PEOs (professional employment organizations) come with many advantages, including access to affordable benefits plans and support with state compliance. But not all PEOs are created equal—especially for teams that have employees in the US and abroad.
With Deel, companies can manage their global workforce within a single platform. That includes US PEO and payroll, direct employees hired under owned entities, EOR employees, and independent contractors.
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 your team up for success.
Why do companies change PEOs?
Companies choose to switch from one PEO to another for several reasons, typically aiming to better align their business needs and goals with the services provided.
Reevaluating your current PEO partnership provides an excellent opportunity to affirm your business needs and aspirations. Here are some key indicators that it might be time to explore a new PEO:
- You're seeking more comprehensive services to match your evolving business needs
- You need more timely and effective customer support
- You're looking for a wider range of employee benefits and insurance options to attract top talent
- You need more reliable compliance payroll services
- Your budget has changed
- You need a more intuitive platform that simplifies administrative tasks
Recognizing this need for change is a step in the right direction, leading you to a PEO that aligns with your business goals, enhances operations, and opens up new opportunities.
See also: Manage US & Global Workforce With An All-in-One HR Software
Evaluating and selecting a new PEO
Once you've decided to exit your current PEO, it's time to identify which new PEO provider will best serve your team now and in the coming years. Consider the following factors during your evaluations:
- 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 state registration support, full-service benefits administration, and compliance training. Determine which ones align with your present and future needs
- Tech capabilities: Assess how user-friendly the PEO platform is and how easily you can connect it to other HR tools. 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
Draw on your previous experience to narrow down your search. For example, if you have a percentage-based pricing plan with your current PEO but find it's becoming less cost-effective as your workforce grows, consider choosing a PEO with a fixed rate.
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.
Harness the cost-effective scale of a Professional Employer Organization with our in-depth guide.
Preparing for the transition
On average, implementing a new PEO can take between two and six months to complete, depending on the provider. Typically, companies want to be onboarded with the new PEO by January 1 for benefits enrollment, so your transition process should begin a few months before that.
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)
First, conduct 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.
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 secure an agreement with your new PEO and inform your current provider of the transition, you can develop a transition plan. Establishing a clear timeline helps maintain alignment among all parties involved and mitigates potential bottlenecks. Key milestones to establish include:
- Assigning teams to manage the transition
- Identifying the key points of contact alongside their roles and responsibilities
- Negotiating and finalizing contract terms with the new PEO
- Confirming the notice period with the current PEO
- Agreeing on handover dates
- Notifying employees of your decision
- Organizing the transfer of employee, benefits, and payroll data
- Testing the new PEO platform
- Training staff on how to use the new PEO
- Formally concluding your relationship with your former provider
Timelines will vary depending on 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 and less employee data to migrate, so they may experience a shorter transition period.
Running global payroll without switching between payroll providers—music to your ears? See how consolidating payroll sounds so good.
Communicating with employees
Keeping employees updated and fully informed about the new PEO helps reduce the risk of confusion or misinformation, ensuring a smooth experience for your workforce.
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.
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
Transitioning your data to a new PEO presents an opportunity to streamline and enhance your payroll and benefits management.
While any data migration carries risks, assigning dedicated project managers to oversee this stage can significantly reduce the potential for errors. This proactive approach underscores the value of partnering with a PEO that prioritizes meticulous planning and support during key transitions.
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.
Handling legal and compliance matters securely
When switching PEOs, employee health insurance, benefits programs, workers' compensation, and liability insurance should not be interrupted.
By meticulously planning the changeover, you can safeguard against any gaps in coverage, thereby protecting your company from potential penalties and reinforcing the value of a well-coordinated PEO partnership.
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.
Transitioning to a new PEO also allows you to improve your team's data security. Look for a PEO that uses robust encryption and restricts access to the database. For instance, Deel is SOC2 and ISO 27001-certified, offers GDPR-compliant solutions, and works seamlessly with multiple SSO providers.
Hire anywhere without worrying about local laws, complex tax systems, or managing international payroll. Focus on finding the perfect match for your team, we’ll take care of the rest.
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.
Employee feedback is a valuable indicator of how smoothly your organization is transitioning to the new PEO. Encourage your team to share their observations and any concerns during check-ins or feedback sessions. A pattern of similar feedback highlights areas for enhancement and collaboration with your PEO.
Challenges during the initial phase with a new PEO are not uncommon—this period often calls for adaptability as you adjust to your new PEO partnership.
How to perfect your exit strategy with Deel
Transitioning from a PEO can seem challenging given the intricacies of co-employment relationships. 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 a dedicated customer success manager and 24/7 in-app chat 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 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.
*Provided by Deel PEO US, LLC, Deel Employment Services, LLC, or through Deel's partnership with licensed providers where required.
