Article
9 min read
Leaving a PEO: How-to Guide and PEO Exit Checklist
PEO
Author
Shannon Ongaro
Published
August 25, 2023
Last Update
January 16, 2025
Key takeaways
- A PEO (professional employment organization) is a business model where a third-party company provides HR functions, payroll, and benefit administration services.
- When leaving a PEO mid-year, timing your exit carefully can help you avoid overpaying on payroll taxes, resetting your wage base, and disrupting employee benefits like a retirement plan or flexible spending account.
- Deel PEO provides comprehensive PEO services, covering payroll, compliance, and sensitive HR matters like terminations and workers' compensation claims.
Are you feeling weighed down by the limitations of your current professional employer organization(PEO)? As your company grows, sticking with a platform that no longer meets your needs can lead to higher costs, inefficiencies, and unnecessary compliance risks. Many small businesses face challenges like overlapping services, delays in payroll benefits, and outdated HR functions during their contracts with suboptimal PEOs.
At Deel, we understand that exiting a PEO and finding a new provider can feel daunting, but it’s also an opportunity to align your payroll, HR, and compliance processes with your long-term goals. In this guide, we’ll walk you through the essential steps for a seamless PEO transition using Deel’s expert checklist and holistic support system.
By following these actionable tips, you can ensure secure data migration, uninterrupted benefits for your team, and tailored HR solutions—all designed to drive business success while keeping your operations compliant. Let’s take the first step toward leaving a PEO and building a more efficient HR strategy.
6 signs to consider leaving a PEO
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 relationship 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 PEO services to match your evolving business needs
- Your in-house HR team requires additional support
- You’re looking for a wider range of benefits programs, such as improved retirement plans or flexible spending accounts
- You need more timely and effective customer support
- You’re looking for more reliable compliance and workers' compensation services
- Your budget has changed, and the cost-benefit of your current PEO no longer works
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.
Free PEO exit checklist: How to change PEO providers
This checklist is designed to guide HR and payroll teams through every step of the transition, ensuring a seamless experience for both you and your employees.
Learn how to:
- Prepare for the transition
- Evaluate potential PEOs
- Develop a transition plan
- Guide employees through the transition
- Migrate data without information loss
- Handle legal and compliance matters securely, including considerations for COBRA participants
- Train and onboard employees to the new platform
- Monitor and adjust the service to ensure long-term success
Planning your exit: Key considerations
Leaving a PEO requires careful timing and planning to minimize risks and avoid disruptions. A detailed strategy can ensure the transition is smooth for both employees and the organization.
Timing the exit
Tiiming is critical to avoid complications such as resetting payroll tax wage bases (e.g., FICA, FUTA, SUTA). For example, transitioning at the end of the calendar year allows you to align with benefit enrollments and ensure continuity in payroll processing.
You may also be interested in: Time-to-Market Advantage: EOR vs. Entity Establishment
Assessing current processes
Conduct a thorough review of your HR, payroll, and compliance systems to uncover inefficiencies and redundancies. Ensure all employee data is accurate and up to date to prevent errors during the transition. By defining clear goals, such as reducing payroll errors or improving benefits enrollment times, you can identify specific improvements to target with a new PEO or HRIS system.
Communicating with employees
Open communication reduces confusion and builds trust. Prepare a comprehensive FAQ document addressing common questions about payroll schedules, benefits changes, and any tax implications. Schedule team-wide meetings and provide multiple channels for employees to share concerns or feedback. For example, companies with remote teams often benefit from setting up dedicated Slack channels where HR representatives can answer questions in real-time.
Handling legal and compliance matters securely
When exiting a PEO, 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 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.
Watch: Exploring strategies for expanding your team in the US
The session, Hiring in the US: Pathways to Expansion for Growing Teams, featured insights from industry experts Sasha Medvedovsky, Co-Founder & CEO, Diversion Company, and Shannon Schiltz, Operating Partner at Andreessen Horowitz, alongside Deel's Director of PEO Solutions, Philip Alvarado.
Path 1: Switching to a new PEO
Switching to a new PEO can provide access to better services, improved cost-efficiency, and enhanced support. Here’s how to make the move:
1. Assess the need for a new PEO
Evaluate your current PEO relationship and identify gaps or inefficiencies:
- Are customer support and compliance services sufficient?
- Do benefits programs meet employee needs?
- Is your PEO’s pricing model still cost-effective?
2. Evaluate potential new PEOs
When exploring new providers, prioritize the following:
- Pricing plans: Fixed rates, per-employee fees, or percentage-based costs
- Service offerings: Full-service benefits administration, compliance training, and state registration support
- Tech capabilities: Seamless integration with HR tools and user-friendly interfaces
- Accreditation: Membership in NAPEO signals adherence to industry standards
3. Plan the transition
Key steps for switching PEOs include:
- Notify your current PEO and review your contract for termination clauses
- Develop a transition timeline with milestones like data migration and benefits enrollment
- Communicate the change to employees and address concerns about benefits continuity
Recommended transition guides:
- Deel HR Migration Simplified: Your HRIS Implementation Checklist
- Payroll Implementation Checklist: Step-by-Step Template
4. Implement the new PEO
During implementation:
- Assign a transition team to oversee data migration and onboarding
- Conduct parallel testing to ensure the new system functions as expected
- Train HR and employees to use the new platform
Deel’s PEO services simplify transitions by providing comprehensive support for compliance, payroll, and benefits management.
