How to Budget and Plan a PEO Exit in 12 Months

Leaving a PEO feels a lot like planning a cross-country move while your current landlord keeps raising the rent. You know you need to go. You're just not sure how much it'll cost, how long it'll take, or what might break along the way.

The good news: a PEO exit doesn't have to be chaotic. With a 12-month runway and a clear budget, you can unbundle your benefits infrastructure methodically—without disrupting payroll, botching open enrollment, or discovering surprise costs in month eleven.

This guide breaks down a PEO exit into a month-by-month planning framework, including the hidden line items most companies miss, the timing dependencies that trip up even experienced HR teams, and the real-world pitfalls that turn "smooth transition" into "all-hands emergency."

Let's build your exit plan.

Why 12 Months? The Case for a Full-Year Runway

Most PEO exit advice says some version of "plan four to six months ahead." That's technically possible. It's also how you end up making rushed vendor decisions, scrambling during open enrollment, and paying for mistakes you didn't have time to catch.

A 12-month timeline gives you breathing room for three critical things:

• Contract alignment: Your PEO contract, benefits renewal date, and fiscal year oftentimes fall on the same date.

• . A full year lets you map these dependencies and avoid expensive mid-year resets.

• Vendor vetting: Choosing an HRIS, a benefits broker, a retirement plan provider, and COBRA/FSA administrator takes longer than vendors promise. You'll want time for demos, references, data-transfer considerations, and negotiation.

• Budget accuracy: The first budget you create will be wrong. A 12-month runway gives you time to refine it as you gather real quotes and uncover hidden costs.

One important note: if your PEO is a Certified Professional Employer Organization (CPEO), you may have more flexibility on timing because wage base resets mid-year won't affect your payroll tax credits [1]. If they're not certified, a mid-year exit could mean your employees restart their Social Security wage base—and you'll owe additional FICA taxes. Check your PEO's certification status before you lock in dates.

The Hidden Line Items Most Companies Miss

When companies budget for a PEO exit, they usually account for the obvious costs: new payroll, new benefits premiums, maybe an HRIS. But the hidden line items are where budgets blow up.

Here's what to include that you might not have on your radar:

HRIS/HCM Platform

Your PEO's technology is bundled into your service fee. Once you leave, you need your own system for payroll processing, time tracking, benefits enrollment, and reporting.

Typical cost range: Implementation fees generally run $5,000–$25,000 depending on company size and complexity. Ongoing costs typically fall between $5–$25 per employee per month (PEPM) for mid-market systems.

Hidden costs: Data migration fees, custom integrations with your accounting software, and training time for your team. Budget 20–40 hours of internal time for implementation oversight alone.

Benefits Broker

If you've been on a PEO's master health plan, you haven't needed your own broker. Now you do—someone to shop carriers, negotiate rates, and manage renewals going forward.

Typical cost range: Brokers are typically compensated through carrier commissions (built into your premiums), so you may not see a separate line item. Some charge advisory fees of $50–$150 PEPM for complex situations or fee-based arrangements.

Hidden costs: If your broker isn't strong on compliance, you may need separate legal review for plan documents—often $2,500–$7,500 depending on complexity.

COBRA Administration

Your PEO currently handles COBRA. Once you leave, you either need a third-party administrator (TPA) or you're managing compliance in-house.

Typical cost range: TPAs generally charge $5 - $15 per COBRA-eligible participant per month, or flat monthly fees starting around $50–$100/month for smaller employers.

Hidden costs: COBRA has tight notification deadlines (44 days for initial notice) and significant penalties for errors—up to $110 per day per affected individual. If you're doing this in-house, budget for legal review of your notices.

FSA/HSA Administration

Same story as COBRA—these are bundled in your PEO's fee until they aren't.

Typical cost range: Third-party administrators charge setup fees of $500–$1,500 plus $4–$6 PEPM for FSA administration. HSA administration is often included with your HSA custodian but may run $2–$5 PEPM separately.

Hidden costs: Mid-year transitions can create contribution tracking headaches. If you're switching administrators mid-plan-year, expect to spend time reconciling contribution limits and available balances.

Retirement Plan (401(k)) Provider

If your employees are on the PEO's retirement plan, you'll need to establish your own or find a new provider.

Typical cost range: Setup fees typically run $500–$2,000. Annual administration fees range from $1,500–$5,000 plus $30–$60 per participant annually, though bundled pricing varies widely.

