# How do I leave a PEO?

Source: https://www.getprescience.com/guides/how-to-leave-a-peo
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-10-15
Updated: 2026-10-15

Leaving a PEO means coordinating health benefits, payroll, workers’ compensation and tax reporting. I would work backward from the contract’s notice requirement and confirmed replacement coverage. The practical goal is one documented handoff, with continuous insurance, accurate payroll and clear responsibility for former employees.

- **Notice period:** Set by your agreement
- **Planning window:** Allow 90–120 days; confirm provider deadlines
- **Federal COBRA applies at:** 20+ employees
- **Prescience start date:** Mid-year starts supported

## What the PEO does today that you'll own after

A PEO is a co-employer. It runs payroll under its own tax accounts in many states, sponsors the health plan your team is on, holds the workers' comp policy and often sponsors the 401(k). When you leave, each of those has to land somewhere on the same day.

**Suggested planning allowances, not guaranteed vendor timelines**

| Function | Who does it after | Lead time |
| --- | --- | --- |
| Health, dental, vision | Your own group plan (or another provider) | 4–8 weeks to quote, enroll and issue cards |
| Payroll and tax filing | Payroll provider such as Gusto, Rippling or Justworks Payroll | 2–4 weeks to set up and test |
| State unemployment and withholding accounts | Your company, in each state you have employees | Days to several weeks, varies by state |
| Workers' compensation | Your own policy, bound to start on cutover day | 1–3 weeks to quote and bind |
| 401(k) | Your own plan, or a spin-off of your piece of the PEO's plan | 4–8 weeks; often the slowest piece |
| FSA, HSA, commuter | A new administrator, or your health plan's partner | 2–4 weeks |
| COBRA administration | You or a COBRA administrator | Set up before the first person leaves after cutover |
| HR tools, handbook, compliance posters | You, your payroll provider or an HR service | Export before access ends |

## Before you give notice

1. **Read the contract.** Find the notice period, any termination fee and whether notice has to land before a quarter or renewal date.
2. **Get your replacement health plan quoted.** Send a census, current plan documents and effective date. Confirm enrollment and payment deadlines before giving irrevocable cancellation instructions.
3. **Choose payroll.** Justworks and Rippling both sell payroll without the PEO, so you can often keep the same software.
4. **Price workers' compensation** in your own name. The PEO's master policy ends with the contract.
5. **Check state tax accounts.** Some states let the PEO report under its own unemployment account; you may need to open or reactivate yours.
6. **Ask whether your PEO is IRS-certified (a CPEO).** It changes how Social Security and federal unemployment wage bases carry over mid-year (below).

> **Pick the cutover date first:** Everything else is scheduled backward from one date. The cleanest is the 1st of a month at the start of a quarter (January 1, April 1, July 1 or October 1): health coverage usually runs through month-end, and a quarter start keeps payroll tax filings from splitting mid-quarter.

## Data to export before you leave

- Year-to-date payroll registers, tax filings and W-2 data.
- Benefit elections, dependents and current plan summaries for every employee.
- Deductible and out-of-pocket amounts employees have met this year, where available.
- HSA, FSA and commuter account details and balances.
- Workers' comp claims history and loss runs.
- PTO balances, handbooks and signed policies stored in the PEO's system.
- A list of everyone currently on COBRA through the PEO, with their election dates and end dates.
- 401(k) contribution history, loan balances and vesting records.
- I-9s and offer letters, if they live in the PEO's system.

Download these yourself while you still have access. Access to the PEO's portal often ends on the termination date, and getting reports afterward can take weeks.

## A typical timeline

**Illustrative schedule for an agreement requiring 60 days of notice**

| When | What happens |
| --- | --- |
| 90–120 days before | Read contract and obtain replacement quotes |
| At least 60 days before | Deliver required written notice after confirming the replacement arrangement |
| 45–60 days before | Open accounts and configure payroll |
| 30–45 days before | Enroll employees and coordinate treatment transitions |
| 14–30 days before | Test payroll and reconcile rosters |
| Cutover date | New coverage begins after old coverage ends; payroll follows confirmed pay periods |

1. **90–120 days before cutover: decide and quote** Read the contract for notice, fees and auto-renewal. Collect a census (age, ZIP, coverage tier) and get health, payroll and workers' comp quotes. Ask the PEO for loss runs and plan documents now, while the relationship is friendly.
2. **60–90 days before: give written notice** Send notice the way the contract requires (often email to a named address, sometimes certified mail) and get written confirmation of the termination date and final invoice timing.
3. **45–60 days before: set up accounts** Register or reactivate state withholding and unemployment accounts, local tax accounts where needed, and confirm your federal EIN details. Bind workers' comp to start on cutover day.
4. **30–45 days before: enroll the new health plan** Hold an enrollment meeting, collect elections and dependents, and send the census to the new plan. Ask the new plan about deductible credit and what proof it needs.
5. **14–30 days before: payroll parallel run** Load year-to-date wages, deductions and tax totals into the new payroll system and run a test payroll. Set up 401(k), FSA and HSA deductions.
6. **Cutover week** Last PEO payroll covers the final period before cutover; first new payroll covers the next period. Health cards should be in hand. Tell employees who to call from day one.
7. **First 30 days after** Submit deductible credit proof within the new plan's deadline (often 30 days from the effective date). Reconcile the PEO's final invoice and any refunds. Confirm COBRA ownership for anyone who left.
8. **Next January** Make sure employees get W-2s for both parts of the year, and that quarterly and annual returns for the switch quarter were filed once, by the right party.