Deel PEO
Path 2: Transitioning to in-house HR/payroll management
Bringing HR in-house offers greater control and scalability. Here’s how to manage the shift:
1. Assess readiness for in-house management
Ensure your company has the resources to handle:
- Benefits administration: Compliance with federal and state regulations and open enrollment processes
- Risk management: Insurance coverage, workplace claims processes, and compliance with evolving employment laws
- 401(k) administration: Plan sponsorship responsibilities, including investment optimization and employee guidance
2. Select your new platform
An all-in-one global payroll and HR platform like Deel can streamline internal processes. Essential features to consider:
- Onboarding and offboarding tools
- Workforce management and attendance tracking
- Data storage and analytics
- Compliance features (e.g., GDPR and CCPA adherence)
Platform Tour
3. Build a transition plan
Key milestones include:
- Notify your PEO and employees about the change
- Export and clean HR and payroll data for migration to the new platform
- Establish a timeline for training HR personnel and employees
Deel’s platform automates data migration and provides resources to simplify onboarding.
4. Manage data security and compliance
Leaving a PEO makes you fully responsible for compliance and data security. Steps to safeguard data include:
- Conduct thorough data cleanup to avoid inconsistencies
- Use Deel’s Compliance Hub to stay updated on regulations
- Cross-check benefits plans to avoid lapses during the transition
5. Train and support employees
Provide comprehensive training to HR teams and employees on the new system. Offer resources like workshops, help centers, and dedicated support channels to ease the transition. With Deel Engage, you can build custom training courses, conduct surveys, and easily gather feedback.
6. Monitor and optimize
Track performance metrics such as:
- Time-to-hire and employee satisfaction
- Payroll accuracy and compliance adherence
- Feedback from HR teams and employees
How Superfiliate expedites US hiring with Deel PEO
superfiliate.com, a word-of-mouth marketing platform, empowers brands to grow through referrals, ambassadors, influencers, and affiliates.
As it matured, Superfiliate needed compliance and payroll support for its growing US workforce. The team used Deel for contractor management and Rippling for US employees, but soon faced frustrations with Rippling’s difficult platform design, lack of flexibility, and sub-par customer support.
"Deel was an easy choice over Rippling and Justworks because of its superior pricing, flexibility, and platform design.” — Andy Cloyd, CEO and Co-founder, Superfiliate
Easily manage your US and global workforce with Deel
Leaving a PEO marks a pivotal moment in your business’s growth. With the right strategy and support, you can achieve greater efficiency, cost savings, and autonomy.
Deel stands out as the premier choice for businesses navigating PEO transitions or adopting in-house HR solutions. Here’s why:
- Comprehensive services: Deel is an all-in-one platform covering PEO, US payroll, and global payroll, workforce management, benefits, and more
- Global reach: Deel’s HR and payroll tools support teams in over 150 countries, making it ideal for companies with international operations
- Technology and support: With features like Deel AI, 24/7 customer service, and an intuitive interface, Deel simplifies complex transitions
- Data security: Deel is SOC2 and ISO 27001-certified, ensuring robust protection for sensitive employee information
Book a demo today to learn how Deel can help you transition effortlessly and scale your business with confidence.
*Provided by Deel PEO US, LLC, Deel Employment Services, LLC, or through Deel's partnership with licensed providers where required.
FAQs
What happens when you leave a PEO?
When you exit a PEO, your company assumes direct responsibility for HR functions, payroll benefits, and compliance. You’ll need to transition workers’ compensation policies, retirement plans, health insurance, and other benefits programs seamlessly to avoid interruptions. Platforms like Deel can simplify this by acting as an employer of record.
What are the tax implications of leaving a PEO mid-year?
Leaving a PEO mid-year can reset your federal and state tax wage bases, potentially leading to overpayment of FICA, FUTA, and SUTA taxes. Plan your exit at the end of a tax year to avoid these costs.
What is the downside of a PEO?
Some PEOs may lock you into rigid service agreements, leading to unnecessary expenses as your business grows. Depending on your chosen provider, you may encounter limited benefits programs, high fees (especially for percentage-based pricing), and a lack of flexibility for your HR team.
Are PEO employees considered employees?
Yes, under a PEO relationship, employees are considered co-employees, with the PEO managing specific employer functions such as payroll benefits and compliance.
About the author
Shannon Ongaro is a content marketing manager and trained journalist with over a decade of experience producing content that supports franchisees, small businesses, and global enterprises. Over the years, she’s covered topics such as payroll, HR tech, workplace culture, and more. At Deel, Shannon specializes in thought leadership and global payroll content.
