Small and medium companies using professional employer organizations (PEOs) often find that their current PEO isn't a great fit. If you find yourself becoming increasingly frustrated with your PEO's performance and support, it may be time to consider a new option. As you prepare for this change, there are a number of things you can do to ensure a smooth transition.
Here are some helpful tips for a painless transition when ending a PEO relationship.
What is a PEO?
A PEO is a service company that's function is to provide businesses with comprehensive HR solutions. These include:
- Human Resources Support
- Tax Administration
- Regulatory Compliance Assistance
You may not have the resources or infrastructure to support these functions in-house, so PEO benefits can serve a critical roles in the functioning of your business. Partnering with a PEO can result in cost and time savings. In fact, companies that use a PEO have reported seeing 14% higher overall company growth.
How to Prepare For Leaving a PEO
While PEOs can provide significant benefits to businesses, they must be providing quality services for you to realize these benefits as their client. At the same time, moving away from an existing PEO has the potential to cause serious disruption to critical business functions. For this reason, you need to thoughtfully prepare for transitioning away from this partnership.
There are several things you can do to ensure minimal business disruption as you leave your PEO:
- Collect All Employee Information. Your PEO is likely handling important payroll and other information for your employees. Take time to secure all relevant data from the PEO before termination of any contract, including:
- The company's Employer Identification Number
- Employee direct deposit information
- Names, addresses, marital statuses, and dates of birth for employees
- Employee tax information, including filing status, deductions, and federal and state tax filing numbers.
- Tax Implications. If you are terminating your PEO relationship mid-year, the PEO will need to handle taxes through that point and issue W2s for that time period. Your business or your new PEO or payroll service will need to pick up where they left off, which will likely result in employees receiving two W2s for the year.
- Plan for Payroll. If you are not transitioning directly to a new PEO, you will need to have a plan in place for handling payroll for employees. Getting paid on a time is obviously a priority for employees, so it is critical to have a plan for this determined before you officially depart from your existing PEO. Any new service will likely require time to get setup, so plan accordingly.
- Benefits Administration. If your PEO has been handling employee benefits, this is another area you'll need to assume responsibility once more. You will need to research and understand various carriers and their benefits packages. Additionally, be aware of any pending claims prior to termination of the PEO as you may still need to pay administration fees until these claims are resolved. Also be cautious that deductibles may reset under a new benefits package. You'll need to communicate this to your employees so they can plan for additional medical and dental expenses.
- Retirement Plans. Employees may need to transfer their 401(k) plans either into an IRA or the new 401(k) offering. Make sure you have resources prepared to assist them in this process.
- Honoring Employee Leaves. Be sure you are familiar with the existing policy on leaves of absence, including parental leave and disability leave, as you may be required to honor the leaves granted under the existing PEO. To avoid any confusion after the termination, be sure to have your own plan established and communicated.
You might at the above list of to-dos and find it overwhelming. This should not, however, stop you from ending a relationship with a sub-par PEO.
If you'd like an expert guide during this process, we provide the level of experience needed to ensure that your company will be matched with a PEO that will solve the problems you are facing. Use our free PEO Comparison Tool to start finding a better fit for your company today.