Running a business and all the HR functions that go along with it can be time-consuming, especially for small businesses like a startup. Some companies don’t have the capacity or resources to hire a full-time employee to manage human resources administrative tasks.
That’s why many companies turn to Professional Employer Organizations (PEOs) to manage their HR functions, such as payroll and regulatory compliance.
However, as these businesses continue to grow and expand, an Employer of Record (EOR) may be a better fit, especially if they begin to hire international employees in new markets.
Transitioning from a PEO to an EOR can be complex and involves processes such as drawing up new contracts and migrating data. However, following these steps can help ensure a successful transition.
Key takeaways:
- PEOs and EORs both provide HR services, but EORs are often the best choice for companies expanding into global employment.
- Clearly communicating with your PEO, EOR, and your employees helps smooth the transition for all stakeholders.
- Auditing your transition process enables you to address issues before they impact your business.
What’s the Difference Between a PEO and an EOR?
While PEOs and EORs each provide HR solutions, they cater to different needs.
PEO services involve taking on legal responsibility for a company’s HR tasks, such as payroll and employee benefits administration, through a co-employment relationship — but typically only for employees based in the same country as your business.
EOR services include:
- Managing all aspects of global workforces
- Ensuring compliance with local labor laws and regulations in various countries
- Handling global payroll
- Mitigating legal risks associated with global hiring
If your business is poised to expand internationally, consider transitioning from a PEO to an EOR.
Choosing an Employer of Record
The first step, of course, is choosing the EOR that is the right fit for your business needs. Some things to consider include:
- Geographic coverage: Does the EOR operate in the countries where you plan to hire? Consider both immediate needs and countries where you may be considering hiring down the road.
- Service scope: What services does the EOR offer beyond basic payroll and compliance? For example, do they ship equipment, offer employee onboarding support, and provide benefits administration?
- Pricing structure: Is the pricing transparent and competitive? Are there additional fees not included in the initial pricing, such as setup, onboarding, and currency exchange fees?
- Customer support: Does the EOR offer responsive and reliable customer support? What are the available channels to seek help? For example, is it via live chat, email, phone, etc.?
- Local expertise: Does the EOR own entities in the countries where they operate, or do they work with local partners? This can impact not only cost but also compliance with local employment laws.
For a deeper dive into selecting the right EOR, check out our article on questions to ask when choosing an EOR.
Review Your Existing PEO Contract
Before transitioning from your PEO to an EOR, you should review your existing contract to identify any costs associated with terminating the agreement early.
Many PEO contracts have specific clauses outlining the notice period required to end the service agreement without incurring penalties. Failing to adhere to this notice period may result in costly early termination fees.
Create a Transition Plan
A well-defined transition strategy will streamline offboarding from the PEO and onboarding to the EOR without disrupting your operations. Here are some steps to consider:
- Phased transition: Instead of a sudden switch, consider a gradual approach to help minimize disruptions. This can involve transitioning employees in stages, for example, by department or location.
- Contingency planning: Develop comprehensive backup plans to address potential roadblocks. For critical functions, like payroll, you should have alternative solutions in place to ensure your employees aren’t impacted.
- Communication strategy: Establish a clear plan to keep employees, managers, and your new EOR provider informed throughout the process.
- Data migration strategy: Develop a detailed plan for moving employee data from your PEO to your EOR. This includes identifying the data to be transferred, ensuring data security, and establishing a timeline for the migration process.
Communicate the Change to Employees
Continuous status updates help make the transition process easier for employees.
To start, inform your employees about the upcoming change, explain the reasons behind the decision, and address any potential impacts on their day-to-day work experience.
Specifically, highlight any upcoming changes in:
- Benefits administration: Explain how the transition might affect their benefits enrollment, access, and management. For example, will there be a new health insurance provider or benefits platform?
- Reporting structure: Clarify any changes in reporting lines or HR contacts. For example, this could include providing contact information for employee support at the EOR.
- Payroll processes: Communicate any impending revisions to payroll schedules, payment methods, or paystub formats.
Terminate the Agreement with the PEO
It’s time to formally wrap up your relationship with the PEO.
This will involve completing all necessary administrative and legal processes to ensure a clean break and avoid any potential future complications.
Here are some key steps:
- Formal termination notice: Provide written notice to your PEO, adhering to the termination clause in your contract.
- Outstanding payments: Settle any outstanding invoices or financial obligations to the PEO. This includes unpaid payroll taxes, benefit contributions, or administrative fees.
- Data retrieval: Ensure you have received all necessary employee data from the PEO, such as payroll records, benefits information, and other relevant employee data.
- Compliance audit: Conduct a final audit to ensure all legal and compliance requirements have been met during the transition.
Begin the Transition from the PEO to the EOR
Work closely with your new EOR provider to ensure a smooth migration of all essential employee information. This includes:
- Comprehensive data migration: Provide your EOR with all necessary employee records, including payroll details, benefits information, and tax data.
- New employment contracts: Since the EOR becomes the legal employer of your staff, they’ll need to issue new employment contracts that adhere to existing employment terms and comply with local labor laws.
- Data security: Confirm that your EOR has data protection policies to safeguard your employees’ sensitive information and that it meets all legal requirements, such as the European Union’s General Data Protection Regulation (GDPR).
Audit the Transition Process
Transitioning from a PEO to an EOR involves multiple moving parts, so keeping close tabs on the handover with an audit to help catch any discrepancies is essential.
This should include thoroughly reviewing all contracts to ensure compliance and data security have been adequately addressed and validating that payroll, tax, and benefits information is accurate.
Finally, conduct a post-transition review to address any outstanding issues promptly.
RemoFirst Can Help You Smoothly Transition From a PEO
At RemoFirst, we’re here to guide you every step of the way. Our team of experts will provide personalized support and answer all your questions, ensuring a stress-free experience.
Ready to learn more about how RemoFirst can simplify your global HR management and ensure compliance during a global expansion?
Schedule a demo today and discover how we can help you transition to — and benefit from — an EOR.
