When a small business starts growing, the HR function can quickly consume a lot of a leader's time. The rapidly expanding team means more payroll administration, compliance requirements, and benefits management, not to mention recruiting, employee communications, and the like.
Professional Employer Organizations (PEOs) can be an effective way to get around this obstacle. PEOs take care of salaries and benefits, plus they assume some of the legal risk associated with being an employer. A good PEO will also offer training, education, and compliance support.
That said, there comes a time when this relationship no longer suits your business needs. If so, then it might be to transition away from PEO.
When is it time to leave your PEO?
While PEOs can help some organizations, they also create new challenges. Some of the most common issues include:
- Cost: The cost of the PEO is higher than the costs of an alternative solution, such as in-house HR.
- Flexibility: The PEO’s processes don’t suit your specific needs or align with your internal processes.
- Choice: The PEO doesn’t provide the options you require, such as a range of benefits that appeal to your team.
- Control: You desire an increase in management discretion and ability to make independent decisions on employment matters
Your current PEO may have served you well in bringing your business to where it is today. But the question is, can the PEO help bring your organization to the desired future state? If not, then it may be time to transition away.
Action items for a successful PEO migration
Moving away from a PEO can be daunting. It requires new platforms, new policies, and upskilling for your HR team. However, with the right action plan, you can make a smooth transition.
Here are some of the tasks you’ll need to complete:
1. Map out your current state and desired future state
A current state vs. desired future state assessment will need to occur, and a plan will need to be developed to prepare you for a successful transition from the PEO.
To begin with, you’ll need to think about where you are now and where you’d like to be. What are the advantages of leaving your PEO arrangement? How will you benefit by switching to an alternative solution?
Process stakeholders will need to discuss key elements of the transition, such as:
- Current HR structure and resources
- Benefits administration
- Leave administration
- Employee relations investigations
- Compliance administration
- Changes to employment policy
Your transition team will need clear plans for managing each element of the changeover. It’s also a good idea to identify success metrics and monitor the value of your new approach.
2. Evaluate HRIS and payroll platforms
Your PEO may have set you up with a standalone HRIS or payroll platform. While you can continue using this, it’s important to know that there are lots of options on the market, and they are not all created equal.
It’s important to select the platform that best meets your unique business needs. Speak to vendors and gather information on things like:
- Cost: Costs might be one-off or recurring subscriptions. You may also have an additional cost for add-on services.
- Compatibility: Your new software will need to communicate with the other platforms you use. Ask vendors about ease of integration between systems.
- Support: A complex system like HRIS will require tech support. Ask each vendor about support availability and whether support is included in the cost.
Select the platform that best meets your unique business needs, and think about how your new software might scale up when your business grows.
3. Implement the new software
Once selected, the new HRIS/payroll platform will need to be implemented. Each provider will have an implementation process/team they deploy from the vendor side. As the client, you will have many responsibilities as part of this implementation effort – that includes:
- Validating the data that is imported from the old system to the new system and supporting the process of transferring that data, as needed
- Communicating the org structure & desired setup within the selected payroll platform
- Registering for state and local tax accounts
- Running parallel payroll testing and quality assurance/review of the new payroll system against the current payroll system
- Providing policy and process flow information to the selected provider
- Building out process workflows and module design requirements for the additional HR modules purchased within the HRIS
- Establishing carrier feeds with your benefit carriers (if applicable) while manually managing benefit changes until carrier feeds are established
- Validating and testing workflows
- Designing and the employee communication strategy
You may find that during the sales process, each of these vendors highlights their implementation approach and makes commitments for a smooth transition. As the buyer of these services, investing the time and resources to ensure you are getting the highest return on your investment and intentionally implementing these systems is important. It is ultimately your responsibility to validate that the data and process flow that is set up in the implementation phase is accurate. If you do not have an in-house resource who has expertise in the technology you have invested in, we strongly encourage you to consider partnering with an HRIS Implementation Consultant.
4. Select a new benefits offering
Leaving a PEO means that you’re free to work directly with a benefits provider. Here are some tips for initiating a new benefits plan:
- Get a clear picture of the benefits most desired by your employees and ideal job candidates.
- Partner with a benefits broker or consultant to build your benefits strategy design.
- Compare the whole market to find the right offering for your team.
- Study the fine details, especially on core benefits like health insurance and retirement plans.
Ironically, while many clients enter a PEO with the desire for cost savings, many companies save money when they start to provide their own benefit offerings. Without a PEO, you’re free to shop around for the best offer and search for a deal that suits your unique employee population.
5. Conduct a compliance audit
Transitioning away from your PEO can create a number of compliance issues. The good news is that this doesn’t have to be a major obstacle as long as your organization follows the guidelines and documents each step.
Some of the compliance issues to consider include:
- Payroll: You’ll need to ensure that you’re following applicable payroll and tax regulations in the employee’s locale. This can be challenging when you have a distributed workforce.
- Workers’ Compensation insurance: You’ll need to ensure that your Worker’s Compensation coverage is within state guidelines. Also check to see if you’re required to hold other employee-related insurance.
- COBRA liability: Former employees may be entitled to health benefits under COBRA. You’ll need to ensure that such people are notified properly.
- Employee contributions: Changing benefit providers may impact voluntary employee contributions, such as 401(k) payments and Flexible Spending Account (FSA) contributions.
These are just a few of the compliance issues to consider. It’s important to speak with an experienced HR compliance expert who can help you avoid any regulatory pitfalls.
Get expert help to transition from PEO
While separating from the PEO may feel overwhelming, rest assured that it is not impossible. Careful planning will help you make the leap successfully, and soon, you’ll see the benefits of your new HR strategy.
It’s easier when you’ve got expert help. Helios HR’s consultants can help manage all aspects of the transition, from navigating compliance challenges to building a thriving work culture.
Book a call with Helios HR and let's talk about developing your ideal HR solution!
