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July 7, 2016 by
aliereadvisors
PEOs can be incredibly helpful to small and mid-sized businesses, providing everything from payroll administration to workplace safety training. There are plenty of services that a PEO can provide, from just a few a la carte functions to a full human resources relationship. Since a partnership can cover so many aspects of employing staff, it can be difficult to part ways with one once your business has grown big enough to need its own in-house staff. If you do find that your company has outgrown its PEO and it needs to part ways, there are a few ways to make the transition a little bit easier. With proper planning and foresight, leaving a PEO can be less of a nightmare.

The most important part of leaving a PEO is to plan everything well in advance of leaving. Everything from the date you leave to the information you request from the PEO to the new partners the company will need needs to be carefully considered in advance.

Timing matters. The ideal time to leave a PEO is January 1st; leaving at the beginning of the year can prevent tax complications. Leaving at any other time will mean that employees’ tax withholdings reset, so they may overpay. Luckily, employees can get any overpayments back when they file their income taxes. However, employers don’t get refunds for overpayments: client companies pay PEOs for employment taxes, but it will look as though they are taking on all-new employees when they part with a PEO.

Client companies likely have no systems in place to complete the services that their PEO provides. Before leaving a PEO, companies need to put new systems into place and train staff to handle the tasks. Partnering with a payroll services company can help here; it would prevent the company from having to buy new payroll software and hire more human resources and accounting staff. Whether your company goes with a payroll service provider or its own software, you should put it into effect well before the transition off of the PEO. Do a shadow payroll during the last month with the PEO to see if the new system’s payroll matches with the PEO’s. This practice run will give the company time to work out any issues.

One of the best perks from partnering with a PEO is affordable, comprehensive health insurance for employees. Though your company will no longer have access to the PEO’s buying power and discounts, you may be able to find some comparable plans. Work with a benefits broker to find the best deal for your company.

Speaking of insurance, PEOs also offer discounts on worker’s compensation insurance. It can be difficult to obtain insurance or even a quote without a past policy, but you can request a three-year loss history from the PEO. This should be sufficient for providers to give you a quote and insurance.

Leaving a PEO isn’t easy, but it doesn’t have to be painful. As long as you plan your company’s exit carefully, the transition can be smooth.

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