Professional Employer Organizations (PEOs) have emerged as a popular solution for organizations seeking operational efficiency, providing businesses with comprehensive human resources (HR) services, including payroll, benefits administration, and compliance support.
However, as your business evolves, it might be time to reassess your PEO partnership. This blog outlines the steps and considerations for businesses contemplating an exit from a PEO, supporting a smooth transition while maintaining compliance and minimizing disruption.
What is a PEO?
A Professional Employer Organization, or PEO, is a firm that provides comprehensive HR services to businesses by entering a co-employment arrangement. This relationship allows the PEO to handle various functions, like employee benefits administration and payroll processing, and sometimes other services, like risk management and compliance, recruitment, and onboarding. These functions, which are typically handled in-house at larger companies, are outsourced to a PEO for a fee.
Some advantages of working with a PEO include:
- Access to more competitive employee benefits
- Enhanced compliance support
- Improved employee retention and satisfaction
- Reduced administrative burden on internal teams
Reasons for exiting a PEO
While the decision to move on from a PEO is a personal one, common reasons businesses choose to discontinue their PEO partnership include changes in business strategy or structure, cost and budget constraints, a desire for greater control over HR functions and benefits choices, and, at times, dissatisfaction with service quality or responsiveness.
Preparing for the exit
Step 1: Assess your current situation
Before starting on the path toward exiting, conduct a thorough assessment of your current relationship with the PEO, including carefully reviewing your contract and termination requirements.
Effective due diligence should also consider the following:
- Evaluate the services provided and their alignment with your business needs.
- Analyze the costs associated with the PEO and compare them to potential in-house solutions.
- Gather feedback from employees regarding their experiences with the PEO.
Step 2: Develop a transition plan
A well-structured transition plan is crucial for a successful, seamless exit, and it pays to have the guidance of an experienced partner like Marsh McLennan Agency. A team that’s well-versed in PEO exits can help you with key elements of your transition plan, like:
- Communication strategy: Develop a communication plan to inform employees and stakeholders about the transition.
- Resource allocation: Identify the resources needed for the transition, including personnel and technology.
- Timeline: Establish a clear timeline for the exit process, including key milestones.
Step 3: Consult legal and financial advisors
Engaging insurance advisors like Marsh McLennan Agency is helpful when navigating the complexities of exiting a PEO. They can provide guidance on:
- Contractual obligations and termination clauses
- Compliance with federal and state employment laws
- Financial implications of the exit
- Other unforeseen considerations and implications
Carrying out the exit
Step 4: Notify the PEO
Once your transition plan is in place, your business must formally notify the PEO of your intention to exit within the required time frame outlined in your contract. This notification should be in writing and include the effective date of termination, a request for final accounting of services rendered, instructions for the transfer of employee records and data, and a request for confirmation of receipt.
Step 5: Communicate with employees
Transparent communication with your employees is vital during the transition. As you prepare for your next chapter, be sure to consider holding a company-wide meeting to explain the reasons for your PEO exit, as well as the benefits of the transition.
Additionally, you’ll want to ensure that your leadership team is prepared with resources and support to help your employees understand these changes and next steps, like enrolling in benefits.
Step 6: Seamlessly transition
As you exit the PEO, it’s essential to ensure a seamless transition of any functions that your business will now be handling. This phase can be lengthy, and it typically includes critical actions, like:
- Transferring data: Securely transfer employee records, payroll data, and benefits information from the PEO.
- Establishing HR capabilities: If you don’t have an in-house HR team, consider hiring or outsourcing your HR functions to ensure your bases are covered.
- Implementing new systems: Invest in HR technology and systems to manage your payroll, benefits, and compliance effectively.
Post-exit considerations
Step 7: Monitor compliance and performance
After exiting the PEO, it’s crucial to monitor compliance with employment laws and regulations. Regularly review HR policies and practices to ensure they align with legal requirements and industry standards. (If this sounds daunting, our HR Consulting team can help with that, too.)
Step 8: Evaluate HR strategy
With your PEO relationship behind you, take this new opportunity to evaluate and refine your HR strategy to ensure it benefits both your business and your employees. Marsh McLennan Agency’s HR Consulting team can work with you to navigate and consider your post-PEO offerings tailored to the unique needs of your business.
- Employee engagement and retention strategies
- Benefits offerings and competitive positioning
- Training and development programs
Conclusion
Exiting a PEO is a significant decision that requires careful planning and execution. By considering all of the steps outlined in this blog, your business can navigate the complexities of the exit process with confidence while minimizing disruption and ensuring compliance.
Marsh McLennan Agency is committed to supporting businesses through every stage of their journey, providing the experience and resources needed to thrive in a competitive landscape. Reach out today for guidance tailored to the specific needs of your organization.
