December 8, 2023 | By Questco Companies
January 1st is the ideal time for companies to switch professional employer organizations (PEOs). As the calendar resets each year, transitioning between PEOs at the start of January minimizes complications and disruptions to critical programs.
With careful coordination, companies can ensure a smooth changeover of payroll, benefits, healthcare, taxes, reporting, and other critical services when partnering with a new PEO. Making a switch at the beginning of the year provides consistency and sets up the new relationship for success.
Before exploring the specifics of why January 1st is the optimal transition date, it helps to understand some of the reasons companies may look to change PEOs in the first place.
There are several common reasons an organization may look to switch professional employer organizations:
With these motivations in mind, most companies find January 1st is the ideal time to initiate a transition between PEOs. Here's a closer look at why the start of the calendar year makes switching more seamless:
By aligning the transition with the calendar year, companies can minimize disruptions and complications such as:
The start of a new year provides the best opportunity to initiate a PEO switch while minimizing disruptions related to payroll, taxes, benefits and more. However, there are additional important considerations when undertaking this transition.
Once the decision has been made to switch PEO partners and January 1st has been identified as the ideal transition date, several necessary steps are involved in successfully moving from one PEO to another.
First, review the current PEO agreement for any termination clauses and ensure proper notice is provided based on the outlined terms. Many PEO contracts require 30-60 days advance written notice to terminate the partnership.
Next, work closely with the new PEO to coordinate the transition plan and implementation schedule. This should outline critical milestones such as transferring payroll administration, changes to HRIS systems, benefit plan transitions, and more. Communication is vital to prevent any gaps in service during the switch.
Carefully determine which services will remain outsourced with the new PEO and which (if any) will be brought in-house or handled by other vendors. This may require researching payroll providers, benefits administrators, integrated HR software, and other solutions.
Data migration is another essential component. Work with the current PEO to obtain all necessary employee data, payroll records, tax filings, and HR documentation well in advance of the termination date. The new PEO can then integrate this data into their systems and processes.
Lastly, keep employees informed with clear communication about the upcoming change in PEO partners. Be transparent about potential impacts on pay cycles, benefit plans, points of HR contact, and more. Listen to any concerns and answer all questions.
While complex, a well-planned PEO transition sets up the new partnership for success and continuity as the calendar flips to January 1st. Lean on experts like transition consultants and the new PEO to guide a smooth transfer.
Switching professional employer organizations can be complex, but starting a new calendar year provides an optimal transition point that minimizes disruptions. By coordinating an effective PEO transition, companies can maintain continuity in vital programs like payroll, taxes, benefits, time off, and reporting while also aligning with open enrollment periods and financial planning cycles already underway for the new year.
Careful planning is critical when embarking on this transition, and organizations should ensure they review PEO contracts, map out implementation timelines, transfer data, communicate with employees, and leverage partners like the new PEO.
While challenging, a well-executed transition sets the stage for a lasting and productive PEO partnership.