When bringing in a new partner or transitioning an employee from K-1 to W-2, or vice versa, the systems and processes of your Professional Employer Organization (PEO) shouldn’t stand in your way. Instead, you should expect your PEO to be flexible and adapt its systems and processes to your business needs, not the other way around.
According to the National Association of Professional Employer Organizations (NAPEO), businesses using a PEO grow 7-9% faster and are 50% less likely to go out of business. Partnering with Aspen HR allows you to unlock these benefits and deliver top-quality HR services to your K-1 partners and W-2 employees.
HR for K-1 and W-2: What to Expect From Your PEO
As you already know, employee wages reported on Form W-2 are subject to payroll, federal, and state income taxes. In contrast, a partner’s share of business income and other tax items reported on Schedule K-1 is not subject to payroll taxes. In both cases, your PEO should be capable of providing the necessary reporting for payroll and other payments made to employees and partners.
Whether you’re already working with a PEO or considering one, it’s crucial to ensure that the PEO can accommodate individuals with W-2 and K-1 classifications, including transitions between W-2 and K-1. This flexibility will help optimize your HR and business operations, whether you experience a handful or frequent transitions to partner, as in the case of law firms.
The Aspen HR Difference: Tailored PEO Services for K-1 Partners and Owners
Many PEOs lack the systems or processes to provide HR services to K-1 owners and partners, focusing instead solely on W-2 employees. This is often due to the complexity of K-1 tax reporting, compliance, and tracking each partner’s share of income, deductions, and credits. Additionally, while most PEOs are experienced in managing employee benefits like health insurance and retirement plans, they may not have the expertise or infrastructure to extend these benefits to K-1 partners.
Aspen HR is different. Our PEO services include managing payment reporting and benefits for K-1 partners, as well as transitions between W-2 and K-1. This capability allows us to deliver significant advantages for your business, including…
Comprehensive Payroll Management
Aspen HR can streamline payroll processes for individuals classified as W-2 and K-1, ensuring accurate and timely payment for all types of compensation. Regardless of their classification, everyone experiences a straightforward and efficient onboarding process. For example, those moving to W-2 will fill out a W-4 form and be added to the payroll system. Individuals transitioning from W-2 to K-1 will receive payments under unique pay codes like “guaranteed payment” and “distribution” instead of regular payroll wages.
Unified Reporting
Having a single PEO manage W-2 and K-1 payments and reporting simplifies your overall business tax compliance and reporting. This approach ensures that all income, whether from wages or partnership distributions, is accurately reported and compliant with IRS regulations. Additionally, because one PEO handles everything, you can focus less on administrative tasks and manage your HR activities more efficiently.
Enhanced Benefits Administration
A PEO that provides W-2 and K-1 HR services can offer you, your employees, and your partners a comprehensive benefits package. With Aspen HR as your PEO, K-1 partners and owners are eligible for benefits such as health insurance, HSAs, and 401(k). We simply ask for an estimated compensation figure to calculate salary-based benefits like life and disability insurance accurately. Additionally, we can set up a separate benefit class for K-1 partners with unique benefit offerings and funding.
Improved Compliance
Providing PEO services to K-1 partners requires adherence to different tax and legal requirements. Aspen HR helps you comply with federal and state regulations applicable to W-2 employees and K-1 partners, thus reducing the risk of penalties and audits.
Seamless HR Solutions for W-2 and K-1 Transitions
Your PEO should adapt to your needs and simplify your business operations, not hold you back. With Aspen HR, you gain the flexibility to manage W-2 employees and K-1 partners seamlessly, including transitions between these classifications. Our tailored services ensure that everyone in your organization receives timely, accurate payments, affordable world-class benefits, and HR guidance to help you stay in compliance.
Ready to get started? Contact us today and discover how we can help you achieve your goals.