Hidden costs: Plan-to-plan transfers can take 2–4 months. If you're mid-year, employees may face contribution limit complications if balances don't transfer cleanly. Budget for a few hours of CPA time to navigate the transition.

Workers' Compensation

Your PEO likely bundles workers' comp into your co-employment arrangement. You'll need your own policy.

Typical cost range: Premiums depend heavily on your industry, claims history, and payroll. As a rough guide, expect 1–3% of payroll for low-risk industries (office work, professional services) and potentially much higher for construction, manufacturing, or healthcare.

Hidden costs: If your claims history was pooled with the PEO's other clients, your standalone experience modification rate might be higher (or lower) than expected. Get quotes early—underwriting can take 3–4 weeks.

Compliance and Legal Review

State registrations, employment policies, handbook updates, benefits plan documents—all of this was partially managed by your PEO.

Typical cost range: Legal review for plan documents (SPDs, wrap documents) typically runs $2,500–$7,500. Handbook review or creation adds $1,500–$5,000. Multi-state registration assistance varies by state count.

Hidden costs: Multi-state compliance is complex. If you have employees in multiple states, budget $200–$500 per state for initial registration fees, plus ongoing compliance monitoring costs.

Internal Time and Opportunity Cost

This is the one everyone forgets. Your HR team (or you, if you're wearing that hat) will spend significant hours on this project.

Typical cost range: Assume 150–250 hours total from your project lead over 12 months, with heavier concentration in months 4–1. Add 30–50 hours each from finance and IT stakeholders.

To estimate your cost: multiply your HR lead's fully-loaded hourly rate by 200 hours. For a $75/hour fully-loaded cost, that's $15,000 in internal time alone.

Sample Budget: What a 75-Employee Company Might Expect

To make this concrete, here's a sample budget for a hypothetical 75-employee company leaving a PEO. Your numbers will vary based on your industry, location, current PEO costs, and specific needs—but this gives you a framework to build from.

One-Time Costs

Category	Low Estimate	High Estimate
HRIS Implementation	$5,000	$15,000
401(k) Plan Setup	$500	$2,000
Legal Review (plan docs, handbook)	$4,000	$12,000
State Registrations (if multi-state)	$500	$2,500
Data Migration/Cleanup	$1,000	$5,000
Total One-Time	$11,000	$36,500

Recurring Annual Costs

Category	Low Estimate	High Estimate
HRIS/Payroll (@ $10–$20 PEPM)	$9,000	$18,000
Benefits Broker (often commission-based)	$0	$5,000
COBRA Administration	$600	$1,800
FSA Administration	$3,600	$5,400
401(k) Administration	$3,750	$6,500
Workers' Comp (varies by industry)	$15,000	$60,000
Compliance Monitoring	$1,200	$3,600
Total Recurring Annual	$33,150	$100,300

Internal Time Investment

Role	Hours	Fully-Loaded Cost (est.)
HR Lead	200	$15,000
Finance	40	$4,000
IT	30	$3,000
Executive Sponsor	20	$3,000
Total Internal Time	290 hours	$25,000

Important: This budget doesn't include health insurance premiums, which are typically your largest benefits expense. Those costs depend entirely on your demographics, plan design, and carrier negotiations—your broker will help you model those separately.

How to Use This Framework

1. Start with your current PEO invoice. Identify every line item they charge you for.

2. Get quotes for each category above from at least two vendors.

3. Add 15–20% contingency. Something will cost more than expected.

4. Compare your total projected cost to your current PEO spend (including all fees, not just the "admin fee" line).

5. Revisit quarterly as you gather real quotes and refine your understanding.

Month-by-Month Planning Framework

Here's how to structure your 12-month exit, aligned to a January 1 go-live date. Adjust the timeline if your target date is different, but keep the relative spacing—some phases can't be compressed.

Quick Reference: 12-Month PEO Exit Timeline

Phase	Months	Primary Focus
Discovery & Decision	12–10	Contract review, team assembly, initial budget
Vendor Selection I	9–8	HRIS and broker selection
Vendor Selection II	7–6	Finalize HRIS, benefits strategy, other vendors
Implementation	5–3	System setup, open enrollment prep, PEO notice
Testing & Cutover	2–1	Open enrollment, training, parallel payroll
Go-Live	0	First independent payroll and benefits admin

Months 12–10 (January–March): Discovery and Decision

Primary goals: Confirm you should leave, understand your contract, and build your project team.

