The PEO Disengagement Checklist: A Step-by-Step Transition Plan
Deciding to leave a Professional Employer Organization (PEO) is a strategic financial move. Actually executing that decision can feel like untangling a knot.
Because a PEO handles so many critical functions payroll, benefits, workers’ comp, and tax filings, unbundling them requires a surgical approach. You aren’t just switching software; you are taking back ownership of your legal and tax identity.
The good news? You don’t have to guess at the steps. At AccuPay, we have guided hundreds of businesses through this specific transition. We know exactly where the landmines are (like the SUTA tax reset) and how to avoid them.
Use this 90-day PEO Disengagement Checklist to ensure a seamless move to your new independent HR model.
Phase 1: The Audit & Strategy (60–90 Days Out)
The most common mistake businesses make is giving notice to their PEO before they have their own infrastructure ready. Do not resign yet. First, you must prepare the landing zone.
- Review Your Service Agreement: Check your contract for the required notification period. Most PEOs require 30 to 60 days’ written notice to terminate. Also, check for any “early termination fees” if you leave before your contract anniversary.
- Select Your Effective Date:
- Best Case: January 1st. This is the “cleanest” break. It avoids restarting your Social Security, Medicare, and SUTA wage bases.
- Next Best: Start of a new quarter (April 1, July 1, Oct 1). This simplifies tax filing handoffs.
- Mid-Quarter: Possible, but requires careful coordination to ensure no payrolls are missed or double-reported.
- Audit Your Tax IDs: Since you have been filing under the PEO’s Federal Employer Identification Number (FEIN), your own accounts may be dormant.
- Verify your FEIN is active with the IRS.
- Crucial: Check your State Unemployment Tax (SUTA) and State Withholding accounts. You may need to reactivate them or apply for new ones. Note: AccuPay’s tax team often assists clients with this step.
- Select Your New Partners: Choose your Payroll/HCM provider and your Benefits Broker.
Phase 2: Data Extraction & Setup (45–60 Days Out)
Now the work begins. PEOs can sometimes be slow to release data once they know you are leaving. Be proactive in gathering these documents early.
- Request the “Master Census”: You need a full employee roster including:
- Full legal names, addresses, SSNs, and DOBs.
- Job titles, departments, and current salary/hourly rates.
- Original hire dates (essential for seniority and PTO accruals).
- Get the “Loss Runs”: Ask for at least 3–5 years of workers’ compensation claims history (Loss Runs). Your new insurance carrier needs these to underwrite your new policy.
- Year-to-Date (YTD) Payroll Data: If you are leaving mid-year, your new provider needs the YTD earnings, tax withholdings, and deduction history for every employee to ensure W-2s are correct at year-end.
- Benefit Audits:
- List all current deductions (Medical, Dental, Vision, 401k).
- List all employer contributions.
- Action: Your new broker should be finalizing your replacement plans now to ensure no gap in coverage.
Phase 3: The Build & Validation (30 Days Out)
This is where AccuPay’s “Service Excellence” shines. We don’t just load data; we test it.
- Give Official Notice: Once your new tax accounts are confirmed and your new benefits are ready to bind, submit your formal termination notice to the PEO.
- The “Parallel Run” (Mandatory):
- We run a mock payroll in the isolved system using your actual data.
- We compare the results against your PEO’s live payroll register.
- Goal: We want to match Net Pay, Tax Calculations, and Deductions to the penny. If there is a discrepancy, we find it now, not after you go live.
- PTO Balance Transfer: Extract final PTO/Vacation balances from the PEO portal and load them into the new system.
- Banking Setup: Initiate the new direct deposit pre-note process (if required) and ensure your funding account is connected.
Phase 4: The Employee Launch (15 Days Out)
Change management is key. Your employees need to know that their paychecks and health insurance are safe.
- Communication: Send a clear email/memo to staff explaining the change. Emphasize that net pay schedules remain the same (unless you are deliberately changing them).
- New Onboarding: Have employees log in to the new self-service portal (e.g., isolved People Cloud) to:
- Verify their direct deposit info.
- Check their tax withholding (W-4) settings.
- View their new digital pay stubs.
- Benefits Enrollment: If you are switching insurance carriers, hold an open enrollment meeting so employees can select their new plans.
Phase 5: Go-Live & Post-Transition
- Process First Payroll: Run your first live payroll with AccuPay.
- Close Out the PEO:
- Ensure the PEO files the final quarterly returns for the period you were with them.
- Confirm when coverage for PEO-sponsored benefits (Health, Workers’ Comp) officially ends (usually midnight on the last day of the month).
- SUTA “Successor” Filing: If eligible, file the necessary paperwork with the state to transfer wages paid under the PEO to your account, preventing a tax restart.
Don’t Let the Checklist Scare You
This list looks long, but you don’t have to do it alone.
When you partner with AccuPay, you aren’t just renting software; you get a dedicated implementation team. We handle the heavy lifting of data migration, tax account registration, and parallel testing.
Your job is to run your business. Our job is to make sure your exit is secure, compliant, and boring (in the best way possible).
Ready to start checking boxes? Contact AccuPay today to discuss your PEO exit strategy and timeline.