How to Leave a PEO

Leaving a Professional Employer Organization (“PEO”) is no small feat, but it can bring new opportunities for cost savings and greater control over your company’s operations. While a PEO provides a comprehensive suite of services – handling payroll, benefits, HR, and compliance – it often comes with high costs and limited flexibility. If you’re considering making the leap, this guide will help you navigate the transition smoothly.

Why Leaving a PEO Might Be the Right Move

PEOs can be an excellent solution for smaller businesses looking to offload the administrative burden of managing employees. However, as your company grows, so does the complexity and cost of maintaining these services through a PEO. Many businesses find that they can manage these services more efficiently in-house or through a combination of vendors at a lower cost. If this sounds like your situation, it may be time to consider a switch.

Step-by-Step Roadmap for Leaving a PEO

Use a Checklist

To stay organized during this process, use a checklist that covers every aspect of the transition. Missing a step can lead to disruption in your operations or gaps in employee benefits.

Assemble Your Transition

Team Building a team of experienced professionals is crucial for a smooth exit. You’ll need experts in the following areas:

• Workers’ Compensation
• Employee Benefits
• Retirement Benefits
• Human Resources

Look for advisors who focus on your needs, rather than those pushing a specific product or service. Having professionals skilled in project management can streamline the process and avoid hiccups.

Review Your PEO Contract

Request a copy of your current PEO contract and analyze the services they provide. Each service – such as payroll, HR, technology, or compliance – will need to be addressed either in-house or through outsourcing. Your team of brokers and consultants should help with a cost-benefit analysis to determine whether unbundling these services offers savings over sticking with the PEO.

Plan for Workers’ Compensation

Switching your workers’ compensation coverage may be one of the most challenging parts of the process. Some insurers won’t recognize your experience with the PEO, viewing your company as a new risk. An experienced workers’ comp broker can help find the best coverage without gaps.

Address Employee Benefits

Transitioning employee benefits can also be complex. Without careful planning, your employees may face coverage gaps or increased costs. Make sure your employee benefits broker is involved early to help find plans that offer continuity, and to explore alternatives like COBRA or short-term group health insurance.

Manage Payroll and Tax Considerations

You’ll also need to find a new payroll vendor, especially since payroll is a core service provided by PEOs. Plan at least three weeks ahead of the transition to ensure seamless payroll processing.

Additionally, if you leave your PEO mid-year, your employees will receive two W-2 forms – one from the PEO and one from you. Be sure to check whether your PEO is certified with the IRS, as this will affect whether your FUTA and FICA wage bases reset, potentially leading to tax overpayments.

Compliance and Technology

Leaving a PEO means you’re now responsible for staying compliant with a variety of federal, state, and local regulations. You’ll also need to adopt technology that supports payroll, benefits, and HR functions. Cloud-based platforms can handle much of this efficiently, and your HR consultant can recommend the right tools for your business.

Final Thoughts

Exiting a PEO is a major decision that requires careful planning. Whether you plan to handle services internally or through vendors, it’s critical to assemble a knowledgeable team and use the right technology. Wisterm is here to help you navigate the complexities of leaving a PEO and ensure a smooth transition.