October 1


Although there is certainly a niche for a professional employer organization, it may be time for your business to leave your current PEO vendor. Learn more about how to transition from a professional employer organization to an in-house HR team that takes care of all your needs.

How to Leave Your PEO

If you want to leave the vendor that is currently handling all of your HR needs, then you should know that the process will involve several steps. Essentially, when you’re leaving your current vendor, you will need to replace all the services that this vendor provides.

For your employees, this could mean being in benefit limbo for a few weeks while the transitions and onboarding occur. Some of the steps involved in leaving your current HR vendor include:

New Payroll Provider

Whether you have payroll software used by your in-house HR team or you outsource to a third-party payroll provider, you will need to replace the service when you leave your professional employer organization vendor.

The new payroll provider will need to be able to keep track of all timesheets, payouts, overtime, and other employee benefit tracking, such as PTO.


Your HR team will also need to have a new HRIS to handle all of your HR needs. The HRIS is the internal human resource information system that is used to help your business handle various HR tasks.

The software system is essentially a database that will store all information about employees, including compensation, benefit choices, time tracking, onboarding, demographics, and other essential information.

Research HRIS Requirements

When you’re selecting your new human resource information system, you will want to be sure that the software is appropriate for the scope of your business. In particular, the software you select should be based on your specific industry, the size of your business, and the features provided by the software.

It’s important to select the software that provides exactly what you need so that you can streamline productivity and simplify tasks for your HR team.

New Benefits Broker

When you leave your current vendor, you will also need to reorganize the benefits for your employees. Be sure that the vendor you use for your benefits will transfer your employee benefit seamlessly.

To select a good benefit broker, you will need to define the goals your business has for your employees and then evaluate potential brokers based on the services they provide.

Set Up Employee Benefit Plan

When you find a new benefit broker, you’ll need to set up an employee benefit plan. Benefit plans will include outlining the benefits you intend to give employees, including health benefits such as medical, dental, and vision.

Other benefits can include retirement accounts, PTO, and more. Your benefit broker will help you integrate these plans into your HR management.

New Insurance Provider

Along with a new benefit broker, your small business may need to select a new insurance provider. Your insurance provider can include health insurance, retirement insurance, and workers’ comp insurance.

For each of these new insurance providers, you will need to work with a benefit broker to manage the accounts for each of your employees.

Considerations for New Health Plans

The biggest consideration for employees when a new health insurance provider is selected is the open enrollment period. If employees do not enroll during the open enrollment period, they may be left out of the health care plan unless additional paperwork is filed.

Both active and new employees will need to comply with the open enrollment period.

New Tax Accounts and State Registrations

Your business will also need to set up new tax accounts and state registrations or renew these accounts to maintain compliance. Your state registration and tax accounts must be in order, which means establishing certain IDs and withholding accounts based on the state and federal laws that apply to your small business.

Fortunately, establishing new state tax accounts and state registrations can be easier when you use HRIS software. Importantly, you will need to manage state registrations and tax accounts for every state in which your business operates to maintain compliance.

New LOA and PTO Policies

Creating new LOA and PTO policies is all about maintaining compliance with state and federal employment laws. Specifically, you will need to have built-in policies for LOA and PTO, which should be tied into benefits for employees and outlined in employee contracts.

You are required by law to create, implement, and reinforce these policies to maintain compliance with the state and federal governments.

Do You Need an Employment Lawyer?

Establishing your own LOA and PTO policies can be confusing, especially if you previously used a professional employer organization and you have not had to do this process by yourself. For that reason, working with an employment lawyer can help you maintain compliance with state and federal laws for employers.

An employment lawyer will provide guidance for policy creation so your company policies will keep up with the mandates of the EEOC and other employment governing bodies.

New Employee Handbooks

Finally, you will need to create new employee handbooks for every state that your business operates in. Employee handbooks should contain information about benefits, PTO policies, and other employment requirements.

Your employee handbook should include information about anti-discrimination, sexual harassment, and more. Your new employment handbooks may also contain information about employee training. However, employee training can also be a separate document given to all employees, including active employees.

Will You Need to Re-Hire Employees?

After you have completed the checklist for creating your own organization system for employment needs with your in-house HR team, you must go through the process of re-hiring employees. Even if you had active employees during the transition from the PEO system to an in-house HR management system, it’s still necessary to re-hire employees.

Re-hiring employees may involve new background checks, completing employee training, and signing up for new benefits. Be sure to remind employees about any open enrollment deadlines that may apply to their benefits, including enrollment for retirement plans and health insurance.

What Is Involved in the Re-Hiring Process?

Several steps are involved in the re-hiring process. For example, one of the most important steps to maintaining tax compliance is obtaining new I-9 forms from all of your current employees, including new hires and old employees.

You also need to work with your HR team to establish processes for new hires, including gathering documentation for tax purposes and enrollment programs. Finally, you will need to ensure employees have completed all training programs, including sexual harassment and anti-discrimination training.

Why Might You Leave Your Professional Employer Organization?

Typically, small businesses that use PEO have hired these vendors to organize employment management needs. However, depending on the growth of your business or the needs of your organization, having a vendor to handle your HR requirements may not be necessary.

There are a few reasons why you may need to leave your current vendor and implement your own in-house HR management system.

Personalize Employee Experience

Although vendors can maintain compliance for all employees, the disadvantage of using a vendor is the inability to personalize your employee’s experience. For example, some employers may want to personalize the onboarding experience, create specific handbooks for employees based on roles within the company, or create specific policies that are more unique to your small business.

The ability to personalize your employee experience will increase employee satisfaction and likely improve employee productivity. For small businesses, personalizing the employee experience can also help new hires integrate into the company culture.

More Employees

One of the major reasons to leave your current vendor is because your business has grown. Typically, a vendor for your HR needs is designed to handle the employment demands of small businesses that hire five to 50 employees.

However, when your number of employees starts to grow, your vendor may not be able to keep up with the increased demand. If you want to sustain business growth and success, it’s best to hire an in-house HR team to handle your employee needs when you have more than 50 employees.

Larger HR Team

Finally, it may be time to leave your current vendor if your in-house HR team has grown. It’s possible that you first contracted with a vendor to handle your HR needs before you had any HR employees. However, if you have hit a stage in your business growth where you do have an HR team, it’s best to allow your HR experts to handle all employment needs.

Although vendors can be immensely useful to keep your business organized when you are just starting out, small businesses that see significant growth can benefit by having an in-house HR management system. The process of leaving your current vendor includes finding new providers and brokers, setting up new employment guidelines and benefits, and completing the re-hiring process. For more information about restructuring your business, contact Health Compass Consulting.

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