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Leaving a PEO

There are various motivating factors that prompt an organization to consider leaving a Professional Employer Organization (PEO). Common reasons include the desire to customize employee benefits, improve service, and reduce costs. There are a lot of moving parts when transitioning away from a PEO so it's important to be prepared.

This blog explains what you can expect when leaving a PEO in terms of taxes, employee benefits, retirement plan, workers' compensation, and employer practice liability coverage.


  • Tax implications of leaving a PEO: Many PEOs pay their clients' payroll taxes under the PEO’s tax ID. When exiting the PEO, taxes will now be paid under your own tax ID and all wage bases must be met. That is why it is ideal to leave a PEO on January 1st.
  • If partnering with Connor & Gallagher OneSource (CGO) to leave your PEO: going forward CGO will manage all payroll tax filings and deposits under your company’s FEIN. This includes state unemployment.


  • Employee benefit implications of leaving a PEO: Completely new benefit plans will need to be established.
  • If partnering with Connor & Gallagher OneSource (CGO) to leave your PEO: CGO will shop and implement your benefit plans with the most competitive carrier and try to match plans as closely as possible to what your employees utilize through the PEO. We will manage employee education and the Open Enrollment process and ensure all employees have elected their new benefits. CGO acts as an ongoing service contact for employees and any questions related to their benefits.


  • Retirement plan implications of leaving a PEO: If you are currently in the Multiple Employer Plan (MEP) offered by the PEO, you will need to establish a new retirement plan for your employees. This process can take approximately 60 days and includes a 30-day blackout period.
  • If partnering with Connor & Gallagher OneSource (CGO) to leave your PEO: One of our licensed retirement advisors will work with you to establish a new plan based on your budget and goals.

Alternative to a PEO

Workers' Compensation

  • Workers' compensation implications of leaving a PEO: Once you leave the PEO, your employees will no longer have workers' compensation coverage through the PEO and, as their employer, you will be responsible for establishing a workers' compensation policy.
  • If partnering with Connor & Gallagher OneSource (CGO) to leave your PEO: CGO shops the market for the best rates and will make a recommendation on the new policy. Most carriers allow a Pay-As-You-Go premium option, which CGO manages reporting and payment.

Employer Practice Liability Coverage

  • Employer practice liability coverage implications of leaving a PEO: Some PEO’s include EPLI in the service offering. It is important to identify if you already have an existing EPLI policy outside of the PEO, as you also want to ensure that you are not “double covered.”
  • If partnering with Connor & Gallagher OneSource (CGO) to leave your PEO: To ensure there are no gaps in coverage, CGO will shop for a best fit EPLI policy. 

If you are considering exiting your PEO we can assist your organization through the process to ensure a smooth transition. Many clients find that our PEO alternative offers substantial cost savings while also providing superior service.

This blog is for educational and/or informational purposes only and does not constitute legal advice.

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