Key activities:

• Review your PEO contract thoroughly. Look for termination notice requirements (often 30–90 days), early termination penalties, and data export provisions.

• Audit your current state: What does your PEO actually do for you? Benefits administration, payroll, compliance, workers' comp, retirement plan, HRIS—inventory everything.

• Build a rough budget using the line items above. This will be wrong, but it gives you a starting point.

• Identify your internal project team. At minimum: HR lead, finance lead, executive sponsor.

• Decide: Are you definitely leaving, or still evaluating? If you're still unsure, this phase is about gathering the information to make that call.

Pitfall to avoid: Don't notify your PEO yet unless your contract requires it. Once you signal you're leaving, some PEOs become less responsive or less flexible on renewal terms.

Months 9–8 (April–May): Vendor Selection Phase 1

Primary goals: Select your HRIS/HCM platform and benefits broker.

Key activities:

• Define your HRIS requirements. What do you actually need? Payroll, time tracking, benefits enrollment, reporting, integrations with your accounting system?

• Shortlist 3–5 HRIS vendors. Request demos, check references, get detailed pricing including implementation costs.

• Concurrently, start your broker search. Ask for recommendations from peers, interview at least three firms, and assess their experience with companies your size and in your industry.

• Begin conversations with your current PEO about data export formats and timelines. You'll need employee data, payroll history, benefits elections, and more.

Pitfall to avoid: Don't pick your HRIS based on the flashiest demo. The best system is the one your team will actually use and that integrates with your benefits and payroll workflows. Features you'll never touch don't add value.

Months 7–6 (June-July): Vendor Selection Phase 2 and Benefits Strategy

Primary goals: Finalize HRIS and broker selection; work with your broker on benefits strategy, and start selecting other vendors.

Key activities:

• Sign your HRIS contract. Implementation typically takes 8–12 weeks, so you need to start now for a January go-live.

• Work with your broker to analyze your current benefits and develop your post-PEO strategy. Do you want to replicate what you have, or is this an opportunity to redesign?

• Get quotes for standalone workers' compensation.

• Select COBRA and FSA/HSA administrators.

• If you're establishing a new 401(k) plan, start that process now—it takes longer than you think.

Pitfall to avoid: Don't assume your broker will handle everything. You need to stay engaged and make decisions. Brokers can present options, but you know your workforce and budget constraints.

Months 5–3 (August–October): Implementation and Open Enrollment Prep

Primary goals: Implement your HRIS, finalize benefits, and prepare for open enrollment.

Key activities:

• Begin HRIS implementation. This includes data migration, configuration, and testing. Build in buffer time—data migration almost always has hiccups.

• Finalize your benefits lineup with your broker. Lock in carrier contracts.

• Prepare open enrollment materials. Your employees need to understand what's changing (even if the plans are similar) and how to enroll in the new system.

• Notify your PEO formally, per your contract requirements.

• Coordinate timing: Your PEO's plan year end, your new benefits effective date, and your HRIS go-live should align. If they don't, you may have coverage gaps or dual-system headaches.

Pitfall to avoid: Don't underestimate data migration complexity. Employee records, historical payroll data, PTO balances, benefits elections—all of this needs to move accurately. Audit thoroughly before you go live.

Months 2–1 (November–December): Testing, Training, and Cutover

Primary goals: Run open enrollment, train your team, and prepare for Day 1.

Key activities:

• Run open enrollment on your new platform. This is the real test. Support employees through the process and document issues.

• Train your HR and finance teams on new systems and processes. Don't assume the HRIS vendor's training is sufficient—build internal documentation.

• Run parallel payroll if possible. Process a "shadow" payroll run in your new system while still on the PEO to catch errors before they hit employee bank accounts.

• Finalize workers' comp policy effective date.

• Confirm all vendor contracts are signed and effective dates are correct.

• Communicate with employees: What changes on January 1? What stays the same? Who do they contact with questions?

Pitfall to avoid: Don't skip parallel payroll testing. Payroll errors on your first independent run will erode employee trust fast.

Month 0 (January): Go-Live

Primary goals: Execute your first independent payroll and benefits administration.

Key activities:

• Process your first payroll on your new system.

• Confirm benefits enrollments transferred correctly to carriers.

• Monitor for issues and respond quickly.

• Debrief with your team: What worked? What didn't? What do you need to adjust?

Pitfall to avoid: Don't declare victory too early. The first quarter post-exit typically surfaces issues you didn't anticipate. Stay in active management mode through at least Q1.

