leaving a peo

Leaving a PEO: How To Change Your HR Provider in 8 Steps

Outgrown your HR provider? Read our guide on leaving a PEO for a smooth transition that won’t compromise HR processes or employee well-being.

Shannon Hodgen
Written by Shannon Hodgen
August 25, 2023
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Key takeaways

  1. Growing companies benefit from changing PEOs if they’re not outsourcing enough HR services to optimize their operations.
  2. A properly timed exit enables you to avoid overpaying on payroll taxes and interrupting health benefits.
  3. To ensure a seamless transition, involve all necessary stakeholders in the decision-making process.

Changing your professional employer organization (PEO) is vital when your current provider no longer meets your company’s needs. The sooner, the better, as an unsuitable PEO can hinder growth, strain your operations, and impact the employee experience.

However, leaving a PEO comes with many potential pitfalls. Businesses can experience anything from operational disruption and unforeseen expenses to resistance from staff.

In this article, we outline the steps required for a smooth transition from one PEO to another. Use these tips to guide your team through the process and set yourself up for success.

Signs it’s time to exit your PEO

If you’ve recently become dissatisfied with your PEO, you may wonder whether it’s time to leave or if you’re just experiencing a temporary setback. You can’t make the decision lightly as you’re in a co-employment relationship with your provider and separating your companies will require time and meticulous planning.

To help you determine your next steps, here are the most common signs it’s time to leave a PEO:

  • Limited services that no longer cover your needs
  • Scattered and unresponsive support
  • A lack of employee benefits and insurance options
  • Irregular compliance checks
  • Cost-prohibitive pricing plans
  • Lack of transparency over fees
  • Complaints that the platform is difficult to use
  • Payroll errors or inconsistencies

However, recognizing these problems is the first step toward a positive change. They can guide you toward a suitable PEO that will enable you to grow and capitalize on new opportunities.

See also: A Guide to Professional Employer Organizations (PEO)

leaving a PEO

Evaluating and selecting a new PEO

Once you’ve decided to exit your PEO, you can explore other possibilities. You may decide to outsource more human resources operations and engage an employer of record (EOR) service. Or perhaps you’re expanding into international markets and now require a global PEO.

If you want to continue using a standard PEO, here are your main considerations:

  • Pricing plans: PEOs may charge a fixed rate, a fee per employee, or a percentage of your payroll. Consider which pricing model is most suitable for your company’s size and growth trajectory
  • Services offered: Plans vary from basic HR services to holistic suites with benefits administration, compliance, and risk management. Determine which ones align with your present and future needs
  • Technology capabilities: As the efficiency of your processes depends on robust software, check the tools your PEO uses. For instance, do they have a powerful API to sync your tech stack? Or integrations with other popular types of HR software?
  • Accreditation with NAPEO: Membership is a sign your PEO adheres to industry standards and guidelines
  • Benefits partners: Investigate each PEO’s network of benefits providers to see whether they have the range and quality your employees need
  • Security: Consider the security protocols and measures a potential PEO has in place, as you’ll be entrusting them with sensitive employee information. Providers should be GPDR compliant and use an SSL/HTTPS to transfer data, like Deel’s security system
  • Industry expertise: Look for PEOs with a proven track record in compliance and risk management who employ qualified, industry experts. They can use their experience and knowledge to guide you through a variety of complex scenarios

You can draw on your previous experience to narrow down your search. For example, you may have had a percentage-based pricing plan but found it became less cost-effective as your workforce grew. In that case, choose a PEO with a fixed rate like Deel.

Involve HR leaders and finance department heads in the decision-making process. Their input will allow you to comprehensively evaluate providers and ensure the PEO meets the company’s needs.

Preparing for the transition

Leaving a PEO mid-year can restart tax deductibles which may lead you to overpay on the following plans:

  • Federal Insurance Contributions Act (FICA)
  • Federal Unemployment Tax Act (FUTA) 
  • State Unemployment Tax Act (SUTA) 

On average, implementing a new PEO can take between two and six months to complete, depending on the provider. Typically, companies want to already be onboarded with the new PEO by January 1 for benefits enrollment, so your transition process should begin a few months before that.

The first step involves conducting an audit of your HR processes and systems to uncover inefficiencies. Doing so will give you a more thorough understanding of your needs so you know what to request from a new PEO. You can also check you’re not duplicating services you already manage in-house.

leaving a PEO

An audit also verifies your HR data is complete and up to date. That way you avoid passing errors onto your new PEO that will disrupt payroll processing and benefits administration.

The next step is using this information to develop clear goals for the new PEO partnership. Let’s say communication issues with your current provider caused delays in benefits enrollment. One objective could be to correspond daily and sign up new hires within a week of their start date.

With that goal in mind, you can assess each PEO’s customer service offering, availability, and modes of contact. For instance, Deel has 24/7 support with a 1.25-minute average response time and clients get a dedicated Customer Success Manager (CSM).

Developing a transition plan

As you finalize a contract with a new PEO, and notify the existing one that you’re leaving, you can develop a transition plan. Both providers should assist you throughout the process so it’s essential to foster open and collaborative communication with them.

