Co-employment creates efficiencies that are hard to replicate any other way. A single PEO can manage payroll, benefits, and compliance for dozens or hundreds of client companies simultaneously. But co-employment also creates complexity around benefit plan obligations, and few areas illustrate that complexity more clearly than the PCORI fee.
When a PEO offers health benefits to worksite employees across multiple client companies, a straightforward question becomes difficult: who is the plan sponsor, and therefore who owes the PCORI fee? The answer depends on how the benefit arrangement is structured, what the plan documents say, and whether the PEO or the client company is identified as the plan sponsor.
This post breaks down PCORI responsibility in the PEO context, explains how co-employment affects the average covered lives calculation, and covers what documentation PEOs should have in place to protect both themselves and their clients.
The PCORI Fee in Brief: Current Rates for 2025 and 2026
Before addressing the PEO-specific questions, it is worth grounding the discussion in the current fee landscape.
The PCORI fee is an annual excise tax on self-insured health plans, reported and paid on IRS Form 720, Part II, Schedule B. The fee funds the Patient-Centered Outcomes Research Institute, established under the Affordable Care Act and extended through 2029. Two rates are currently in effect:
- Plan years ending on or after October 1, 2024, and before October 1, 2025: $3.47 per covered life (IRS Notice 2024-83). Filings for these plan years were due July 31, 2025.
- Plan years ending on or after October 1, 2025, and before October 1, 2026: $3.84 per covered life (IRS Notice 2025-61). This is the largest single-year rate increase to date. Filings for these plan years are due July 31, 2026.
For most calendar-year plan clients, the applicable rate right now is $3.84 per covered life, with a filing deadline of July 31, 2026. The applicable rate depends on the plan year end date, not the calendar year of the filing.
PEO vs. Client Company: Who Is the Plan Sponsor?
Under the IRS rules governing the PCORI fee, the obligation rests with the plan sponsor of the applicable self-insured health plan. For a plan established or maintained by a single employer, the plan sponsor is that employer. For plans involving multiple employers, the plan sponsor is the entity identified as such in the plan documents.
In the PEO context, this question is far from academic. The answer depends on how the health plan is structured:
PEO-sponsored master health plan. If the PEO maintains a single master self-insured health plan that covers worksite employees across all client companies, and the PEO is identified as the plan sponsor in the plan documents, the PEO bears the PCORI filing and payment obligation. The PEO files under its own EIN and calculates average covered lives across all participating worksite employees.
Client company as plan sponsor. If each client company is identified as the plan sponsor of its own self-insured health arrangement, even if administered through the PEO, the PCORI obligation belongs to each individual client company. The client files under its own EIN, and the covered lives calculation is limited to that employer’s worksite employees.
Multiple employer welfare arrangement (MEWA). In arrangements where multiple employers participate in a single self-funded plan, the entity identified as the plan sponsor in the governing plan documents is responsible for the PCORI fee. If no plan sponsor is identified in the documents, each participating employer is treated as separately responsible.
The bottom line is that plan documents control. PEOs that have not reviewed their plan documents with this question in mind should do so before the next filing deadline. Ambiguity in plan sponsor identification does not eliminate the obligation; it just creates risk of duplication or gaps.
How Co-Employment Affects the Covered Lives Calculation
The PCORI fee is calculated by multiplying the applicable rate by the average number of covered lives under the plan during the plan year. Covered lives include worksite employees and their enrolled dependents.
In a PEO-sponsored master plan scenario, the covered lives count spans all worksite employees across all client companies enrolled in the plan. This can produce a large aggregate number, and the fee scales accordingly. For a PEO with 5,000 covered lives at the $3.84 rate, the annual PCORI fee is $19,200, a material budget item that warrants accurate calculation and timely filing.
In a client-sponsored arrangement, each employer calculates covered lives only for its own worksite employees, which keeps the individual fee amounts smaller but multiplies the number of separate filings required.