Aligning Your Exit to Renewal Timing and Open Enrollment

Timing a PEO exit is a puzzle with multiple pieces that don't naturally fit together. Here's how to think about it:

Your PEO Contract Anniversary

Most PEO contracts auto-renew annually with a 15–90 day notice window. If you miss the window, you may be locked in for another year or face early termination fees. Find this date first.

Your Benefits Plan Year

PEO master health plans typically run on a calendar year, but not always. Exiting mid-plan-year can mean losing coverage or paying to maintain it while also paying for your new plan.

Open Enrollment Windows

Your employees expect to make benefits elections during open enrollment, typically in the fall for a January 1 effective date. Exiting at a time that doesn't align with OE means either a mid-year enrollment (confusing for employees) or asking people to re-enroll twice.

Payroll Tax Year

If your PEO is not a CPEO, a mid-year exit resets your employees' Social Security wage base. This can cost you thousands in additional FICA taxes. A January 1 exit avoids this entirely [2].

The ideal scenario: Exit effective January 1, aligned with your benefits plan year, with formal notice given per your contract requirements, and open enrollment completed on your new platform in November–December.

The realistic scenario: Something won't align perfectly. Build your timeline around the constraint that's hardest to move (usually the payroll tax year), and work backward from there.

Real-World Pitfalls That Derail PEO Exits

Even well-planned exits hit snags. Here are the ones that catch companies most often:

The Data Migration Surprise

Your PEO has years of employee data: payroll history, tax withholdings, PTO accruals, benefits elections, I-9s, and more. Getting that data out—in a format your new systems can use—is harder than it sounds.

What to do: Request sample data exports early (month 9 or sooner). Understand what format the data comes in and what your new HRIS needs. Build time for cleanup and manual re-entry if necessary. Budget 20–40 hours of internal time specifically for data validation.

The Open Enrollment Overlap

If your PEO runs open enrollment in October–November and you're leaving January 1, your employees may be asked to enroll in benefits they'll never use—or confused about which enrollment actually matters.

What to do: Communicate clearly and early. Explain what's happening, why, and what employees need to do (and not do). Consider whether you can opt out of PEO open enrollment entirely if timing allows.

The Benefits Gap

If your new benefits don't start exactly when your PEO benefits end, employees have a coverage gap. This is a compliance issue and an employee relations issue.

What to do: Coordinate effective dates precisely. If a gap is unavoidable, understand COBRA implications and communicate with employees. Most employees will have 60 days to elect COBRA coverage retroactively if needed.

The "We Didn't Know We Needed That" Discovery

Midway through implementation, someone asks: "Who's handling workers' comp audits now?" or "What about our EAP?" or "Did anyone set up the 401(k) match?"

What to do: Build a comprehensive inventory in your discovery phase. Use your PEO's service agreement as a checklist—if they do it today, someone needs to do it tomorrow. Common items people forget: EAP, commuter benefits, life/disability insurance administration, employment verification services.

The Vendor Who Promised the Moon

Your HRIS vendor said implementation takes 6 weeks. You're in week 10 and still finding configuration issues.

What to do: Add 50% buffer to every vendor timeline. Get implementation milestones in writing with specific deliverables. Have a backup plan if go-live needs to slip—can you extend with your PEO for one more month if absolutely necessary?

The Employee Tenure Confusion

HR leaders often worry that leaving a PEO will somehow "reset" employee tenure or service dates. It won't—but your data migration needs to preserve those dates accurately.

What to do: Verify that hire dates, service dates, and any tenure-based benefits calculations transfer correctly to your new HRIS. This is a data migration issue, not a legal issue. Employees' actual tenure with your company doesn't change just because you're changing HR systems.

When to Bring in Help

Some companies can manage a PEO exit with internal resources. Others need outside support. Consider bringing in benefits infrastructure expertise if:

• Your HR team is stretched thin and can't absorb a major project

• You have employees in multiple states with complex compliance requirements

• You've never selected an HRIS, broker, or benefits lineup from scratch

• Your PEO exit is tied to other changes (M&A, rapid growth, leadership transition)

• You want a neutral perspective—someone without a vendor contract to sell

A good advisor can help you avoid expensive mistakes, accelerate your timeline, and ensure nothing falls through the cracks. But they should be building your team's capability, not creating dependency.

Take the First Step

If you're reading this, you're probably somewhere between "I think we've outgrown our PEO" and "I'm terrified of what happens if we leave."

