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Changing your Professional Employer Organization (PEO) can be a challenging decision for any business. Whether you are dissatisfied with your current PEO provider or simply seeking better services, a PEO transition requires careful planning and coordination.

The transition involves many moving parts, from transferring employee benefits and payroll to ensuring compliance with labor laws and managing employee communication effectively. This guide will walk you through the process of switching PEOs, highlighting every step you must take for a seamless transition.

Why Switch PEOs? Understanding the Need for Change

There are several reasons companies choose to leave their current PEO:

 

  • Cost Considerations: A business may find that its current PEO is no longer offering competitive pricing for the services provided. PEOs typically charge a percentage of your payroll, and this cost can increase as your company grows. If the cost outweighs the benefits, a new PEO with a better pricing structure might make sense.
  • Service Level Issues: PEOs are responsible for a wide range of HR tasks, and when service levels drop, businesses may look for a provider that offers higher-quality customer service or more tailored support. Poor customer service, responsiveness issues, or a lack of expertise in your industry can prompt businesses to switch providers.
  • Limited Services: As your business evolves, you may find that your current PEO doesn’t offer the full range of services you need. Be it more comprehensive employee benefits, advanced technology, or HR management solutions, a new PEO may provide more relevant solutions.
  • Cultural Misalignment: If the PEO’s work culture or management style does not align with your company’s needs or values, this misalignment can hinder your business growth. A PEO that understands and supports your company’s culture can provide better HR solutions and improve employee satisfaction.
  • Regulatory Compliance: Some PEOs might struggle with maintaining compliance across various state or federal regulations. If compliance and risk management become an issue, switching to a more capable PEO provider is an important move.

 

Whatever the reason, leaving a PEO is a significant step, and businesses must carefully weigh the advantages and disadvantages before deciding to make the change. Once that decision is made, the transition must be executed properly to avoid business disruptions.

Step 1: Identify and Select Your New PEO

The first step in the PEO transition process is selecting a new provider. This requires careful evaluation of your business needs and how different PEOs align with those needs. Consider the following steps when choosing your new PEO:

Assess Your Business Needs

Each business has unique requirements when it comes to HR services. Start by evaluating what you need from a PEO. Some key areas to consider include:

  • Payroll Management: Does your business need a more robust payroll management system? Evaluate whether the new PEO offers seamless payroll integration with your existing systems.
  • Employee Benefits: Are you looking for better employee benefits or additional options for your employees? A PEO with a broad portfolio of benefits options may be advantageous.
  • Compliance Expertise: Depending on your industry, compliance with local, state, and federal labor laws can be complex. Look for a PEO with specialized expertise in compliance.
  • Technology and Integration: A PEO that offers user-friendly HR software or mobile apps can make it easier for employees to manage their benefits and for your HR department to streamline processes.
  • Customer Support and Services: Consider the level of support you’ll receive. A PEO should offer 24/7 support, especially if you’re managing employees in multiple states or countries.

Research Potential PEO Providers

Once you know your business’s needs, start researching different PEOs. You should compare providers based on:

  • Reputation: Look for PEOs with a good track record and strong client testimonials. A well-established provider is likely to have the expertise and resources to handle your HR needs.
  • Industry Expertise: Consider whether the PEO has experience working with businesses in your industry. A PEO with experience in your sector will better understand the unique challenges and regulations that apply to your business.
  • Compliance and Risk Management: Verify that the PEO is compliant with applicable regulations and offers risk management services. They should be able to help you manage audits, claims, and compliance issues.
  • Technology and Flexibility: Ensure the PEO offers scalable technology that aligns with your business’s growth. Some PEOs offer customized HR management solutions that fit your company’s size and structure.

Get Proposals and Detailed Pricing Information

Once you’ve shortlisted a few PEOs, request detailed proposals that outline the services provided, pricing, and contract terms. Be sure to understand:

  • Pricing Structure: Some PEOs charge a flat fee, while others charge a percentage of your payroll. Understand the total cost involved and how it will change as your business grows.
  • Service Levels: Clarify what is included in the PEO’s service package. If you need full-service HR solutions, such as employee wellness programs or specialized benefits, ensure the new provider can meet those needs.
  • Contract Terms: Review the contract length and any penalties for early termination. Pay attention to any automatic renewals or fees associated with switching providers.

Step 2: Notify Your Current PEO and Review Your Contract

Once you have selected your new PEO, the next step is notifying your current provider. Before doing so, thoroughly review your contract with your current PEO to understand any notice requirements or termination fees.

Notify Your Current PEO in Writing

Notify your current PEO of your decision to transition in writing. Be clear and professional in your communication. Outline your reasons for leaving, your desired termination date, and any follow-up actions needed. If the PEO requires a certain notice period, make sure to comply with those terms.

