Breaking Up with Your PEO: The Ultimate Exit Guide

When and How to Leave a PEO: Your PEO Exit Checklist
Explore this comprehensive guide on exiting a PEO (Professional Employer Organization), focusing on HRIS selection, benefits setup, tax registration, compliance, and communication strategies. Whether you're growing beyond the PEO model or need a more customized approach, this guide has you covered.

What is a PEO?

A Professional Employer Organization (PEO) provides HR outsourcing services to small and mid-sized businesses, acting as a co-employer. This means the PEO assumes some employment-related responsibilities, such as payroll processing, benefits administration, and compliance management.

PEOs streamline administrative tasks, often making them an attractive option for startups or businesses with limited HR resources. However, this arrangement can come with limitations, including high fees, lack of customization, and reduced control over employee experience.

Why Leave a PEO?

While PEOs offer many benefits, they are not a one-size-fits-all solution. Companies often outgrow the PEO model as they scale. Here’s why businesses consider making the switch:

1. Headcount Growth
   PEOs are cost-effective for smaller companies, but as headcount grows, their administrative fees—often $100-200 per employee per month (PEPM)—become increasingly burdensome. Companies with 50+ employees can often find comparable benefits on the open market without the added fees.
2. Customized Employee Experience
   PEOs use standardized processes for onboarding, handbooks, and policies, which may not align with a company’s unique culture. Exiting a PEO allows businesses to create tailored employee experiences that reflect their values and goals.
3. In-House HR Teams
   As businesses grow, they often develop internal HR capabilities, reducing the need for outsourced services. Companies with HR teams can manage payroll, compliance, and benefits more efficiently in-house or through specialized vendors.
4. Cost Savings
   Beyond administrative fees, PEOs may not always offer competitive benefit rates as your company grows. Transitioning away from a PEO often reduces costs, especially for businesses with highly compensated employees.
5. Employment Autonomy and Data Control
   Leaving a PEO gives businesses full control over employee records, policies, and processes. It also eliminates co-branding, where employees receive paychecks or communications from the PEO rather than their direct employer.

Steps to Exit a PEO

Exiting a PEO is a complex process that requires detailed planning and execution. Below are the essential steps:

1. Assess HRIS and Payroll Needs

• Build HRIS Requirements: Identify the tools your business needs, such as payroll, benefits administration, onboarding, time tracking, and compliance management.
• Shortlist Vendors: Research vendors that align with your requirements. Look for features like ease of use, integrations, and scalability.
• Implement and Transition: Once a vendor is selected, begin implementation. This process typically takes 3-6 months, depending on company size and complexity.

2. Transition Benefits and Insurance

• Choose a Benefits Broker: Work with a broker to design and implement medical, dental, vision, workers’ compensation, and ancillary benefit plans.
• Coordinate with the HRIS Provider: Ensure seamless integration of benefits data into your new system.
• Address COBRA and Ancillary Benefits: Plan for COBRA administration, 401(k) rollovers, and FSA/HSA transitions. Communicate changes to employees to avoid gaps in coverage.

3. Manage Tax and State Registrations

• Re-Establish State and Local Accounts: Obtain SUTA IDs and re-register for local tax withholding accounts.
• Monitor Tax Restarts: Be aware of potential FICA and FUTA wage-base restarts when leaving a PEO mid-year. Proper planning can mitigate these costs.

4. Ensure Compliance

• Develop HR Policies and Handbooks: Create compliant policies and handbooks that meet state and federal regulations.
• Re-Hire Employees: Collect new I-9 forms, issue updated offer letters, and complete required compliance training for all employees.

5. Communicate with Employees

• Start communication early and continue throughout the transition. Employees need to understand changes in benefits, payroll, and policies.
• Host informational sessions and provide resources to address employee concerns.

Key Considerations for a Seamless Transition

1. Timing
   • Transitioning at the end of the year minimizes tax complications. Mid-year exits may require careful planning to avoid wage-base restarts.
2. Employee Communication
   • Consistent communication is crucial. Address employee concerns, provide clear timelines, and explain how changes will impact them.
3. Technology Integration
   • Select an HRIS and payroll platform that integrates with your benefits administration and compliance tools to streamline processes.
4. Compliance Management
   • Ensure all policies and handbooks meet state and federal requirements. Consult HR and legal experts for guidance.
5. Data Migration
   • Retrieve all necessary data from the PEO, including payroll history, benefits details, and PTO balances. Ensure data integrity during migration.

How Rollo Can Help with PEO Exits

Transitioning away from a PEO can be daunting, but the Rollo team makes it seamless. We provide tailored solutions for:

• HRIS selection and implementation
• Benefits design and administration
• Tax registration and compliance management
• Employee communication and training

With Rollo’s expertise, you can confidently navigate your PEO exit, ensuring minimal disruption to your business.

Ready to take the next step?
Learn more from the Rollo Team and let us guide you through your PEO transition.

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