Are you prepared to exit your Professional Employer Organization (PEO) arrangement?
In Part 1 of this article, we discussed reasons that could prompt your company to re-evaluate its continued dependence on a Professional Employer Organization (PEO) as your company grows. In part 2, we’ll dive into options for helping your company transition from a PEO.
What to Transition from PEO?
When planning to exit a PEO arrangement, your organization should think of every task and process completed by your PEO and have a plan for who will manage the task and in which system or module the task will be managed.
For example, there is a difference between a Payroll System and a Payroll Processor. There are payroll system providers who do not offer payroll processing services (i.e. money movement, tax filling, garnishments, etc.). In this case, your organization would need to ensure there is a plan for both the system where payroll will be administered and either a vendor who will process the payroll or an in-house resource.
Management of tasks after a transition do not all fall on internal resources and can be managed through a combination of internal resources, benefits broker, consultant, and/or service provider.
Your PEO Transition should include a Plan for:
1. Payroll Processing
2. Workers Comp
3. Tax and Compliance
4. COBRA Administrator
5. Health Benefits Administration
6. 401(k) Administration
When’s the Best Time to Transition from Your PEO?
The beginning of a quarter or at the start of a new year is the best time to transition from your PEO arrangement. The reason is that it’s easier to ensure a successful transition and accounting of payroll related taxes at quarter end instead of having to recalculate and reconcile transactions in the new system.
Planning Your PEO Transition
Once your organization decides the move from their PEO arrangement is a go, early planning is key.
Replacing payroll and benefits administration requires a new system. This is a good opportunity for your organization to think holistically about existing HR and business systems and workflows. Is it best to implement a full ERP solution (i.e., SAP, Workday, Oracle), or implement an HRIS solution for benefits and payroll that can integrate with existing systems?
In addition to a new system, your company may need in-house resources to support payroll and benefits administration. Another important planning item is selecting a Benefits Insurance Broker early. A Benefits Insurance Broker will assist in benefits strategy including plan design, cost and budgeting, and insurance carrier negotiation and selection.
Your PEO Transition Checklist:
1. New HRIS System – at minimum, for administering Payroll and Benefits
2. In house Team – To administer and maintain Benefits, Payroll, and HRIS System
3. Selection of Benefits Insurance Broker
4. Employee Policies, Handbooks, Onboarding Paperwork – Sometimes existing documents belong to the PEO and a company may need to create their own
Final Thoughts
Transitioning from a PEO may seem daunting. However, with proper planning and accounting of all tasks and processes, your company can have a successful transformation! Engaging internal stakeholders early and continuous communication to employees on what to expect is essential. In addition, a thorough analysis of cost changes is needed in advance of the PEO move for budgeting and forecasting and expected return on investment.
HCM Tech Advisory has the expertise and experience to guide you in all aspects of your PEO transition. To learn more and for a complimentary consulting review, contact us at info@hcmtechadvisory.com.
