How to transition from a PEO to an EOR

If you’re looking to transition from using a professional employment organization (PEO) to an employer of record (EOR), you may be wondering just where to start.

Regardless of your reasons for making the switch, you may be unclear of timelines, contracts, and processes, as well as how to manage your team members through the transition.

In this step-by-step guide, we’ll show you how to make the switch seamlessly and efficiently, including the key factors you need to be aware of.

Here’s what you need to do.

Leaving a PEO: The checklist

Before you start the process, you need to be sure that switching to an EOR is the right strategy for your business. This includes knowing what exactly the differences are, and what the potential impact is on your short, medium, and long-term business and hiring goals.

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Pay particular attention to how it will impact your:

• Service scope and quality

• Compliance and risk management

• Scalability and flexibility

• Employee experience

• Technology and reporting capabilities

Once all stakeholders are on the same page, you can begin the transition by following these steps:

1. Select an EOR provider

Choosing the right EOR provider is probably the most critical step in the entire process, so it’s crucial to do your research. If the EOR cannot meet your needs — especially as you grow and scale — then your business will be back to square one.

When evaluating potential providers, pay particular attention to the following:

Services offered. Compare the range of services offered by each EOR provider. Look beyond basic payroll and HR functions, and consider whether they provide additional services such as benefits administration (including equity incentives), relocation support, onboarding, and compliance management.

Entity ownership structure. One of the key differentiators between EOR providers is whether or not they own their own entities. Many providers outsource to local third parties, which can present time delays, security risks, and hidden fees. Conversely, Remote owns all its own entities in every country it operates in.

Customer support. Evaluate the level of customer support offered. Will you have a dedicated account manager? What are their response times for addressing issues? Strong customer support is crucial for resolving any problems quickly and maintaining smooth operations, especially in different time zones.

Transparent pricing. Fully understand the pricing models of each EOR, as some providers pass on hidden costs. Ask for a detailed breakdown of what is included in the price and any potential extra charges for additional services, as well as whether there are termination fees if you opt to leave.

Scalability. Some EORs offer great services — but they are limited in how far they can grow with your business. Look for providers with the infrastructure and resources to support your long-term growth without compromising on service quality, especially if you plan to expand into multiple countries.

Culture compatibility. Finally, consider how well the EOR provider’s approach aligns with your company’s own vision and values. You’re not just selecting a service provider; you’re choosing a partner who will play a crucial role in managing your global workforce. Look for a provider that shares your commitment to compliance, employee satisfaction, and operational excellence.

Get our free, in-depth guide on how to choose the right EOR provider for your business.

2. Plan out the transition

Once you’ve identified the right EOR provider, you can start coordinating the transition. It’s a good idea to implement the switch in phases, and break it down into key milestones — especially if you have a sizable workforce. For instance, you could transition team members one region or department at a time, allowing you to resolve any issues more easily.

Where possible, it’s also advisable to avoid planning the transition alongside any critical business cycles, such as reporting deadlines, peak sales periods, or key projects.

When laying out the process, you should also consider the following:

PEO termination notice period. Review your contract with the PEO to determine the required notice period for termination, and ensure that this notice period is factored into your timeline. Otherwise, you may incur legal or financial penalties.

Risk mitigation. Develop contingency plans to address potential risks during the transition. For example, if there are delays in data transfer or issues with payroll processing, have a backup plan in place to ensure employees are paid on time and compliance is maintained. You may even want to conduct mock employee onboardings and payroll runs to identify potential issues.

Communication. Identify all internal stakeholders who will be actively involved in the transition, such as your senior legal, payroll, and HR personnel. Most importantly, communicate with your employees. They may not need to know the ins and outs of the plan, but they need to understand how the change will affect them personally, particularly in terms of payroll, benefits, and employment status. By informing stakeholders early, you can address questions and concerns, maintain a dialogue, and ensure your day-to-day operations are not adversely affected during the transition.

3. Review your existing contracts

It’s unlikely that you will be able to simply walk away from your existing PEO agreements without any impact or consequences, so it’s important to understand what exactly those consequences are and how — where possible — you can mitigate them.

To begin the process, thoroughly review the termination clauses in your current PEO contract. These clauses will outline the conditions under which the contract can be terminated, including the required notice period and any specific procedures you need to follow. Understanding these conditions is crucial to avoid breaching the contract, which could lead to legal disputes or financial penalties.

The notice period can vary, but it typically ranges from 30 to 90 days. Account for this, and allow yourself enough time to notify the PEO and complete any necessary formalities. It’s also important to check if your contract includes an automatic renewal clause, which may require you to provide notice of non-renewal within a certain time frame before the contract's expiration date. Failure to do this could potentially result in the contract automatically renewing for another term, complicating your transition.

