Leaving your PEO Checklist

Complete guide for preparing and executing a PEO transition

Leaving a PEO is a significant, and often underestimated, project involving many moving parts, including some important highly visible day-to-day activities. Making matters more difficult is the abrupt nature of the termination of payroll, technology, benefits, HR administration, and employee support provided by the PEO.

Consequently, it is highly recommended that you engage the assistance of an outside vendor or consultant with experience migrating companies off a PEO.

This checklist provides a complete list of everything that needs to be done, broken down by category, to properly prepare for, and execute a PEO migration.

Or, if you would like a complete team of HR, benefits, payroll and technology specialists to completely manage the migration for you, including implementation of an all-in-one cloud technology and set up of benefits, payroll, policies and procedures, contact Melita. It’s completely turnkey and we have managed over 100 PEO migrations so we are good at it!


  • Establish applicable State Unemployment Tax (SUTA) IDs
  • Establish applicable Local Tax Withholding Account(s)
  • Define and implement any cost center allocations that may be desired for financial cost center allocations
  • Set up all Domestic Partner Imputed Income & Post-Tax deduction codes and rules
  • Set up Group Life Insurance Imputed Income codes and rules
  • Develop payroll policies for non-exempt staff which are consistent with mandates for overtime, meal periods, rest periods, failure to submit time card policy
  • Obtain copies of existing court orders, wage garnishments, and tax levies, if any, for current employees and set up appropriate deduction codes in payroll

Employee Benefits & Insurance

  • Implement a Workers Compensation Insurance policy
  • Implement Employment Practices Liability insurance
  • Employee communication regarding Flexible Spending Account Spend Down Period leading up to the PEO termination date
  • Evaluate, benchmark, select, and implement medical, dental, vision, life, and disability insurance benefit plans and determine company contribution
  • Implement Flexible Spending Account, Commuter, 401(k), and any other fringe benefits you may want to include in your benefits program
  • If applicable, implement disability insurance needed to comply with special SDI requirements in applicable states (California, Hawaii, New Jersey, New York and Rhode Island)
  • Build Open Enrollment rules into HR, Benefits & Payroll technology for initial enrollments of existing employees


  • Implement and configure your selected HR, Benefits & Payroll technology (ensure your vendor has IRS 1094-C/1095-C reporting capabilities, as applicable)
  • Design and configure the system with your desired business organization structure for divisions, departments, reporting structures, location, cost centers, etc.
  • Load employee compensation history into new technology for historical purposes
  • Load applicable Year-to-Date tax and payroll deduction data into payroll module of new technology
  • Build PTO accrual policies and load balances
  • Once final benefit plan decisions are made, gather coverage and premium data and build plans and eligibility rules
  • Load your workers compensation class codes and rates and identify officers that are exempt from coverage
  • Build benefit plans and eligibility rules into the employee on-boarding workflow
  • Design and build approval paths for specific life events that will require approval
  • Build out all HR, Benefits and Payroll processes using the technology workflow automation capabilities
  • Implement and configure the Time & Attendance module of the technology including time clocks (if applicable)
  • Configure a General Ledger (GL) integration file feed for import into to your finance software
  • Work with insurance carriers and HR technology vendor to build EDI file feeds to carriers
  • If desired, select and implement Applicant Tracking (ATS) technology

Would you like a PDF (printout) of the checklist?

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Compliance & Administration

  • Obtain new I-9 forms for all current employees (required when leaving a PEO since you are effectively re-hiring your employees)
  • Prepare and get legal review of your Offer Letter template
  • Create and get legal review of your Employee Handbook for all states in which you have or plan to have employees
  • Create Employee Handbook acknowledgement form and have all existing employees sign
  • Document and implement a Sick Paid Time Off policy compliant with all states in which you have employees
  • Define requirements, prepare, and distribute all mandated compliance notices and employee acknowledgements for all states in which you have employees
  • Establish and implement a legally compliant HIPAA policy
  • Establish legally compliant Leave of Absence (LOA) policies that cover all types of leaves including state- and local-specific leaves for all states in which you have employees
  • Create and get legal review of all LOA and Accommodations documentation necessary for proper LOA and Accommodations administration including compliant employee notices, processes for evaluating and approving/denying leaves, and process for tracking leaves and accommodations, and managing return to work
  • Establish process, workflows and documentation for new hires
  • Establish process, workflows and documentation for voluntary and involuntary terminations including protected class documentation, severance agreement templates, exit interview template, etc.
  • Establish process, workflows and documentation for employee changes such as pay changes, promotions, performance improvement plans, etc.
  • Complete new hire process and compliance requirements for all existing employees (Moving off a PEO require existing employees to complete I-9 and other new hire docs)
  • Create and distribute a Summary Plan Description (SPD) WRAP document for your benefit plans to all employees
  • Perform an FLSA audit on all existing employees and develop a new hire assessment process to make sure every new hire passes the FLSA criteria for proper classification as Exempt vs. Non-Exempt employee
  • Establish a regimented process for ensuring all COBRA qualifying events (including non- termination events that trigger COBRA) are communicated to your new COBRA administrator
  • Establish an e-Learning platform for all mandated Manager training courses (ensure the e-Learning platform offers an audit trail for verification of course completion for each Manager)
  • Implement I-9 Technology and establish a regimented process to ensure compliance with the federal I-9 timing and documentation requirements
  • Establish and implement a legally compliant HR filing structure (ideally in a cloud file storage technology) and file documents for current and future hires in the new structure
  • Establish an Immigration process for handling current employees, and new hires, that have Visas
  • Establish a process and litmus test for assessing all Independent Contractors to make sure they meet the DOL (Department of Labor) definition of Independent Contractor
  • Research local compliance ordinances in all cities/counties in which you have employees for special requirements specific to that locale and establish process necessary to comply with any such ordinance (IE – San Francisco HCSO, New York Commuter Tax, etc.)
  • Ensure all office locations have current Labor Law posters posted in the appropriate community area
  • Establish a cafeteria (Section 125) plan document to allow employees to make pre-tax contributions for benefits, either as part of your FSA plan or a stand-alone Premium Only Plan

Compliance Calendar

Establish your Annual Compliance Calendar and include the following annual actions that are relevant to your business:

  • Preparation of Annual 5500 Health & Welfare Plan Filing
  • ACA Compliance (50+ employees only): Establish your ACA Measurement, Stability, and Administrative Periods, define Safe Harbor elections, and perform Affordability, Minimum Essential Coverage, and Offer of Coverage testing to ensure compliance and for avoidance of penalties
  • Prepare Annual ACA 1094-C/1095-C IRS Filing and distribute 1095-C forms to all employees
  • Prepare Annual SPD/WRAP document update and distribute to employees
  • Conduct Annual FSA Non-Discrimination Testing
  • Conduct Annual 401(k) Non-Discrimination Testing
  • Prepare Annual EEOC (Equal Employment Opportunity Commission) EEO-1 Filing (100+ employees or Federal Contractor) – (Be sure to load employee EEO data into HR technology during implementation)
  • Complete Annual CMS (Centers for Medicare & Medicaid Services) reporting requirement
  • Complete Annual Bay Area Commuter Program compliance registration (50+ employees in the California Bay Area only)
  • Conduct Annual review of employees with work visas to determine if renewal is required

Would you like a PDF (printout) of the checklist?

Download now so you can print it out or save it for later.