Choosing a PEO is a significant decision, and most business owners enter these partnerships expecting long-term relationships. However, not every PEO-client relationship works out as planned. Knowing when to switch providers and how to do it effectively can save your business thousands of dollars and countless headaches.
Common Reasons Businesses Switch PEOs
Poor Customer Service: The most frequent complaint we hear from businesses looking to switch is unresponsive service. If your dedicated rep takes days to return calls, your employees can’t get benefits questions answered, or you’re constantly transferred between departments, your PEO isn’t meeting basic service expectations.
Rising Costs Without Added Value: Many PEOs increase rates annually, sometimes dramatically. If your costs are climbing 15-20% per year without corresponding improvements in service or benefits, you’re likely overpaying.
Limited Benefits Options: Employee needs change over time. If your PEO offers only one or two health insurance plans, can’t accommodate remote workers in different states, or doesn’t provide benefits your employees want, it’s time to explore alternatives.
Technology Issues: Modern PEO platforms should make your life easier, not harder. Clunky systems, limited mobile access, poor reporting tools, or frequent technical problems indicate your PEO hasn’t invested in competitive technology.
Compliance Problems: If your PEO has failed to file payroll taxes correctly, missed required compliance deadlines, or provided incorrect employment law guidance, these are serious red flags requiring immediate action.
Growing Out of Your PEO: Some PEOs specialize in startups and small businesses but can’t scale effectively as you grow. If you’ve expanded significantly and your PEO seems overwhelmed or unable to handle your complexity, you may need a larger provider.
Industry Mismatch: Not all PEOs understand all industries. A PEO that’s great for professional services might struggle with construction companies. If your PEO doesn’t understand your industry’s unique challenges, you’re not getting optimal value.
Signs It’s Time to Make a Change
Beyond general dissatisfaction, certain situations demand immediate action:
Payroll Errors: Consistent mistakes in payroll processing, tax withholdings, or employee payments are unacceptable. These errors damage employee trust and can create legal problems.
Benefits Coverage Gaps: If employees have experienced insurance coverage lapses, delayed enrollment, or incorrect premium deductions, your PEO is failing at a core responsibility.
Unresolved Compliance Issues: Any situation where your PEO’s advice or inaction has resulted in government penalties, audits, or legal problems requires immediate reassessment.
Contract Disputes: If your PEO is charging undisclosed fees, refusing to explain billing, or insisting on terms not in your original agreement, trust has broken down irreparably.
Safety Concerns: For industries with significant workers’ comp exposure, a PEO that doesn’t provide adequate safety training or claims support is exposing your business to unnecessary risk.
The Best Time to Switch
While you can technically switch PEOs at any time, certain timing considerations can make transitions smoother:
End of Contract Term: Most PEO contracts auto-renew annually. Switching at contract renewal avoids potential early termination fees and simplifies the transition.
Open Enrollment Period: Transitioning during your benefits open enrollment period (typically November-December) minimizes disruption to employee coverage.
Calendar Year-End: Switching at year-end simplifies tax reporting and payroll reconciliation, though it’s not required.
Before Major Growth: If you’re planning significant hiring or expansion, switch PEOs beforehand rather than mid-growth when you need stability.
That said, if your current PEO is creating serious problems, don’t wait for an ideal timing window. The cost of staying with a bad provider often exceeds any transition inconvenience.
How to Switch PEOs Smoothly
Start Early: Begin your search 60-90 days before your desired transition date. This allows time for research, proposals, decision-making, and implementation planning.
Review Your Contract: Understand your current contract terms, notice requirements, and any potential exit fees. Most PEOs require 30-60 days’ notice before termination.
Don’t Announce Until You’re Ready: Avoid telling your current PEO you’re exploring options until you’ve selected a replacement and have a signed agreement. Some PEOs become difficult once they know you’re leaving.
Gather Documentation: Collect employee files, payroll records, benefits information, workers’ comp history, and any other relevant documentation. Your new PEO will need this information.
Communicate with Employees: Once your transition is confirmed, clearly communicate changes to your team. Explain what’s happening, when, and how it affects them (usually minimally).
Plan for Dual Processes: During the transition period (typically 2-4 weeks), you may have parallel processes running with both PEOs. Budget time for this overlap.
Finding Your Next PEO Partner
The worst reason to switch PEOs is to make the same mistake twice. Many businesses jump to a new provider without properly evaluating whether that PEO is truly a better fit.
Avoid this trap by working with a PEO consultant who can:
- Objectively evaluate why your current relationship failed
- Identify PEOs that specifically address those shortcomings
- Negotiate better terms and pricing
- Ensure smooth implementation
Ready to explore better PEO options? Contact PEO Consulting Partners for a free consultation. We help businesses transition from underperforming PEOs to providers that truly meet their needs—and we manage the entire process to ensure a seamless switch.