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June 29, 2016 by
aliereadvisors
Partnering with a professional employer organization (PEO) can make a lot of things easier. On the other side, leaving a PEO can be a mess. If your company is considering leaving a PEO, there could be a lot of headaches in your future. There is a lot to consider before doing so. If your company has grown to a point where it is no longer cost-effective to work with a PEO, a split with your PEO may be inevitable.

How hard is it to leave a PEO? It will depend on the PEO you’ve been working with; more accurately, how they keep records and how they’ve reported their clients’ payroll and worker’s compensation claim histories. Many PEOs report payroll and claims histories as their own – encompassing all of their employees from all of their clients. This means that each client company has no individual history reported. See where this is going? When a company that has left a PEO goes to get their own insurance, there is no company history for prospective insurers to go off of when providing quotes and assessing risks. This means that you won’t be able to get accurate quotes. Some insurance companies may not even be willing to provide quotes in such a situation. With worker’s compensation insurance, if no insurance carriers are willing to work with a company with no history, your company may be stuck in a state-assigned risk pool.

When a company goes off of a PEO, it needs to be ready to take over everything that the PEO once handled. Will your company need new human resources and payroll software? Will your company need to hire new staff or just train existing staff on the new systems and procedures?

PEOs often provide an employee handbook with policies and procedures that abide by all labor laws. Once a company has parted ways with a PEO, they will likely need to update the handbook and policies within it. Some procedures may have changed simply because the PEO is no longer involved, others because you may choose to change policies that could work better. However, when you do make changes, make sure that a lawyer looks at the new handbook to ensure that it complies with all laws and protects the company from lawsuits.

The date you leave the PEO matters. The PEO has been paying taxes for clients’ employees because they are officially employees of the PEO. When a company leaves a PEO, their employees will officially be new employees – the client company is now hiring them on paper. Any taxes paid so far in the year won’t be counted, the employee’s withheld taxes will reset. This can be inconvenient for employees, unless you make the transition off of the PEO on January 1st.

Sometimes, leaving a PEO relationship must be done. However, it may be worth reevaluating your partnership to see if your PEO can change your services to better fit your changing business rather than going solo. You might just save yourself some headaches.

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