You joined a PEO, a company that runs payroll and HR for you, when your company was smaller. It made sense then. Someone else ran payroll, handled the HR questions and put your team on a health plan.

Your company has changed since then. Has the deal kept up?

PEO is short for professional employer organization. On paper, the PEO is listed as your team’s employer for payroll taxes and benefits. That’s how it can put your people on its health plans. You’re still the boss: you hire, you run the crews and you run the business. The PEO files your payroll taxes, carries your workers’ compensation and runs the health plans.

Leaving one is called unwinding. It means your company sets up its own payroll, its own benefits and its own workers’ compensation again.

There’s no magic headcount for leaving. But there are six moments when it’s smart to run the numbers.

1) You’re much bigger than when you signed

This is the big one.

What made sense at 12 employees may not make sense at 42. Nothing went wrong. Your size just changes what your company can get on its own.

At 12 people, your choices were limited. At 42, insurance companies and payroll providers will offer you more choices than they did. That’s good to know, even if you stay put.

2) You hired someone who can own this

When you joined, maybe nobody on your team could run payroll or answer an HR question.

Now you might have an office manager, a controller or an HR person who could.

That changes the math. A big part of what you pay a PEO for is someone doing a job. If someone on your team already does part of that job, you could be paying for it twice.

3) You use only part of what you pay for

A PEO bundles a lot together: the employee handbook, an HR help line you can call with questions, training, the app and benefits sign-up.

When you were small, you probably used most of it. Now you might use three of those things.

Or it could be the other way around. You might lean on them more than you think. If so, that’s good to know too.

4) You want more say over the health plan

In a PEO, you usually pick from the plans the PEO offers. That keeps things simple, which has real value.

But those plans were built for a big group of companies, not for yours. If your team keeps asking for something the plan doesn’t do, pay attention to that.

5) Your people work in one or two states

Running payroll and following the rules in many states is hard work. If your team is spread across the country, your PEO is carrying something heavy for you.

If everyone works in New Jersey and Pennsylvania, that job is a lot smaller.

6) Nobody has ever priced your company on its own

This one applies at any size.

Most owners have never seen the real numbers: what the company pays inside the PEO next to what it would pay on its own.

It’s hard to make a good call on something you’ve never priced.

What leaving involves

If the numbers say leave, here’s the real work. You can do all of it with some planning.

Your health plan starts over. You buy your own, priced for your company alone.

What people paid toward their deductible may reset. A deductible is what someone pays for care before the plan starts paying. Your plan year is the 12 months your health plan runs before it renews. If you switch in the middle of it, those payments might not carry over. Some insurance companies will give credit for them if you ask up front. So ask up front.

Payroll comes back to you. Your company files its own payroll taxes again, under its own tax ID number.

There may be one extra tax form. Some PEOs are certified by the IRS, which means they passed an IRS review to handle payroll taxes for their clients. If yours is, it files a short form with the IRS (Form 8973) when your contract ends. Your PEO can tell you if it’s certified.

Workers’ compensation becomes your own policy. In a PEO, your coverage usually sits on a policy the PEO holds. On your own, your company buys its own.

Unemployment insurance depends on your state. Your state rates your company based on unemployment claims from past employees. In a PEO, that rating often reflects the history of the whole PEO, not just yours. What happens when you leave depends on your state and how long you’ve been with the PEO. Ask early and don’t assume.

HR tools get replaced or bought. The handbook, onboarding, HR advice, payroll software, benefits sign-up and time tracking. You might already have some of these.

Source: IRS, “CPEO customers – What you need to know”, IRS certified professional employer organization programme guidance

Timing matters more than you’d think

The smoothest exits line up with the end of your plan year. That way, nobody’s deductible resets partway through.

Leaving also has to follow the notice period in your PEO agreement. Check your contract before you pick a date.

The rules also vary by state. In New Jersey, PEOs are called employee leasing companies and must register with the state. The leasing company and your company both count as the employer of your team for wages and benefits.

Source: New Jersey Legislature, “P.L. 2011, c.118”, New Jersey employee leasing company registration law

Sometimes the answer is stay

Plenty of comparisons say stay. That’s a good answer too.

Sometimes staying is the better choice. Sometimes leaving is. Seeing both side by side tells you which one fits your company this year.

What really costs you money

The costly part is renewing year after year without ever running the numbers.

That’s the Cost of Doing Nothing. Since nothing looks broken, nobody checks. The bill shows up a little higher, someone approves it and the year starts over.

Where to start

You need two things. You probably have both.

1) Your latest PEO invoice, or the renewal you get when your plan renews each year.

2) A list of your employees with their dates of birth, zip codes and who they cover on the health plan, like a spouse or children. No health details and no Social Security numbers.

Send both through pennworth.com/secure-upload, never by email, because the list has personal details about your team.

We’ll build you a PEO Benchmark Analysis. It’s a side-by-side report that compares what your company pays and gets in the PEO with what the same company would look like on its own.

You don’t have to switch, give notice or decide anything. You’ll see where you stand. Then you decide what to do next.

Not ready to send anything yet? Start with the 2-minute assessment below.

See where you stand

Answer 7 quick questions and see how healthy your benefits program is. It takes 2 minutes.

Take the 2-minute assessment →