Exiting Your PEO: When It’s Time, What to Expect, and How to Succeed

Partnering with a professional employer organization (PEO) can be a smart move for small, growing companies. It takes the weight off your shoulders by outsourcing time-consuming tasks like payroll, tax filing, and benefits administration—so you can focus on scaling, not spreadsheets.

Research backs up this claim: The 200,000 businesses working with a PEO tend to grow faster, have 12% lower employee turnover, and are less likely to go out of business than their non-PEO-partnering counterparts.

But PEOs aren’t the best fit for every industry—or every stage of business growth. So as your company scales, you may start to wonder: Is it time to bring HR in-house?

Exiting a PEO is a major milestone, but taking the leap can feel overwhelming. In this guide, we’ll walk you through how to determine if now is the right time, what steps to take, and how to make the transition smoothly.

Is it time to exit your PEO?

Before jumping into logistics, take a moment to assess whether it’s time to exit your PEO . Here are some tell-tale signs it may be time to make the transition:

• Your team is growing exponentially ( beyond 50 employees) and your PEO fees are piling up.
• You need more control over your HR functions, especially when it comes to benefits, employee experience, and policies.
• You want customization beyond your PEO’s bundled solutions and want to choose your specific vendors.
• You’re seeking more cost transparency when it comes to payroll, taxes, and other costs.
• You want all-around better HR services or stronger compliance guarantees.

Ultimately, if you’re ready to take more control over your HR strategy and employee experience, exiting your PEO is probably the right step. You’ll gain flexibility with vendors and tech, have the freedom to build a stronger, more branded employee experience, and gain visibility into compliance and risk.

Building or expanding your in-house HR team can also reduce costs in the long run, and it’s an investment in your people and your future.

Leaving your PEO? Don’t miss these key steps

Leaving a PEO doesn’t have to be complicated—as long as you get your ducks in a row well in advance. Use this checklist to guide your transition:

​​Review your current PEO contract

Look for:

• Required notice period
• Termination fees
• Renewal dates

Exiting outside the contract window can result in additional charges, so double-check the fine print.

Choose your exit date wisely

Keep in mind, it’s important to time your exit carefully. You’ll need to transfer payroll, benefits, and employee data, and mid-year exits can lead to tax/reporting confusion (like duplicate W-2s). Many companies aim for the start of a new calendar year or benefits plan year to simplify tax filings and avoid mid-year administrative hassles.

Select new providers—or build in-house systems

Will you partner with external vendors? Build your own systems in-house? Or a mix of both? The right path depends on your team’s size, resources, and long-term strategy.

Either way, make sure you cover all the services your PEO managed, from payroll and health benefits to compliance.

Notify your PEO

Submit a formal notice in writing, per your contract. Document all communications and request a clear timeline for offboarding.

Communicate with employees

Transparency is key. Let your team know what’s happening, what to expect, and how the change benefits them. Be ready to answer questions about benefits, paychecks, or policies.

Migrate data securely

You’ll need to extract and transfer:

• Employee records
• Payroll history
• Time-off balances
• Benefits enrollments
• Tax documents

Ensure your new HR system can handle these imports without data loss.

Your in-house HR toolkit

Once you exit the PEO, you’ll be responsible for all core HR functions. Here’s what you’ll need:

Payroll

The first step is selecting a new payroll provider—one that automates calculations, tax filings, and direct deposits. It’s often the most time-intensive part of the transition, and your choice will impact other areas of your HR operations. Take the time to evaluate not just what you need today, but what your team will need as you grow. The right system now can save you major headaches later.

Benefits administration

You’ll need to set up health, dental, vision, and voluntary benefits—ideally without any lapse in coverage. You can go two routes here:

• Partner with a trusted benefits broker to negotiate plans and manage enrollment.
• Use a benefits platform that integrates with your HR stack.

No matter which route you take, keep employees in the loop with clear, timely communication about what’s changing, what’s staying the same, and why. Consider using the transition as a chance to rethink your offerings so they’re more in line with your team’s needs—and your company’s budget.

Compliance

When you leave a PEO, you also leave behind their compliance safety net. That means taking responsibility for:

• Federal, state, and local labor laws
• ACA reporting
• Employee handbooks, policies, and documentation
• OSHA and workplace safety requirements

You can build internal expertise or partner with compliance consultants or legal advisors to stay ahead of changing regulations. Being proactive on compliance reduces risk and builds trust with your team.

Hiring and onboarding

With HR in-house, you’re now in charge of creating a seamless, branded employee experience from day one.

• Implement tools that support digital onboarding, e-signatures, and task tracking
• Create consistent processes for exits, terminations, and offboarding paperwork

This is your chance to build a strong culture from the first interaction.

Time tracking and PTO

You’ll need a system of record for employee data, time off, org charts, and more. Many companies opt for a Human Resource Information System (HRIS) that can centralize:

• Employee records
• PTO and leave tracking
• Performance reviews
• Reporting and analytics

Look for a solution that integrates with your payroll and benefits platforms for a smoother overall workflow. The right platform will save time, minimize manual entry, and empower your HR team to work strategically.

When the PEO no longer fits

PEOs offer a lot of value, but they’re not always the perfect long-term solution. If you're starting to feel boxed in by bundled services, rising fees, or limited flexibility, it might be time to reevaluate.

Maybe you want to tailor your benefits, handpick your HR tech stack, or build a more branded employee experience. Maybe the numbers just aren’t adding up anymore. Whatever the reason, the discomfort is worth paying attention to, and it may be time to spread your wings. Because when your business evolves, your HR strategy should too.