What Happens When You Leave a PEO? A Guide for Business Owners

Partnering with a Professional Employer Organization (PEO) can seem like a good move at first, until it no longer fits your business. Many companies eventually outgrow the rigid and costly structure of a PEO and opt to bring payroll and HR services back in-house or through a more flexible provider like Infinium HR.

But what happens when you make that move? Here’s what to expect during the transition out of a PEO, and how to handle it the right way.

1. “Termination” from the PEO (On Paper)

PEOs act as the employer of record while you're under contract with them. So when your agreement ends—usually at the close of the month, your employees are technically “terminated” from the PEO’s system. This may sound concerning, but it's simply a formality.

2. Final Payroll from the PEO

Your PEO will process a final paycheck for hours worked up to the termination date. This includes any accrued PTO or final deductions. Once paid, your company steps in as the new employer of record.

3. Immediate Rehire Under Your Business

From the employees’ perspective, there’s no change, they continue working without interruption. Behind the scenes, though, they are rehired under your business’s own FEIN, and this marks the start of their new payroll records.

4. New Hire Reporting & Onboarding Requirements

Because the employees are now legally hired by your company, you may be required to complete new hire reports and I-9 verification again, unless the PEO provides documentation or supports the transition process.

5. Benefits and Insurance Transition

All benefits and insurance, like workers compensation, 401k and medical, provided under the PEO will end. Be prepared to either initiate new insurance and benefit plans or offer COBRA if applicable. Timing is critical to avoid coverage gaps.

6. Communication is Key

It’s vital to communicate with employees to ease concerns. Reassure them that despite the PEO’s “termination” label, their employment is ongoing and uninterrupted.

Why It Matters Leaving a PEO gives you back control, but it also requires coordination to ensure payroll, tax, and benefit continuity. At Infinium HR, we help businesses exit PEO relationships with confidence, offering personalized support to make the transition smooth, compliant, and hassle-free.

Thinking of making the switch? Contact us today for a free consultation.