Tax Facts

3767 / Can a professional employer organization (PEO) offer the MEP option? Are there any safe harbors for PEOs that choose to offer MEPs?



Professional employer organizations (PEOs) are permitted to offer MEPs under the final DOL regulations—effectively acting as the employer and “plan sponsor” under a contractual arrangement with the actual employer-members of the MEP.1 The regulations also provided a safe harbor under which PEOs can offer MEPs by satisfying four criteria. To qualify, the PEO must:

  • assume responsibility for and pay wages to employees of the clients (employers) who join the MEP without regard to the receipt of payment from those clients (or the adequacy of any payments that are received);

  • assume responsibility for paying and performing reporting and withholding for all federal employment taxes for clients who adopt the MEP without regard to the receipt of payment from those clients (or the adequacy of any payments that are received);

  • play a definite and contractually specified role in recruiting, hiring and firing employees of the client adopting the MEP (in addition to the employer’s similar responsibilities) and

  • assume responsibility for and have substantial control over the functions and activities of any employee benefits that the contract with the client (employer) requires the PEO to provide without regard to the receipt of payment from those clients (or the adequacy of any payments that are received) with respect to the benefits.2







1.  DOL Reg. 2510.3-55(c)(1).

2.  DOL Reg. 2510.3-55(c)(2).

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