If your small to mid-size business has decided to leave your Professional Employer Organization (PEO), you may be wondering about the various action items you must do (and consider) to get out. There are financial and staffing issues to consider so that your exit is as smooth as possible. When using a PEO, you are totally wound around their administrative infrastructure – including their HR software, payroll and tax services, insurance programs, policies and procedures, vendors and skilled staff that handle the administrative aspects of human resources. These services come at a premium, and sometimes businesses decide that they can handle these HR administrative duties for a lower cost and/or with better service.

If you’d like an example of a success story, one of our construction clients (between 50 and 75 employees) has recently accomplished extraction from their PEO, projecting a potential estimated annual savings of $135K!   After discovering that PEOs do not have to follow the regulated WC code rates set by the State of Florida, they decided to invest in some PEO alternative research.  Now, instead of paying a premium for each WC code — in some cases $4-$5 per $100 more than the standard FL class code rates, along with a high “per occurrence” deductible — they obtained their own workers’ compensation policy option, with an experience mod of 1, Florida regulated rates per WC class code, and no deductible.  The annual savings do not include the elimination of the PEO administrative fees by taking payroll in-house and handling human resources with their own team.  Don’t be surprised if your PEO offers to slash its fees or drops your comp rates, to try and keep you.

Therefore, we have created a PEO Exit Checklist that covers the subjects you need to consider, so you are ready to go when the time comes to cancel your PEO relationship.

• Determine who will quarterback your transition.  Hire fractional HR services to fill the gap in human resources knowledge, and to verify that systems and procedures meet compliance, cost control and HR effectiveness objectives.
• Create personnel files (electronic, paper) and contents checklist.
• Create new hire package with up to date documents (especially the Form I9)
• Create (revise) the Employee Handbook and re-purpose other HR documentation using your logo.
• Payroll system and tax services (partner with a software or cloud-based payroll service).  Consider helpful features like employee self-service, reporting capabilities, W2s and ACA reports.
• Unemployment tax rates – consider the timing and tax consequences when exiting the PEO (check to see if the PEO is certified, which may allow you to avoid having to re-start new FICA and FUTA tax withholding after leaving the PEO).  Check with CPA.
• Assign HR administrative duties.  Recruiting new hires, and adding new employees/processing terminating employees in the new payroll platform.
• HR software or payroll upgrades – consider adding special features to the payroll system (HR bells and whistles) that can automate some HR functions. For instance, online onboarding new employees, PTO tracking, online performance reviews, reporting and discipline tracking.  Consider what HR processes can be automated and what you want to manually.
• Insurance for Workers’ Compensation – obtain a policy to cover your employees on the date you leave the PEO, ask about their risk management services.
• Employee Benefits – partner with an experienced employee benefits consultant to evaluate group medical, dental and vision insurance, and other supplemental policies. It will likely take 60 to 90 days to obtain coverages, so start early and coordinate with your PEO exit date.
• Retirement plan – if this is important to employees, partner with an experienced vendor to evaluate and pick a plan that works for your company.  Ask about their options for DOL Form 5500 plan filing services.
• Obtain a quote for Employment Practice Liability Insurance (EPLI) if this risk is a concern.  This can be expensive.  Using a skilled HR consultant can also reduce your risk exposure from employment disputes.
• COBRA administration.  For small employers, this no big deal, and larger employers can decide whether they want to use a third party vendor, or do it in house.  Ask your employee benefits consultant about vendors.
• ERISA.  For employee benefits compliance, a third party vendor can be used to handle ERISA compliance matters, and create written plan documents.
• Reporting and coordinating employee workplace injuries can be handled by your in-house team and HR consultant.  Develop a written HR procedure and partner with your new Workers’ Compensation insurance agent for solutions.
• Prepare an employee communication campaign about leaving the PEO, and the directory of who will handle what after the PEO exit date.

We may have forgotten a few things, but this PEO Exit Checklist will get you well prepared.  If you have questions about leaving your PEO in Tampa, St Petersburg, Clearwater, Sarasota or Lakeland (or west central Florida), or would like to develop a plan for delivering human resources after you leave the PEO, just give us a call.

Consultstu LLC provides fractional HR services to small/mid businesses to lower operational costs, improve business processes and comply with workplace regulations.  We deliver customized HR and risk management solutions that provide protection from expensive mistakes and strategies to improve workplace results. Call us at 727-350-0370 or visit http://www.consultstu.com