## Keeping health coverage continuous

Set the new plan's start date to the day after PEO coverage ends; coverage usually runs through the end of the month, so a first-of-the-month start is cleanest. Tell employees early: who to contact, when cards arrive and what happens to visits already scheduled.

- **Ongoing treatment.** Give employees a private route to the new administrator for treatment-continuity questions. Verify providers, prescriptions and whether new authorizations are required. Do not collect diagnoses in a company-wide spreadsheet.
- **Prescriptions.** Ask employees to discuss any needed refill timing with their pharmacist or clinician before the switch and check the new plan's formulary.
- **Claims after cutover.** Care before cutover is billed to the PEO plan even if the claim arrives later; care after is billed to the new plan.

> **Mid-year deductibles:** Prescience offers an effective $0 deductible. Still confirm copays, out-of-pocket accumulation, coverage dates and ongoing-treatment arrangements. That description alone does not establish which prior-plan expenses receive credit.

If you change plans mid-year, request written deductible and out-of-pocket credit terms. Ask what expenses qualify, which documents are needed, the submission deadline, and whether claims already processed will be recalculated. Credit can vary by carrier, product and transition; do not assume a generic carrier guideline applies to your contract.

## COBRA when you leave a PEO

Two groups need a plan: people already on COBRA through the PEO, and anyone who leaves around cutover.

- **People already on COBRA.** Identify the responsible plan administrator, applicable plan documents and legal continuation duties. A PEO contract cannot by itself eliminate statutory rights. Obtain written confirmation of where each qualified beneficiary will continue coverage and how payments and election records transfer, if a transfer is appropriate.
- **Federal COBRA generally applies** to private-sector group plans of employers with at least 20 employees on more than half of typical business days in the preceding year. Part-time staff count fractionally. Multiple-employer arrangements need a plan-level review. State continuation rules can apply to insured coverage; do not assume they cover self-funded ERISA plans.
- **COBRA deadlines:** for employer-reportable events such as termination or reduced hours, the employer generally has 30 days to notify a separate administrator, which generally has 14 days to send the election notice. When employer and administrator are the same, the combined deadline is generally 44 days. Election must allow at least 60 days from the later of notice or loss of coverage; the initial payment is due within 45 days after election.
- **Cost and length:** up to 102% of the plan's cost, generally for 18 months after termination other than gross misconduct or a reduction in hours causing loss of coverage; disability and second-event extensions may apply.
- **People leaving near cutover:** have the administrators determine coverage and notice responsibility from the qualifying event, coverage-loss date, plan terms and applicable law. Do not decide solely from the last day worked.

Estimate what COBRA costs a departing employee with our [COBRA cost calculator](https://www.getprescience.com/tools/cobra-cost-calculator), and read [COBRA for small employers](https://www.getprescience.com/guides/cobra-for-small-employers) for the full rules.

## Payroll, taxes and workers' comp

- Run the last PEO payroll and the first new payroll on adjacent periods, with no overlap.
- Confirm who files quarterly returns for the quarter you switch in.
- Make sure year-end W-2s are covered; some PEOs issue them for the part of the year they paid.
- Bind your own workers' comp policy to start on cutover day.

**Wage bases.** Social Security tax applies to the first $184,500 of wages in 2026, and federal unemployment tax to the first $7,000. If your PEO is an IRS-certified PEO (CPEO), federal rules treat the CPEO and your company as predecessor and successor when the contract ends, for qualifying work site employees, so covered wages can count toward the same Social Security and FUTA bases. Confirm that the contract and worker meet the conditions. With a PEO that isn't certified, ask your payroll provider and accountant whether the wage bases restart for the rest of the year, which adds employer tax for high earners.

**Wage base cost of a July 1 switch from a non-certified PEO (illustrative)**

Assumes the wage bases restart, an engineer paid $240,000 a year ($120,000 by June 30) and 2026 rates: 6.2% employer Social Security up to $184,500, and 0.6% net FUTA on the first $7,000, assuming the full state unemployment credit and no credit reduction.

