We receive a fair number of inquiries in the 3rd & 4th quarters of the year from prospective clients looking to move away from their current PEO. The timing is normally prompted by benefit renewals. For those readers who aren’t familiar with the term PEO, it is a third-party company that partners with businesses to be a co-employer, focusing on managing functions like payroll, benefits, compliance, and risk management. It’s a valid solution, especially for companies that want to gain a more comprehensive benefit offering and/or offload HR administrative tasks. That said, it can come with a lack of service and/or customization, which is why we often take over Human Resources for companies leaving their PEO. Companies leave PEOs for a number of reasons, which may include:
Cost Concerns
- Rising administrative fees: PEOs often charge a percentage of payroll or a per-employee fee that can increase over time. We charge by hour and/or project.
- Loss of tax savings: Once a company grows and surpasses certain thresholds, the tax and insurance advantages of a PEO diminish.
- Hidden costs: Some PEOs have fees that aren’t transparent, like markups on workers’ comp or benefits administration.
Desire for More Control
- Benefits flexibility: Employers may want to choose their own benefit plans or carriers instead of being limited to the PEO’s group plans. Moving away from a PEO allows Companies to select benefits which their employees want which increases retention and overall employee satisfaction.
- Payroll customization: Companies often want more control over payroll systems, reporting, and timing.
- HR autonomy/customization: They want a person who can manage their Human Resources specific to their Company, not a one size fits most approach. This includes creating culture focused HR practices and policies specific to things like the culture, employee handbook, onboarding, and employee relations.
Company Growth
- Scalability issues: PEOs are great for small to mid-sized businesses, but larger companies often “outgrow” them.
- State and multi-entity complexity: Growing firms may need custom tax setups or multi-state registrations that a PEO may not easily handle or be proactive about.
- Brand maturity: Established Companies prefer to have their own EIN (Employer Identification Number) on paychecks instead of the PEO’s.
Technology and Integration
- Software limitations: PEO platforms can lag behind in integration with accounting, time tracking, or ERP systems.
- Desire for modern HRIS/Payroll systems: Companies may switch to providers like Gusto, BambooHR, HiBob, Rippling, ADP, or Paylocity for better automation and analytics.
Compliance or Service Issues
- Better/customized support: PEOs can have delays in processing, lack of dedicated representatives, or inconsistent communication. Whereas the PEO is a co-employer they have a one size fits most approach instead of a customized for your Company approach.
- Errors in payroll or benefits administration: Mistakes that affect employee satisfaction or create legal risk.
- Compliance missteps: Employers may feel more comfortable managing their own risk rather than relying on the PEO’s processes.
Strategic Reasons
- M&A or restructuring: Mergers often trigger an exit from the PEO to consolidate payroll and HR systems.
- Cost-benefit analysis: Internal or outsourced/fractional HR becomes less costly than a PEO once systems and staff are in place.
- Employer branding: Companies want their own name on employment documents and benefits packages. They want an HR professional who reflects their culture and who employees are comfortable seeking out because they’ve built rapport with them.
Are you considering leaving your PEO? There are steps to take and things to think about before doing so. We can help with that! We offer comprehensive fractional HR services and have several trusted partners we trust with payroll, benefits, etc.
Reach out to us at Milestones HR, LLC at 608-370-4642 or angie@milestoneshr.com for a free, no obligation 30-minute exploration conversation. Check out our website at www.milestoneshr.com for all of our fractional human resources services.
Angie Addison, SHRM-CP, PHR
Founder & Owner of Milestones HR, LLC
www.milestoneshr.com