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How to Switch PEOs: A Comprehensive Guide for a Seamless Transition


Key Takeaways

Jonathan Selby - Founder Shield
Jonathan Selby

General Manager

Navigating the tasks required to run a business can be complex for startup founders. To help weather the chaos of it all, many are increasingly turning to a Professional Employer Organization (PEO) so they can focus on scaling their business while ensuring their HR needs are efficiently managed.

However, what happens when your current PEO doesn’t cut it anymore? Whether you need more specialized services or more competitive pricing, switching providers requires preparation to ensure a smooth transition. Let’s deep dive into some tips to ease this switch.

Begin By Understanding Your Needs 

Business demands are always shifting and so are your HR needs. PEOs should adjust accordingly, but first, you must understand what needs changing.

Business Expansion

If you’re expanding your business, your workforce will grow with it. Begin by assessing the number of employees you’ve added since first partnering with your current PEO provider, which might service smaller companies. Are they able to scale with you? Do they have the resources available to handle the complexities that come with a growing workforce?

Industry-Specific Needs

PEOs are usually industry-specific. But are they meeting incoming regulations and compliance requirements? Assess if your current provider knows how to navigate the regulatory framework of your industry or if it’s time to find one that does. This also includes any unique services that are critical in your line of business, such as safety training programs or certifications, which some PEOs will offer as part of their package. 

Services Required

While you might seek to outsource some employee-related tasks, this is a good opportunity to review if you need extra help or less. For many entrepreneurs, starting their first venture usually comes with limited human resource experience, so PEOs are viable options to get things off the ground. Assess your new HR needs, including employee recruitment, training, performance management and legal compliance.

Technological Compatibility

Technology is an integral part of a startup and it constantly evolves with new innovations. Ensure your current PEO is equipped to match your evolving technology, as it will be crucial for efficient operations.

Budgetary Constraints

Reviewing your overhead costs is fundamental to understanding how much you can feasibly invest in a new PEO. Conduct a thorough cost-benefit analysis and compare the costs of services provided by the current and potential new PEO. And, lastly, avoid any surprises by asking questions about any additional fee from features or, in some cases, an increase in the number of employees or users.

Researching Potential New PEOs 

Switching PEOs is a strategic decision that can’t be taken lightly as they should align with your business at the core.

While the pool of providers is large, you can quickly narrow this list by browsing online reviews from platforms like Trustpilot and the Better Business Bureau. These third-party websites provide unfiltered reviews and ratings from other businesses, giving you objective insights into their products and services. 

You can also consult industry peers for their recommendations. They might know your company and its inner workings firsthand, giving them a better picture of what PEO would suit you best.

After visiting provider websites and gathering sufficient information about your options, the next step is to connect with them to voice your needs and gauge how they can service you. To avoid getting overcharged, identify pricing transparency and clarity in their scope of services.

Lastly, leave no questions on the table, and assess their responses. Were they quick to reply? Did they beat around the bush? This will reflect their future services.

Evaluating Contracts and Costs 

After narrowing down your list of potential PEOs and conducting thorough consultations, some key steps must follow:

  • Thoroughly review the service contracts and associated costs: Ensure you fully understand the financial commitments and offers involved. This will help prioritize your company’s best interests.
  • Clarify the scope of services in the base price: Make sure the services you require are outlined in detail and be aware of what is excluded from the base price, as some essential services, like 24/7 customer support, might be add-ons that could potentially increase your overall costs.
  • Proactively examine termination clauses: This will help you clarify the reasons you can exit the contract. Look for any penalties or notice periods required for termination and determine whether the PEO provides support in transitioning out, like data transfer services and assistance finding a new provider.
  • Negotiate terms that align with your business needs and budget: As part of the process, request custom service packages that are tailored to your specific requirements, avoiding unnecessary services that add to your costs. You’ll find some providers will be willing to build a package if you agree to longer-term agreements, which are often coupled with incentives and discounts to benefit you in the long run.

Planning the Transition Process 

Switching PEOs can be a complex process, but meticulous planning can minimize disruptions and ensure a seamless transition.

Begin by developing a comprehensive list of transition tasks, like notifying stakeholders, preparing data for transfer and setting up new systems. But don’t go it alone — assign a dedicated transition team comprising key HR, finance, and IT department members. Give them clear responsibilities and deadlines to ensure accountability and efficiency in the transition process.

Next, be transparent about the transition process through designated communication channels. Communicate the decision to switch PEOs to your employees as early as possible and keep them updated, explaining the reasons for the change and the anticipated benefits. Doing this from the start will allow ample time to address any concerns they might have.

It’s also indispensable to ensure data transfer is secure. Have a strategy in place that maps out all moving data from one PEO to the other, such as employee information, payroll records, benefits details and more. Because your company might be extra vulnerable in this shift, use encrypted data transfer methods and comply with all data protection regulations to prevent data breaches. 

Lastly, be the bridge between the old and new PEOs. Arrange for an overlap period where both providers are available to ensure uninterrupted service to help smooth out any kinks that can arise. And for extra points, you can conduct a pilot test of the new PEO’s services with a small group of employees before full-scale implementation is recommended.


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Communication is King

Effective communication is vital while you transition, whether it be with PEOs or your staff. 

So, hold both informal and prepared meetings to address employee concerns throughout the transition process, and follow up with smaller, department-specific meetings to gauge their opinions and worries. All in all, create an environment in which employees can voice their concerns and get immediate answers from management.

You can also create an FAQ document that can be referenced whenever needed, such as changes in payroll, benefits, and HR policies, and distribute the resource via email to make it accessible to all. This also includes step-by-step guides and tutorials to help employees navigate any potential new systems.

Remember to maintain open channels for employee feedback and questions. Provide options that speak to employees’ communication preferences to value their input and privacy. For example, set up a digital suggestion box where employees can anonymously submit feedback,  and questions about the transition.

Considerations After the Transition 

Successfully transitioning to a new PEO is a significant milestone, but the process doesn’t end once the switch is complete. Post-transition considerations are crucial for the new partnership to be effective.

In the first few months, put feelers out with regular assessments of the new PEO’s performance to know how your staff is coping. Evaluate and monitor how their services have impacted your business to understand its overall benefits as early identification of issues lets you resolve them promptly. 

Likewise, schedule regular monthly or quarterly check-ins with your new PEO as it’s normal for issues to come up while everyone gets used to the change. These are good opportunities to work collaboratively to solve any issues or gaps in service — effective problem-solving can strengthen the partnership and enhance service delivery.

Ultimately, switching PEOs doesn’t have to be a complex and challenging process. Through careful planning and clear communication, it can be executed smoothly and effectively. These steps can help your business seamlessly transition to a new PEO, setting it up for continued success.

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