8 Reasons Companies Ditch Their PEO—And What You Should Do Instead

Good byeAre you happy with your PEO? PEOs promise a tall stack of benefits to small and mid-size businesses—but what if you’re not seeing the results you expected? Maybe you’re happy with most aspects of the partnership, but there’s that one nagging problem you haven’t been able to solve.

You have three options in this scenario: 1) Talk to your PEO and work out a solution; 2) Switch to another provider; or 3) Go back to handling everything internally.

How do you know which option is the right one for your business? Start by understanding why you’re not happy.

8 Common Reasons Small Businesses Ditch Their PEO

Business owners step away from their PEOs for different reasons, but these are among the most common:

  • Cost Surprises—If the PEO gives you a bundled quote, it may be difficult to see exactly what they charge for specific services. Cost surprises like additional fees for services you thought were included can be good reasons to start looking at other options.
  • Poor Service—No one wants to continue working with a provider that won’t answer questions or respond to phone calls. If you’re not happy with your PEO service, it may be time to see what other providers offer. Service contracts should include access to someone who can answer questions from you as the business owner as well as from your employees. They should also cover all the complexities of your industry as you work through HR, benefits, payroll, and recruiting expectations.
  • Cultural Differences—When you partner with a PEO, you will hand over control of certain functions like payroll and benefits administration. That doesn’t mean you don’t get any say ever, but it does mean that you won’t be managing the daily details. If the culture of the PEO differs greatly from the culture of your business, it may create friction for you as the business owner.
  • Perceived Value—PEOs usually charge a per-employee fee that may seem pretty steep. It can be easy to lose sight of the cost savings you’re realizing as a result of improved processes, lower insurance premiums, and higher productivity. Costs may also shift as a result of changes in the economy, as they did when the Affordable Care Act inflated healthcare costs for many companies. Be aware of economic factors affecting your costs as you consider whether the PEO is providing the value you expected.
  • Misaligned Teams—When hiring managers or HR team members view the PEO as a threat, they won’t be able to take advantage of the resources at their disposal. It may take some time for the PEO to understand your business cultural and processes, and it’s important to adjust your expectations to accommodate a learning curve on both sides.
  • Lack of Industry Expertise—Some industries require specialized knowledge of HR and payroll practices that the PEO may not possess. In these cases, look for a PEO that specializes in your industry and can help you meet all regulatory standards and guidelines.
  • Poor Fit For Company Needs—A mid-size company will have different needs than a brand new startup. If the PEO doesn’t take time to evaluate the needs of your company, you may end up with a service that can’t meet the unique needs of your business. That’s especially true as you begin to develop a need for customized reporting or self-service options.

  • Multi-State or International Expansion—If your business expands beyond the borders of your state or country, your current PEO may no longer have the resources or knowledge to handle your accounting and payroll needs. Some PEOs operate only within a specific region or country, and that means if you expand beyond that area, you’ll need to reassess the partnership.

If Your PEO Isn’t the Right Fit

What’s the next step if your PEO isn’t the right fit for your company? Don’t just jump ship. It could cost you a lot of money if you switch at the wrong time or fail to provide adequate benefits coverage for your employees. Instead, follow these steps:

  1. Assess your needs. Take a step back and consider what HR functions your business requires. Do you need multi-state accounting or global expansion potential? Do you need a total HR solution or are you just looking for payroll and benefits? What service and cost expectations to you have?

  2. Determine a budget. Look for unbundled PEO quotes so you know exactly what you’re paying and what services are included.

  3. Decide whether it makes sense to handle HR internally. As your business grows, you may reach the point where it makes sense to bring your HR function back under your own roof. However, for most small businesses, outsourcing to a PEO is the most cost effective way to go.

  4. Compare PEOs based on your needs. Look closely at the specific needs of your business and compare PEO providers based on those needs. The easiest way to do this is to use our PEO Matching Tool to quickly compare PEOs based on the requirements you specify.

  5. Choose the best fit for your business and make the switch intentionally. Develop a change management strategy that works for your payroll, benefits, and tax needs. Talk to your new provider about the least disruptive way to make the switch.

One final consideration: If you’re mostly happy with your PEO but you have just one or two hang-ups, give them a call and see if they can work out a different solution. You may be pleasantly surprised with the options available to you.


Ready to find your perfect PEO? We can help! Take our one-of-a-kind matching survey to see which providers meet your requirements.