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  • Writer's pictureTroy Vermillion

The Ultimate PEO Exit Checklist - When and How to Leave Your PEO

Updated: Feb 28, 2023

When You Should Consider Leaving the PEO Model?

A company should consider leaving the PEO model for HR, Payroll, and Benefits when it is ready to take full control of its human resources operations. This includes providing all employee benefits in-house and managing payroll internally. It also means they are responsible for processing taxes correctly and following all local labor laws.

Companies that have grown large enough, or complex enough, may decide this kind of independence will benefit them in the long run. Additionally, businesses that have sensitive information about their workforce may feel more secure handling these matters themselves.

In any case, companies should think carefully before taking on these responsibilities as errors can be costly. Consulting with a trusted HR expert or attorney can help provide guidance as to whether such a move makes sense for a particular business.

How Do You Exit the PEO?

Exiting a Professional Employer Organization (PEO) can be an intimidating process. It requires several steps, including selecting an HRIS provider and benefits broker, reestablishing SUTA IDs and local withholding accounts, monitoring FICA & FUTA tax restarts, building compliant LOA & PTO policies, creating employee handbooks for each state and rehiring employees. The good news is that help is available to make the transition smoother.

With my 10+ years of experience helping hundreds of clients enter and exit the PEO solution, I’m here to explain what you need to know about this important process.


When businesses are considering exiting their Professional Employer Organization (PEO), there are several steps they must take to ensure a smooth transition. Below is an overview of the process:

☑️ Select HRIS Provider & Benefits Broker: First, you’ll need to select an appropriate HRIS provider that can handle your payroll requirements with an external benefits broker for health insurance.

☑️ Select Retirement Provider: If you chose to work with the PEO within their Multiple Employer Plan 401k program, you'll need to idenitfy a new retirement plan advisor who will assist you in establishing a new 401k plan, migrating the investments, and fiduciary relationship. Plan for a minimum blackout period of 2 weeks (10 business days), but it can take up to 30 days in some cases.

☑️ Re-establish SUTA IDs & Local Withholding Accounts: When leaving a PEO, you will need to register with your state’s unemployment insurance, re-establish local withholding accounts and notify the IRS of the change. This is especially challenging if you have multiple states that you have employees residing in. Be sure to work with your new payroll provider to assist you with this. Often times they have departments that specialize in this area.

☑️ Monitor FICA & FUTA Tax Restarts: In order to ensure that you are in compliance with federal and state payroll taxes, it is important to monitor your company's restarting of quarterly filing of Form 941 and applicable Federal Unemployment Tax Act (FUTA) wages.

If you are currently working with a Certified Professional Employer Organization (CPEO), this process is far easier and less problematic. If you are not, then the timing will play a huge role in when you exit.

☑️ Build Out Leave & PTO Policies: When getting close to exiting your PEO, one of the final steps is to start building out your company's policies around leave and time off. This should be done during implementation with guidance from an HR consulting firm such as Mineral or an employment lawyer.

☑️ Create Employee Handbooks for Each State: A compliance-related step that must be taken is creating compliant employee handbooks in each of the states where you operate.

Your newly re-hired employees will need to acknowledge their employee handbook when they are re-hired.

☑️ Re-Hire Employees & Complete Necessary Steps: Now that policies, benefit plans, and employee handbooks have been created, it is time to re-hire your employees.

During the re-hire process tasks such as obtaining new I-9 forms, creating a new Offer Letter template, establishing processes and workflows for new hires, and having employees complete sexual harassment training should be completed.

☑️ Get Help: When exiting a PEO, you may require help from HRIS vendors, in-house HR teams or consultants, Mineral Consulting Firm (HRIS vendors), as well as Implementation Consultants (employee handbook builder for SHRM members).

☑️ Compliance Considerations: It is important to consider compliance when exiting a PEO by creating leave and time-off policies, benefit plans in HRIS, employee handbooks, and sexual harassment training.

☑️ Workers' Compensation and EPLI: When necessary you'll need to consider reaching out to a trusted commercial insurance broker to help you secure workers' compensation and EPLI coverage that may be lost as a result of exiting the PEO arrangement.

☑️ Communication: Last, after a successful exit of the PEO, it is important to communicate with all relevant parties to ensure a smooth transition and no disruption in your payroll cycle.


In conclusion, exiting a PEO requires careful preparation and planning. It is important to consider compliance when exiting a PEO by creating leave and time-off policies, benefit plans in HRIS, employee handbooks, and sexual harassment training.

By paying close attention to the areas outlined in our checklist or by working with someone who is familiar with this process, you should be able to exit your PEO smoothly and successfully without a lot of heartburn. It is important to leverage the experience of other professionals where available throughout the process in order to ensure compliance and a successful transition.



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