The IRS permits three methods for calculating average covered lives:
- Actual Count Method: Count the total covered lives for each day of the plan year and divide by the number of days in the plan year.
- Snapshot Method: Count covered lives on one designated date per quarter and average the four counts. This is the most widely used method for PEOs managing large worksite populations.
- Snapshot Factor Method: Multiply participants with self-only coverage by 1.0 and participants with family coverage by 2.35, then average across measurement dates. Useful when dependent-level enrollment data is not tracked individually.
One additional nuance for PEOs: when a client company has both a self-insured major medical plan and an HRA with the same plan year and plan sponsor, the HRA is disregarded and a single PCORI fee is calculated on the medical plan covered lives. However, if the HRA covers employees not covered by the self-insured medical plan, those additional lives must be added to the calculation.
Remote and Multi-State Workforces: Does Geography Affect the Obligation?
The PCORI fee is a federal obligation; it does not vary by state. A worksite employee in Texas and a worksite employee in New York are both counted the same way for PCORI purposes.
However, there is one geographic exception worth noting: health plans that cover only employees working or residing outside the United States are exempt from the PCORI fee. For PEOs managing international or globally mobile workforces, those employees can be excluded from the covered lives count, provided the plan documentation supports that exclusion.
For PEOs with predominantly domestic worksite populations spread across multiple states, geography does not change the filing obligation. What matters is whether the plan is self-insured and who the plan documents identify as the plan sponsor.
Documentation That Protects Your PEO
Given the ambiguity that co-employment can create around PCORI responsibility, PEOs should maintain clear documentation on three fronts:
Plan documents that identify the plan sponsor explicitly. Every self-insured health plan offered through the PEO arrangement should clearly state whether the PEO or the client company is the plan sponsor for PCORI purposes. This designation, made in writing before the July 31 filing deadline each year, determines who bears the obligation.
Client service agreements that address PCORI. The PEO’s client service agreement or administrative services agreement should specify whether PCORI filing is a service the PEO provides, whether it is the client company’s responsibility, and what happens if the client fails to provide accurate enrollment data in time for the filing deadline.
Annual filing records by plan year. Retain the covered lives calculation, the applicable fee rate, the completed Schedule B, the IRS filing confirmation, and the EFTPS payment record for each plan year. The IRS statute of limitations for excise tax returns is generally three years from the filing date, so records should be retained for at least that period.
Practical Steps for PEOs Heading into the 2026 Filing Season
With the July 31, 2026 deadline approaching for calendar-year plan clients, PEOs should work through the following steps now:
- Review plan documents for all self-insured health arrangements and confirm who is identified as the plan sponsor for PCORI purposes
- Confirm the applicable rate for each plan year end date ($3.47 for plan years ending January through September 2025; $3.84 for plan years ending October through December 2025)
- Pull covered lives data for the relevant plan year using the chosen IRS-approved calculation method
- Confirm whether any client companies with fully insured medical plans also maintain self-insured HRAs, as these trigger a separate PCORI obligation
- Verify the correct EIN will be used on each Form 720 filing, whether that is the PEO’s EIN or the individual client company’s EIN
- Coordinate EFTPS payment to coincide with the filing submission to avoid the common filing-without-payment error that generates IRS CP162 notices
- Retain all documentation in a retrievable format for at least three years from the filing date
Scale Your PEO’s PCORI Filings with Akore Federal
Whether your PEO files a single consolidated Form 720 for a master plan or coordinates filings across dozens of client company EINs, Akore Federal’s e-filing platform is designed to handle both scenarios efficiently.
The platform applies the correct PCORI fee rate automatically based on the plan year end date, supports the covered lives calculation methods approved by the IRS, and submits directly to the IRS with electronic acknowledgment. A multi-client dashboard gives PEO compliance teams visibility across all active filings from a single interface.
Learn more and start filing at AkoreFederal.com.
Is your PEO managing PCORI filings for multiple client companies? Contact the Akore Federal team to learn how our platform can be integrated into your existing compliance and benefits administration workflow.