That's normal. And it's exactly the right time to start planning.

A PEO exit isn't something you figure out in a quarter. But with a 12-month runway, a realistic budget, and a clear understanding of what needs to happen when, it's entirely manageable.

Want a neutral second opinion on your PEO exit plan? Request a consult with Q Benefits Administration. We'll help you map out your options without an obligation to services beyond the transition project. 

Frequently Asked Questions

How long does it really take to leave a PEO?

Most successful PEO exits take 6–12 months from decision to go-live. Shorter timelines are possible but increase risk of rushed vendor decisions, implementation errors, and open enrollment chaos. A 12-month runway gives you time to vet vendors properly, align timing with your benefits plan year, and build internal capability.

What happens to employee benefits when we leave a PEO?

Your employees will transition from the PEO's master health plan to a plan you sponsor directly. With proper planning, coverage continues without gaps. You'll run open enrollment on your new platform, employees make elections, and new coverage begins when PEO coverage ends. The key is precise timing coordination.

Will leaving a PEO save us money?

It depends. Some companies save 10–20% by eliminating PEO administrative fees and markups. Others find that standalone costs are similar or higher, especially for smaller organizations or those in high-risk industries. The real value is often control and transparency rather than pure cost savings. Build a detailed budget before assuming savings.

What's the biggest mistake companies make when exiting a PEO?

Underestimating the complexity and timeline. Companies often think they can figure it out in a few months, then scramble when data migration takes longer than expected, vendors miss deadlines, or they discover services they forgot to replace. Starting early and building contingency into your plan prevents most problems.

Can we exit a PEO mid-year?

You can, but it's complicated. If your PEO isn't a Certified PEO (CPEO), a mid-year exit resets your employees' Social Security wage base, potentially costing thousands in additional payroll taxes. Mid-year exits also complicate benefits transitions and open enrollment timing. January 1 exits are cleaner, but not always possible.

What happens to employee tenure and service dates when we leave?

Nothing changes legally—your employees' tenure with your company remains the same. However, you need to ensure your data migration preserves hire dates and service dates accurately in your new HRIS. This is an administrative task, not a reset. Employees' actual tenure with your company doesn't change just because you're changing HR systems.

Expert Perspective & Credentials

About Q Benefits Administration

Q Benefits Administration is a benefits infrastructure consulting firm that helps mid-sized employers and growing companies navigate complex benefits decisions—including PEO transitions, HRIS selection, and benefits strategy. Founded by Cora Lynn Alvar, SHRM-CP, Q brings over a decade of experience in health and welfare benefits to every engagement. We provide impartial, project-based expertise to help your team make smarter decisions and build systems you can own long-term.

Founder Expertise:

Q Benefits Administration was founded by Cora Lynn Alvar, SHRM-CP, who has over a decade of experience in health and welfare benefits consulting, retirement plan services, and HR infrastructure design for mid-market organizations. Prior to founding Q Benefits, Cora Lynn worked with large national brokerages managing complex benefits programs and benefits-technology transition projects for companies across multiple industries.

Why We Wrote This

This article synthesizes insights from our client engagements, industry research, and direct conversations with HR and finance leaders at dozens of mid-sized companies. We wrote it because we kept having the same conversation repeatedly: smart, capable leaders who knew something wasn't working with their PEO but weren't sure if they were just being difficult or if their concerns were valid. They needed a framework for evaluation that didn't come from someone trying to sell them something.

Our Perspective on PEOs

We're not anti-PEO. For companies under 50 employees, particularly fast-growing startups that need to focus on product and market fit rather than HR infrastructure, PEOs can be excellent solutions. But we've seen too many companies stay in PEO relationships past the point where they make strategic sense—simply because no one gave them permission to ask whether there was a better way.

Disclaimer

This article provides general educational information about PEO transitions and benefits infrastructure for small and mid-sized employers. It is not intended as legal, tax, accounting, or financial advice, and should not be relied upon as such.

Every company's situation is unique, and PEO contracts vary significantly in their terms, fees, and termination provisions. Before making any decisions about terminating or modifying a PEO relationship, consult with qualified legal, tax, and HR professionals who can assess your specific circumstances, review your actual contract terms, and advise on compliance obligations specific to your industry and jurisdictions.

The cost figures, timelines, and recommendations in this article are based on industry averages and Q Benefits Administration's client experience as of November 2025. Your actual costs and timelines may differ based on company size, location, industry, benefits complexity, and current market conditions.