 

It’s also important to request a clear explanation of the next steps, including:

 

  • Termination Process: How will the termination of services be handled? Ask about the return of any documents, equipment, or proprietary information.
  • Final Payroll and Tax Filings: Ensure that the PEO will handle any outstanding payroll or tax filings before the termination date.
  • Exit Agreement: Request an exit agreement to ensure all responsibilities are addressed and the transition is formalized.

Review Contract Terms

PEO contracts have long-term agreements and auto-renewal clauses. Review the contract carefully to understand the following:

  • Cancellation Policy: Some contracts include fees for early termination. Ensure you know if there are any penalties for switching to a new PEO before the contract term ends.
  • Exit Clauses: Identify any clauses that dictate how your business can exit the contract, especially if there are performance issues with the current PEO.

By reviewing the contract before informing your current provider of your decision, you will have a clearer picture of the financial and operational aspects of leaving a PEO.

Step 3: Transition Your Employee Benefits and Payroll Systems

Employee benefits and payroll are two of the most significant areas of transition when leaving a PEO. Handling these systems properly will prevent disruptions in employee compensation and benefits coverage.

Align Payroll Cycles

Work with both your new and old PEOs to make sure payroll cycles align. If there is a difference in payroll schedules, you may need to adjust or postpone payroll runs to prevent delays or errors.

  • Transfer Payroll Data: Make sure all payroll records, including tax withholdings, wage information, and bonuses, are transferred from the old PEO to the new provider.
  • Tax Filings: Ensure that tax filings are completed correctly during the transition. Work with both PEOs to verify that the final filings are made on time and with accurate information.

Transition Employee Benefits

Employee benefits are one of the most sensitive areas during a PEO transition. Ensure that there is no disruption in coverage or benefits during the switch.

  • Health Insurance: Make sure your employees are enrolled in new health insurance plans before the old plan is terminated. Communication is key, so your employees are aware of the new plan details, and no coverage gaps occur.
  • Retirement Plans: Transition retirement benefits, such as 401(k)s, from the old PEO to the new provider. Ensure employees have access to their retirement savings and that no penalties or delays occur.
  • Other Benefits: Other benefits such as dental, vision, or life insurance need to be transferred as well. Keep employees informed of any changes to their benefits packages.

Work with both PEOs to ensure that all employee benefits are transferred correctly and that employees can continue to use their benefits without interruption.

Step 4: Communicate with Your Employees

A PEO transition can be unsettling for employees, as they may worry about changes to their benefits, payroll, or even job security. Clear and transparent communication is essential to maintain morale and make employees feel comfortable with the change.

Provide Regular Updates

Keep employees informed throughout the transition process. Start by announcing the transition early, explaining why the change is being made, and how it will benefit the company and them.

  • Timeline: Provide a clear timeline of the transition process, including any changes to payroll cycles, benefits enrollment, or other HR-related processes.
  • Q&A Sessions: Hold sessions where employees can ask questions about the changes and get clarification on any concerns.
  • Point of Contact: Designate an HR representative to address any employee concerns directly, offering support during the transition.

Explain the Benefits of the New PEO

Make sure employees understand how the new PEO will enhance their work experience. If the new PEO offers better benefits or services, be sure to highlight those improvements and how they will positively impact employees.

Step 5: Monitor the Transition and Address Issues

Once the PEO transition is complete, continue to monitor the process so everything runs smoothly. This includes tracking payroll accuracy, benefit enrollment, and compliance with legal regulations.

Review Payroll Accuracy

In the first few payroll cycles with your new PEO, carefully review all payroll details to confirm accuracy. Any mistakes at this stage could cause significant issues for both the business and employees. Work closely with the new PEO’s payroll team to address any discrepancies immediately.

Verify Employee Benefits Enrollment

Ensure that all employees have successfully enrolled in their new benefits plans and that there are no lapses in coverage. If any employees have questions or issues, address them promptly.

Ensure Compliance

Work with your new PEO to verify that all compliance-related tasks are being handled correctly. This includes tax filings, insurance premiums, and other regulatory requirements. Regularly review reports to confirm everything is up to date.

COMPEO: Simplified Payroll and HR Services with a User-Friendly Platform

A PEO transition may be complex, but with the right preparation and communication, it can lead to a more streamlined, cost-effective HR solution for your business.

At COMPEO, we specialize in offering customized payroll, HR, and workers’ compensation solutions to businesses of all sizes across industries such as construction, hospitality, medical, and more. With our rapid growth and recognition as one of America’s fastest-growing companies, we’re committed to providing cost-effective, reliable, and efficient services tailored to your business needs.

If you’re considering a PEO transition, COMPEO can offer the support, flexibility, and expertise you need to make the switch with ease. Our user-friendly COMPEO mobile app allows you to manage payroll, submit hours, request certificates, and much more. With a focus on speed, accuracy, and service, we ensure your HR needs are covered so you can focus on what matters most: growing your business.

Get in touch today! Call us at 1 (855) 688-0104 or request your custom online quote. Let COMPEO streamline your business operations today.