How Leaving a PEO Affects the Work of HR

August 3, 2016 Zuman

The decision to leave a PEO (Professional Employer Organization) should never be made hastily. There are several key considerations that every business needs to weigh, including overall benefits, accompanying costs and what to expect from the period of adjustment.

Yet even as your company's upper level management mulls these elements over, it's important to be aware of what this decision means. Specifically, leaving a PEO can affect the way an HR department and its many responsibilities are handled. Being aware of these changes is a sizable component of the decision-making process and will help realign business practices in case of just such a change. 

Taxation modification

Within the PEO model, employers can expect to be credited for tax payments set up following the establishment of the Federal Insurance Contributions Act. Once you've opted out of the PEO structure, though, the company itself is considered the employer, and that means the tax credits go with it. That often leaves employers having to pay FICA twice, which can affect the bottom line, and refunds can be difficult to obtain. This can be especially problematic if the PEO departure happens mid-year. It's not just tax payments and assorted credits that can change post-PEO, either. There are other tax-centric guidelines that will be noticeably different outside the PEO model, and companies need to be aware of some of these subtle differences as to maintain total legality. 

A period of transition

As mentioned above, there can be a noticeable adjustment period for companies upon exiting a PEO. But what many people don't stop to consider is that the transition itself can be a somewhat bumpy process, and navigating it successfully means taking the necessary steps. For instance, it's important to inventory any documents related to the PEO services for official tracking and recordkeeping purposes. There is also the need to provide some level of support as the company makes the shift, and one model can't be abandoned outright. Employees must also be given new sets of paperwork, and this process can sometimes prove costly and time-consuming. No matter how smooth the transition might seem, it's essential companies stay diligent in the period immediately following the PEO exit.

On their own

Among the many reasons PEOs proved so popular for as long as they did is the fact that HR departments and companies as a whole needed the support. The PEO approach is one where every decision within the HR hierarchy is properly guided, and leaders can expect the necessary input and structure to ensure an effective decision-making process. Moving away from a PEO means that there is no such safety net, and HR departments are left to handle the workload (benefits, personnel issues, taxes, etc.) on their own. This doesn't necessarily have to be a scary prospect, but it's something more companies must recognize. This level of "independence," as it were, can be great for business. However, it can require businesses to utilize new operating procedures.

A different approach

Though standard HR operations do change greatly upon your PEO departure, that doesn't mean that the work of each respective department has to be interrupted. To keep their work on track, companies across the world have been turning to a new model - HR BPaaS, or human resources business process as a service. HR BPaaS is preferred because it has a number of important benefits, including full-scale access thanks to a cloud-based service, an enhanced sense of scalability, and the service can easily be tailored to any company's unique needs. It's more than just increased efficiency; the HR BPaaS approach is about providing the partnerships organizations need to reach their maximum potential in HR operations and beyond.


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