How to Terminate a Relationship with a PEO

How to Terminate a Relationship with a PEO

It is an all too common complaint from decision-makers in various businesses: They are upset with the inability of professional employee organizers (PEOs) to meet the needs of their growing business. Their complaint is not necessarily that the PEO is intentionally going out of his or her way to make life at the company any worse, it is just that the business itself may have outgrown the capabilities of the PEO. brings some of these frustrations into clear focus with the following quote:

Your needs for benefits and HR strategies to help you compete for and keep talent may not be so easily met by the PEO’s one-size-fits-all approach. Plus, the PEO may not be as cost effective these days for your expanding payroll or maybe it’s time for the tax credits to start accruing to your company instead of the PEO.

Given this potential roadblock to continued growth within your dynamic business, you might want to consider terminating the relationship that you have with your PEO in a professional and understanding manner.

Timing The Termination

The most ideal situation as far as timing is concerned for a company to terminate their PEO is at the very beginning of a new year. Getting this matter of business out of the way at the beginning of the year not only frees up time to focus on other concerns but also helps the company avoid some of the sticky tax implications that come with a mid-year termination.

Many companies like the idea of restructuring their HR department at the beginning of a new year because it gives them a fresh start to go after the various goals and objectives. Obviously, that is a huge benefit when it comes to getting off to a fast start in the new year, and most are ready to start explaining to their employees some of the implications of their new HR systems at this time as well.

Keep Things Professional And Get Records When Possible

Maintaining a friendly and professional tone when releasing your PEO from their responsibilities is not only the right thing to do from a moral standpoint, but it is also the ideal option from a business perspective as well. The PEO has maintained all records related to employee benefits up this point. Those records may include:

  • Workers’ Compensation Claims
  • Unemployment Claims
  • Health Insurance Statements
  • Internal Conflict Resolution Documents
  • Payroll Adjustments

Essentially, any kind of official record that relates to the status of an employee in the company has been maintained by your PEO. It doesn’t make a lot of sense to go out of your way to be rude to them as you terminate that relationship. You should strike a caring and understanding tone and an agreement with them to get as many of those records as you can. Some of those records may be unattainable as they only agreed to hold them for as long as they were employed by you, but you may have the opportunity to get your hands on at least some of the records. It is best to get any and all records that you can before it is too late.

Starting A New Era

There is no question that it is challenging to terminate anyone, but sometimes a business outgrows its need for certain individuals. As we mentioned in the beginning, PEOs are not bad people, but they serve a purpose for only a limited amount of time. In the early stages of a company’s growth, it makes a lot of sense to have a PEO to help with the day-to-day operations that are typically handled by an HR department. However, when the growth has kicked up to such a point that the company becomes a complex organization, it needs a competent HR department to meet all of its various needs.

For more information on graceful ways to eliminate the position of PEO in your organization, please contact us.

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