Many business owners set up their company with a Professional Employer Organization (PEO) because it’s a fast way to pay and offer benefits to employees. PEOs make some of the hardest parts of launching and running a business a little easier by offering HRIS and payroll technology, payroll processing, state tax setup and filings, benefits, 401(k), business insurance, and even some basic employee relations support. But PEOs are not built to scale for growth, so as you get bigger, the downsides begin to outweigh the benefits. If you’re questioning whether it’s time to leave your PEO, here are the things you need to think about:
Define the pros and cons of your current PEO. What’s working well and what gaps exist?
PEOs are expensive, and as your employee population increases, so do your fees. They’re also not very customizable. Most PEOs charge a per-employee-per-month fee (PEPM) in addition to the cost of health and welfare benefits and 401(k). If you’re a startup with 5 employees, this isn’t burdensome in the beginning. But once your employee headcount starts to rise, it becomes a huge expense where cost does not necessarily align with value. A lack of responsiveness and having to navigate a complex web of contacts are other common challenges.
PEOs can handle the basics, but most don’t have many customizable or strategic consulting options. So, as your business needs evolve, it’s difficult to get the level of service and support you need. Additionally, if you have a complicated employee relations issue, a legal challenge, a need to hire fast for growth, or want to really explore employee engagement in your organization, your PEO’s service options will likely not meet your needs. And if you dig deeper, a more glaring gap exists: your PEO doesn’t know your business, your employees, or your strategic goals and isn’t focused on helping you attract and retain employees or drive engagement and maximize your team’s performance. Your PEO can’t help you scale your business for growth in the way that a strategic HR business partner can.
Plan your transition timeline strategically.
We start to see our clients struggle with a PEO (service delivery and cost) when their employee count reaches around 20 full-time employees. Ideally, you want to make a transition effective at the beginning of the calendar year—January 1. In order to make this happen, you’ll need to start prepping about 6 months in advance. It takes time to define requirements, select your new vendor partners, design new internal processes, and create communications and training plans to ensure employee action and promote adoption. January 1 is also the date when every other company wants to make a change, so you want to get in line early with your selected partners before space runs out.
Identify implementation timelines with your new partners.
Each new partner will have a unique approach to define, implement, and launch the new services or technology—varying from 6 to 16 weeks. You’ll want to ensure your services are ready for “go-live” at the right time so there are no holes or gaps in coverage or service when the PEO service ends. Resourcing requirements for the implementation of each service will also vary. Oversight for and management of the entire PEO transition project is also critical to ensure dependencies between services are identified and addressed accordingly.
Understand contractual notice periods for your PEO.
The timeline for giving notice to your PEO provider of your intent to leave will vary by contract, but most require 30-90 days’ notice. Make sure you give notice within the contractual requirement, but not so early that you risk service shortfalls while you are implementing your new solutions.
Get the right people involved early.
Transitioning from a PEO takes time and a lot of work. It is hugely visible and impactful to employees. Those involved must balance a focus on addressing current challenges with bringing a longer-term, more strategic view to position your business for the future (data, technology, and processes). When done well, it can be a game changer in the best way. A successful PEO transition requires a formidable combination of experience in HR, project management, and change management—it’s not well suited to DIY. Consider hiring an HR expert who has led PEO transitions and can help you plan and execute the project to achieve a successful outcome.
Are you thinking about breaking up with your PEO? Have a general HR question? Do you want to understand more about fractional HR solutions for your company? Reach out by phone if you want to talk live or by email if you want to start a virtual conversation. We love helping companies—and their employees—thrive, and we’d love to hear from you.
