice of the arrangement.

The same section allows the client to hold on to enough direction over the workers to operate and to satisfy any license, regulation, or statute that applies to it. For a NEMT company, those requirements include broker credentialing and the driver standards in each broker contract.

What a PEO can take off your desk

Four pieces of work move to the PEO:

• Paychecks and employment taxes. The PEO runs pay, withholds, deposits, and files. A certified PEO files one combined return for all its customers under its own employer identification number.
• Workers’ compensation. A PEO may cover client employees under its own policy. Florida makes a licensed leasing company responsible for workers’ comp on its leased employees, and it must notify its carrier and the state within 30 days whenever a client relationship starts or ends.
• Unemployment tax. In Florida the leasing company pays the state reemployment tax on leased workers. Ask which state unemployment account your drivers’ wages will report under, since each state sets that rule.
• Benefits. A PEO can offer health and retirement plans a small fleet would struggle to set up alone. Our driver benefits guide covers which benefits the law requires at each size.

Certified or not: who owes the IRS

The answer depends on whether the PEO is certified by the IRS. Under 26 U.S.C. 3511, a certified PEO stands in as the employer, “and no other person,” of each work site employee for federal employment tax purposes, on the pay the PEO remits. The IRS puts it plainly: the certified PEO is generally solely liable for those taxes. For employees outside that definition, the certified PEO and the customer may both be liable.

Two details decide whether your drivers count as work site employees. The written contract must commit the PEO to paying wages and taxes regardless of whether you pay the PEO. And the PEO contract has to cover 85 percent or more of everyone who works for you at that location, with certain excluded employees left out of the count. A contract that covers only half the people at a work site fails that test.

With an uncertified PEO or an ordinary payroll service, the general rule in IRS Publication 15 applies. The employer stays responsible for filings, deposits, and payments even after contracting the work out, including when the third party fails to do it. The IRS lists a payroll service as filing under the client’s number, with the client still liable.

To check a certified PEO:

1. Find it on the IRS public list of certified PEOs, which adds newly certified ones once a quarter, by the 15th of January, April, July, and October. Suspended and revoked PEOs go on separate lists.
2. Confirm the contract shows the PEO’s exact legal name and employer identification number.
3. Expect the PEO to file Form 8973, which tells the IRS when a customer contract starts and ends.
4. Ask how you will see proof of deposits, since certified PEO customers cannot view them in EFTPS.

PEO, staffing agency, or payroll service

The three get confused, and they do different jobs:

• Payroll service. Cuts checks and prepares returns under your number. You remain the only employer and the one liable.
• PEO. Co-employs the staff you already have, for the long term. Your drivers stay your drivers in daily practice.
• Staffing agency. Hires its own workers and sends them to you for absences, seasonal peaks, or projects. Florida’s statute leaves this temporary help arrangement out of its definition of employee leasing. Drivers from an agency raise their own broker and insurance questions, covered in our staffing agency drivers guide.

A PEO is not a way to get out of a classification problem. Section 7705(g) says that apart from the certified PEO tax rule in section 3511, nothing in the certified PEO law changes who counts as an employee or employer under the tax code. If you pay drivers on a 1099 today, settle that question first with our 1099 or W-2 guide.

What stays your job

The PEO handles the employer paperwork. Your broker, your insurer, and your riders still deal with you. One broker agreement shows how this plays out: MTM’s provider agreement, version 01.01.2023, as posted on the Pennsylvania human services website.

• The broker contract. Under its definitions, a driver is a person the transportation provider itself retains or employs. No part of the agreement may be assigned, delegated, or subcontracted unless MTM consents in writing. Ask your broker in writing whether co-employed drivers fit its definition before you move them.
• Paying your people. The same agreement makes the provider solely responsible for deciding and paying its drivers’ and attendants’ compensation. That duty sits with you whoever cuts the checks.
• Driver files. The agreement requires an updated file on every person who drives or attends, owners too, holding the license, a criminal record check at hiring and annually after that, a yearly report on the past three years of driving history, drug and alcohol test results, and training certificates. No driver may work trips until fully credentialed. A PEO’s onboarding does not replace this, as our broker credentialing guide explains.
• Vans and liability. A PEO’s policy covers injured workers, not your vehicles. For commercial auto, the MTM agreement calls for $500,000 in combined single limit coverage, endorsed to add MTM as an additional insured, and that stays on your policy.
• Supervision on the road. Training, securement, rider safety, and which trips each driver runs are decided in the course of running trips. Florida’s statute allows the client to retain that much direction where regulation demands it.

Fees, contracts, and leaving

PEO fees are usually tied to payroll, so the fee grows as your payroll does. Before you sign, get these in writing:

• The fee. Know what it covers and what costs extra, such as benefits administration, state registrations, or year-end forms.
• Workers’ comp classification. Drivers should be rated under the right class code for passenger transport, the subject of our workers’ comp guide. A wrong code changes the price.
• The state license. Florida, for example, requires a license backed by an initial net worth of at least $50,000, annual audited or reviewed financial statements, and fingerprint background checks on its controlling persons. Check the PEO holds whatever license your state requires.
• The exit. Ask how much notice ending the contract takes, and line up your own workers’ comp policy and state tax accounts before the last day, so drivers are never uncovered.

Keeping hours and credentials in HealthRide

Whoever processes pay needs accurate hours, and brokers need current driver files. Drivers clock in and out on the driver app, HealthRide keeps those punches as timecards, and an hours-and-miles export from reports is ready to send each period. Each driver’s license and training expiration dates sit in the HealthRide fleet and credentials registry, with a reminder before each one comes due, the part of the job a PEO never takes over.