PEO Exit 1

Question 1

Reasons an employer

may want to move away from a PEO include:

Answer 1

• Gain more control of HR and administrative operations.
• Flexibility to shop around for benefits.
• The PEO is not able to meet EE/ER needs or it’s at an exorbitant cost to the employer.
• Paying for services that aren’t being utilized. “Bought a mansion, only using the guest house.”
• Benefits aren’t competitive
• Too many plan options
• Grown too expensive
• Wants customization
• The employer is not receiving the tax cutoff:
Most PEOs continue to withhold the FUTA, SUTA, and FICA employer portion of taxes even if the annual maximum has been met. This is included in the bundled service charge and is never reduced when the tax is no longer collected. The PEO then continues to charge the client.

Question 2

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO:

Evaluate Staffing Needs

Answer 2

Some companies leaving a PEO do not need to hire a full-time HR manager, as some have at least one HR or payroll person on staff, even when using a PEO. However, national surveys show that companies at the 50 to 100 employees level do hire a full-time HR person when leaving a PEO.

Question 3

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Apply for Tax Accounts at the Federal Level and in Each State the Employer Has Employees in, as Necessary.

Answer 3

When an employer engages with a PEO, it notifies the IRS, state, and local tax authorities that it is now in a PEO relationship and will no longer file taxes under its ID numbers but rather under the PEO’s tax filing number, as it is employer-specific. When leaving a PEO, a company is essentially hiring its employees in the states in which they work and will need to reactivate the tax filing numbers to once again file and report the appropriate payroll taxes.

Question 4

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Shop for Benefits

Answer 4

Needs to fit needs and budget.
Similar to any other organization’s benefits shopping experience.
Develop a strategy that best supports the needs and demographics of its employees Align with overarching strategic business objectives.
Several different packages and funding alternatives can be explored to achieve the right balance of benefits for price.

Question 5

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Refile I-9S and W-4S.

Answer 5

As the new employer of record, the company will have to virtually onboard its workforce once again.

Because W-4s are not employer-specific, the new HR technology vendor can use them if they are available.

Employer will need to fill out the
usual forms, such as I-9s and direct deposit, and have employee deductions on hand for the new HR technology vendor.

Note: Make sure the direct deposit and similar forms are filled out with the employer’s name so it is not the agreement that was with the PEO.

Question 6

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Establish a New 401(K)

Answer 6

Depending on how the 401(k) plan is structured
with the PEO, the employer may need to establish
its own plan. If the 401(k) plan was established and
built on a PEO relationship, it is likely that the plan
is not transferable under a separate relationship.
Some PEOs offer multiple retirement options, other
than 401(k)s that could possibly transfer over.

Question 7

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Prepare a List of Employee Wage Garnishments.

Answer 7

The employer is held liable for wage garnishments.
The employer should start by asking the former
PEO to provide a report of current employee wage
garnishments. If the PEO is not forthright with
information regarding garnishments, the employer
can also request employees go to their garnishers
(e.g., the court) and request new documents.

Question 8

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Start Taxes Over Again.

Answer 8

If any employer leaves midyear, company and
employee taxes that have already met their annual
maximum under the PEO’s ID numbers will need to
start over on these taxes under the company’s ID
numbers. Examples include FICA, FUTA, SUTA, and
Medicare taxes and filings

Question 9

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Review the HR Handbook

Answer 9

It is common that the HR handbook was probably established by the PEO, and there is language in the handbook
which covers co-employment specifics. When leaving a PEO, an employer should take time to review the handbook
and make any updates needed so employees can sign off during onboarding with the new technology vendor.

Question 10

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Find a New Payroll Provider.

Answer 10

There are many payroll providers in the local marketplace. Today, payroll companies have online access, timekeeping options, and other convenient functions. There are different levels of service, and they can handle withholding, taxes and all payroll-related functions. An employer can customize and pay for only the services it needs and will use

Question 11

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Find a New HR Management System

Answer 11

An employer may need to look at an HR application (like an HCM) to replace some of the HR technology, including
benefits administration, and recruiting that the former PEO was offering. Depending on the vendor, this may be
offered by the payroll provider

Question 12

WHAT EMPLOYERS NEED TO KNOW BEFORE LEAVING A PEO: Prepare All of the Information the New Payroll, HR, Benefits Administration, Talent Management, and Time
and Attendance Vendors Need. This Can Be Done Through PEO-Provided Reports and Includes:rd.