- Social Security wages paid by the PEO, Jan–Jun: $120,000
- Paid by you, Jul–Dec: $120,000
- Employer Social Security if no restart: 6.2% × $64,500 left in the base = $3,999
- Employer Social Security if the base restarts: 6.2% × $120,000 = $7,440
- Extra federal unemployment tax: 0.6% × $7,000 = $42

Exactly $3,483 more for this one employee in the switch year if the bases restart. For a team with several high earners, that can make a January 1 cutover worth waiting for.

**State unemployment.** States treat PEOs differently. In some, the PEO reports your wages under your own account and your experience rate carries on; in others, the PEO reports under its account and you start fresh with a new-employer rate. Check each state where you have employees.

## The PEO exit checklist

- Contract: notice period, termination fee, auto-renewal date, final invoice timing.
- Cutover date set (1st of a month, ideally a quarter start).
- Written notice sent and termination date confirmed in writing.
- Health plan quoted, enrollment done, cards issued before cutover.
- Deductible credit requested, with accumulator report or EOBs.
- Payroll provider set up, year-to-date totals loaded, test payroll run.
- Federal EIN confirmed; state withholding and unemployment accounts open in every state.
- Workers' comp bound in your name from cutover day.
- 401(k) plan set up or spin-off scheduled; contributions mapped in payroll.
- FSA, HSA and commuter accounts moved; FSA claim deadlines communicated.
- COBRA ownership confirmed for current COBRA participants and recent leavers.
- All data exported: payroll, benefits, PTO, I-9s, policies, loss runs.
- Employees told what changes, when and who to call.
- Next January: W-2s and annual filings reconciled for both parts of the year.

## Moving health benefits to Prescience

At Prescience, we design and run your company's health plan, from setup and enrollment to claims, compliance and COBRA. What your team gets:

- **An effective $0 deductible,** so the plan helps from the first visit.
- **Simple copays** shown before a visit, capped by a low out-of-pocket maximum.
- **A broad national PPO network,** plus providers we contract with directly.
- **24/7 physician-led care navigation:** a care team that finds the right provider, books appointments and explains costs up front.

What your company gets: one monthly cost set in your quote, usually 10–20% below comparable fully insured coverage and fixed before the plan starts, with no admin fees. You keep your payroll provider, and the plan can start mid-year.

Prescience handles setup and enrollment, claims, compliance and COBRA. Confirm the transition schedule, employee support contacts and payroll deduction responsibilities for your company.

## Frequently asked questions

**How long does it take to leave a PEO?**

Use the service agreement and replacement-provider deadlines to set the schedule. This guide’s 90–120 day planning allowance is a project recommendation, not a promised completion time.

**Will employees lose health insurance when we leave a PEO?**

Not if you time it. Start the new plan the day after PEO coverage ends, usually the first of a month, and enroll employees before cutover.

**Can I leave a PEO in the middle of the year?**

Yes, subject to your contract's notice terms. Prescience plans can start mid-year.

**Can I keep the same payroll software after leaving a PEO?**

Often yes. Justworks and Rippling both sell payroll without the PEO, and Prescience lets you keep your current payroll provider.

**What happens to employees on COBRA when we leave a PEO?**

Confirm the applicable plan documents, legal obligations and responsible administrator. The service contract alone does not determine or eliminate COBRA rights. Document each beneficiary’s continuing coverage, payment instructions and remaining election period before cutover.

**Do deductibles reset when we leave a PEO mid-year?**

A new plan can have different deductible and out-of-pocket rules. Ask for written credit terms for the actual transition. Prescience offers an effective $0 deductible, but employees still need the copay, accumulation and coverage details.

**Will we get two W-2s in the year we leave a PEO?**

Usually yes: one from the PEO for wages it paid and one from your company or new payroll provider for the rest of the year.

**Is there a fee to leave a PEO?**

Some contracts have a termination fee or require notice before a renewal date. Read the termination section before you give notice.

**What's the best date to leave a PEO?**

The 1st of a month at a quarter start, and ideally January 1, which avoids split quarterly filings, mid-year deductible resets and wage base questions.

## Sources

- [DOL, employer guide to COBRA](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/an-employers-guide-to-group-health-continuation-coverage-under-cobra)
- [26 CFR 31.3511-1, CPEO successor rules](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-C/part-31/subpart-F/section-31.3511-1)
- [IRS, active certified PEO list (report dated August 7, 2026)](https://www.irs.gov/pub/irs-sbse/active-cpeos.pdf)
- [IRS Publication 15 (2026), payroll taxes](https://www.irs.gov/publications/p15)
- [SSA, 2026 contribution and benefit base](https://www.ssa.gov/oact/cola/cbb.html)
- [Justworks, published pricing](https://www.justworks.com/pricing)
- [Rippling, PEO services](https://www.rippling.com/products/hr/peo)
- [DOL, plan information and disclosure](https://www.dol.gov/general/topic/health-plans/planinformation)