Creating a timeline can keep all three parties aligned and prevent bottlenecks. Here are the main milestones to agree on:

  • Assign teams to manage the transition
  • Identify the key points of contact alongside their roles and responsibilities
  • Negotiate and finalize contract terms with the new PEO
  • Confirm the notice period with the current PEO
  • Agree on handover dates
  • Notify employees of your decision
  • Organize the transfer of employee, benefits, and payroll data
  • Test the system works
  • Train staff on how to use the new PEO
  • Formally conclude your relationship with your former provider

The timing varies according to factors like the number of employees and the length of the transitional period. For example, startups and small businesses will have fewer staff to train. All stakeholders can work together to ensure each phase has adequate time and resources.

Communicating with employees

Keeping employees updated and fully informed about the new PEO is critical. This reduces the risk of confusion or misinformation which would make the transition period more stressful. 

If your current provider offers staff a Flexible Spending Account (FSA), determine how the transition will impact the remaining balance. Will they be able to access their funds after you terminate your current contract? Or will the funds transfer to the new PEO?

Employees may also worry about changes to their health insurance, workers’ comp, and benefits packages. Giving employees ample opportunity to ask questions and share feedback can alleviate concerns. 

leaving a PEO

You can hold meetings, offer drop-in sessions, and provide online feedback forms to field their queries. Remote teams can particularly benefit from a dedicated Slack or Microsoft Teams channel with HR team members present to answer questions. Many questions have quick answers. Consider adding FAQs to your employee handbook for staff to reference in these cases. 

Implementing the new PEO 

Transferring your data to the new PEO comes with a high margin for error. If the system breaks down, it may cause inconsistencies in your payroll and benefits data. That’s why it’s essential to have dedicated project managers to oversee this stage. 

There are five main steps to data transferral:

  • Assessment: Identify the data you need to transfer and its format
  • Mapping: Link each data point to its corresponding point in the new system
  • Cleanup: Delete duplicates, errors, and outdated files so they don’t get transferred
  • Test: Send a data sample to check there are no issues
  • Review: After transferring, confirm all data has been successfully transferred

Before you go live with the new PEO, it’s best practice to check the system. Typically, you can set up a demo account that doesn’t affect real-life operations to check that processes work as expected. The finance and HR departments can also test to see whether there are any difficulties performing their typical tasks.

leaving a PEO

Handling legal and compliance matters securely

When you’re changing PEOs, guarantee employees have seamless coverage. Any gaps in the following plans could result in penalties for your company:

  • Health insurance
  • Benefits programs
  • Worker’s compensation
  • Liability insurance

For example, the Affordable Care Act (ACA) states businesses must pay fines of up to $2,880 USD if they don’t provide adequate health insurance for employees. If staff are under the Consolidated Omnibus Budget Reconciliation Act (COBRA), there’s an additional penalty of $100 for each day they remain uncovered. 

To avoid compliance issues, double-check your team’s benefits plans before you cut your current PEO’s services. That means cross-referencing data on the old and new databases to look for inconsistencies.

Entrusting sensitive information to your new PEO can also pose a legal risk. Prevent data leaks by checking your provider uses robust encryption and restricts access to the database. For instance, Deel prioritizes security by hosting on Amazon Web Services (AWS) and re-encrypting data daily.

Training and onboarding with the new PEO

Offering employees a smooth onboarding process reduces the impact of the transition between PEOs. They’ll not only find it easier to adapt to the changes but also feel supported by your company.

Workshops with hands-on experience can familiarize teams with the new platform. They can explore the payroll provider’s features and any new benefit plans. Plus, HR can be there to answer questions and help teams navigate the new system.

To enable employees to use the platform independently, give them comprehensive guides and tutorials. Many PEOs have ready-made resources you can use. For instance, Deel has an employee help center and a video library to get teams started.

Continue to offer support during the first months to help your team use the platform effectively and catch issues before they escalate.

Monitoring and adjusting

Switching to a new PEO isn’t a one-time event but an ongoing process that requires regular reviews and updates. 

Ensure you’re getting the most from your provider by tracking its performance. Monitoring progress toward your objectives will confirm that changing PEOs was the right move. 

Let’s go back to an example we provided earlier: If you switched PEOs because of slow benefits enrolment processes, you should be tracking that performance metric with your new provider.

A few months into the transition, determine how many new employees have completed benefits enrolment within one week of their start date. Compare those results with your predetermined objective to see if you’ve reached your goal. If not, reach out to your CSM to determine how you can shorten the onboarding time.

Feedback also suggests how well your organization is adapting to the new PEO. Encourage employees to mention any issues that arise during check-ins or feedback sessions. If you receive a lot of similar complaints, that’s a sign of potential challenges that need addressing with your provider.

However, problems aren’t necessarily a sign you’ve made the wrong decision. The first months of a new PEO require some flexibility as you navigate the new PEO relationship.

leaving a peo

How to perfect your exit strategy with Deel

Leaving a PEO is daunting when you’re in a co-employment with your provider and have to disentangle yourself. But it’s worth overcoming to maximize your cost savings, make HR processes more efficient, and continue to grow unrestricted.

Deel is here to make your transition effortless. We provide round-the-clock support to address any queries you may have as you switch services. Plus, our intuitive platform is user-friendly, enabling both your HR team and employees to begin using it immediately with ease.

Once you’re on board, you can access a comprehensive range of services, including payroll and benefits administration, compliance management, and expert HR guidance.

Book a 30-minute demo with an expert today to get a closer look at the Deel platform.

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