Before You Leave A PEO, Consider This

July 6, 2017 Zuman

Professional Employer Organizations (PEOs) can be a great solution for outsourcing HR, payroll and benefits when your company is small. As you grow, (generally around the time you reach 25 employees), you might find you need more flexible HR outsourcing options. However, one does not simply walk away from a PEO. If you think you’ve grown out of your PEO, here are a few things to consider before transitioning out of the relationship.

1. Are You Getting a Good Value?

There will be a point in your PEO relationship where the cost of the service outweighs the benefits they provide. If you’ve got more than 25 employees, now is a good time to see if you fit this description.

Since PEOs typically bundle their rates, it can be difficult know exactly what you are paying for, but you can figure it out on a recent billing statement. Look at administrative fees, taxes, workers’ comp and retirement. Consider hidden costs like taxes on existing fees. Finally, make sure you know what's covered. Administrative costs, for instance, will almost always feature fees like COBRA or flexible spending.

Determine what new programs you might implement that the PEO doesn’t allow. What type of benefit plans would you get? What about implementing a customized health and wellness program? Would you change the way you get support? What custom policies would you create for your employees?

Is the PEO still cost effective, or would another HR solution be better for you?

2. Is It The Right Time?

Timing is everything, especially when it comes to untangling from a PEO.

  • Benefits Plan - Do you have a broker who is working just for you as opposed to a large group? Does the broker know your unique needs, and is she prepared to go to market on your requirements?
  • Tech-Ready – Do you have the technology to take on all the tasks your PEO has been doing? You’ll need a complete transition to new Payroll, HRIS, and benefits administration systems.
  • Services-Ready – Who will replace the people behind the technology? Does your HR manager have time to take on the responsibility, will you hire a team internally, or will you partner with an outsource solution?
  • Policy Update – Be sure your internal policies are in place. Whether you overhaul the whole system, or pick and choose what to change, leaving a PEO offers a great chance to design unique policies and programs specific to your culture and population. Be ready.

3. Have You Done Your Due Diligence?

Do you have procedures in place to ensure continued compliance? What will you do to reduce payroll errors? Consider running parallel payrolls to check for overall accuracy. Running a new payroll with a Payroll Service Provider (PSP) against the PEO gives you a definite set of data and figures to work with. From there, you can reconcile the two sets of numbers, find any discrepancies and work out strategies to avoid errors in the future.

Familiarize yourself with labor law at a state and local level. Does your municipality have specific laws that affect payroll, family leave, or other HR issues? Local labor laws have increased by 950 percent in the last five years. Unfortunately, ignorance is not an excuse when fines for non-compliance are levied.

4. How Will You Fill the Void?

Are you going to bring HR, payroll and benefits experts in-house to fill the hole your PEO will leave? Or, will you consider different technology options for each function—A dedicated payroll provider and a separate benefits administrator, for example.

Another option is to work with an HR Business Process as a Service (BPaaS) provider who will combine the human expert component with technology in a single source solution.

Whatever option you decide, the technology and services solution needs to scale as your company continues to grow, with systems in place to ensure data accuracy and integration.

Ask the right questions, carefully consider your plan, and choose a reliable partner (whether it’s your in-house HR hire, or another outsourcing partner) to make sure you are ready for a smooth transition away from your PEO.

About the Author


Zuman is the premium solution for HR, payroll, benefits administration delivering superior control, lower risk, and enhanced employee engagement for growing companies.

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