From a budgeting perspective, you should account for:

• Early termination penalties. If present, these could be in the form of a lump sum payment, or a requirement to pay the remaining fees for the duration of the contract.

• Any outstanding fees. Review any outstanding fees or obligations that must be settled before terminating the contract. This might include final payroll processing fees, administrative fees, or costs associated with transferring employee records. Ensure that all financial obligations are clearly understood and accounted for.

You should also be aware of what obligations the PEO has to transfer your employee data and records to you or your EOR after termination. This includes payroll records, benefits information, and employment contracts. Ensure that these transfers are completed securely and in compliance with data protection regulations.

Work closely with your chosen EOR to ensure that all legal and regulatory requirements are met during this handover.

4. Transition your employees

When you work with an EOR, the EOR becomes the legal employer of your enrolled team members. This means that while your company retains control over day-to-day work activities and business operations, the EOR assumes responsibility for HR and employment-related functions such as payroll, tax compliance, benefits administration, and adherence to labor laws.

As a result, it’s the EOR’s duty to manage all employment contracts. While the terms of the contracts may stay the same in terms of salary and conditions, they will need to be redrafted to ensure that the change in legal employer is reflected, and that all local labor and contract laws are being complied with. The EOR handles this.

You will still need to communicate these changes clearly with your team members, though. Explain that, while the EOR will now be their legal employer, their day-to-day work and reporting structure will remain unchanged. Transparency during this process is key to maintaining trust, continuity, and morale.

Note that, in some jurisdictions, your employees may also need to formally consent to the transfer of their contract to your EOR. The EOR should guide you on obtaining this consent, including how to draft consent forms and how to communicate the reasons for the transfer to your people.

Before transferring any employee information to your EOR, it’s a good idea to conduct a thorough audit to ensure its accuracy and completeness, and to mitigate any potential issues. 

You should also work with your EOR to ensure that the data transfer is conducted securely, adhering to all relevant data protection regulations.

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5. Migrate payroll and benefits

As well as migrating your team members’ contracts, you will also need to migrate their payroll, tax, and benefits information (current and historical), as these will all be handled by the EOR. Your provider should help you coordinate this migration, and address any potential issues proactively.

Again, this should be done securely and in full compliance with all applicable data protection laws.

It may also be helpful to appoint a dedicated point of contact in your organization who can work with the EOR, manage any issues, and communicate with both parties throughout the migration process.

Testing and verifying

Before fully migrating to your EOR’s payroll system, conduct a parallel payroll run, also known as a “dry run.” This involves running the payroll process in both the PEO and EOR systems simultaneously without actually disbursing payments. This helps to identify any discrepancies or errors in data transfer, calculation, or processing.

Compare the results of the dry run between the PEO and EOR systems, and check for any differences in net pay, tax withholdings, benefits deductions, or other payroll elements. Any discrepancies should be thoroughly investigated and resolved before the EOR system goes live.

You should also ensure that all employee information, including personal details, salary, tax status, and benefits, has been accurately transferred to the EOR system. Even small errors in employee data can lead to significant issues in payroll processing, so it’s important to verify this information carefully. If it’s viable, consider asking employees to verify their personal and payroll-related information (such as bank account details and tax status) before the first payroll run with the EOR.

This applies to benefits, too. Conduct a test of the benefits enrollment and administration process with the EOR, and make sure all your team members are correctly enrolled in their various programs. It’s also advisable to check that there are no gaps in benefits coverage during the transition, as this may adversely impact your people.

After completing these test runs, review the results with the EOR and make any necessary adjustments.

6. Implement the new processes

In reality, little should change for your employees in terms of their day-to-day needs. However, they should be educated on how to use your EOR provider’s platform, particularly in regard to self-serving minor HR tasks such as booking time off.

It’s important to educate your HR personnel on how hiring, onboarding, and offboarding works with an EOR, as well as any other team members whose roles are directly impacted. Your provider should work closely with you to answer questions and provide guidance and support.

Once all your people are successfully transitioned to the EOR and everything is running smoothly, you can formally terminate your agreement with your PEO according to the contract terms.

7. Monitor and review

After the switch, regularly review the EOR’s performance against your objectives. Ensure your provider is meeting service-level agreements and address any issues promptly. As part of this ongoing process, you should also solicit feedback from your team members and address any issues as they arise.

A smooth transition with Remote

Remote has extensive experience in transitioning businesses from PEOs to our EOR service. We know how to navigate the challenges and difficulties involved, and ensure that the logistical and emotional impact on your team members is minimized.

We also make the process as simple and painless as possible for your business, and provide close support throughout the transition and beyond.

If you’re thinking of switching, speak to one of our friendly team members today. We can help you understand what your company’s transition will look like, and give you more clarity in terms of costs and timelines.

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