Answer 12

• EIN (Employer Identification Number).
• Employee direct deposit information.
• Employee names, addresses, marital statuses, and dates of birth.
• Filing status for your employees.
• Employee deductions (W-4s).
• Federal and state tax filing numbers.
• Copies of your previous payroll quarters.
Note: The PEO may be reluctant to divulge sensitive employee information as a former employer of record.

Question 13

Run Parallel Tests

Answer 13

Testing is integral to any new technology implementation, especially when discontinuing use of a PEO. To test
that the implementation was accurate, an employer should have the new payroll or HR technology vendor run the
new payroll against the old PEO’s payroll to identify differences and reconcile them.

Question 14

Current PEO Program Analysis

Answer 14

Analyze current
contracts, program
costs, health-risk
profile and processes.

• Benchmark plan
design, employee
contributions, total
cost and other relevant
program elements.

• Perform cost analysis
and financial
forecasting.

• Identify all areas that
need to be addressed
in leaving your PEO.

Question 15

Strategic Planning

Answer 15

Determine how benefit
program objectives
align with overall
corporate strategy.

• Evaluate current
market concepts and
trends for integration
into desired program.

• Incorporate objectives
into a three year
strategic plan.

• Set budget and
timelines leading up to
the targeted extraction
date.

Question 16

Action Plan

Answer 16

• Plan marketing and design activities.
• Conduct final comprehensive financial analysis.
• Plan-design modeling.
• Technology RFP, if not already completed, implementation support.

• Evaluation of your national support needs
and improvements.

Question 17

Implementation & Communication

Answer 17

Manage implementation process to ensure smooth transition.

• Create and execute an engagement process for Employees.

• Provide comprehensive educational materials and support: benefits education, enrollment booklets annual enrollment support, and on-site employee
meetings and call center support.

• Conduct online employee survey as needed

Question 18

Ongoing Service and Support

Answer 18

Unlimited access to your Lockton team and
holistic resources.

• Manage vendors.

• Financial analysis and claims experience reporting by
plan and division.

• Guide compliance updates.

• Advise on emerging trend, product and
innovation updates.

Question 19

Project Initiation

Answer 19

◼ Contract Review
◼ Identify Penalties/Timeframe
◼ Close gaps in administration
◼ Gather all necessary data for marketing
◼ Establish ownership of administrative items
◼ Hire a broker/consultant to meet needs & strategy
◼ Obtain all company history from PEO
◼ Evaluate payroll & HR staff to determine current bandwidth
◼ Review & refile I-9 and W-4’s to remove PEO name

Question 20

Employee Benefits: Research & Analysis

Answer 20

◼ Identify employee benefits/401k future strategy
◼ Determine yearly calendar, including compliance checkpoints
◼ Analysis of current plan setup, including benchmarking
◼ Review the current employee handbook for potential changes

Question 21

Employee Benefits: Marketing & Execution

Answer 21

◼ Team assesses current employee
benefit plans and related exposure
◼ Determine portability
◼ Financial assessment
◼ Recommendations and estimates
of New Company costs
◼ Help negotiate a Transition Service
Agreement (TSA)

Question 22

Payroll & HR Technology: Research & Analysis

Answer 22

◼ Learn current technology platform/setup
◼ Understand company needs, down select potential solutions
◼ Present findings, issue RFP to vendors
◼ Project manager reviews and shares information with each Lockton specialist.

Question 23

Payroll & HR Technology: Implementation

Answer 23

◼ Team assesses solutions, makes decision
◼ Contract negotiations with Lockton
◼ Implementation oversight, including testing

Question 24

Open Enrollment

Answer 24

◼ Finalize all plan contracts
◼ Payroll & Benefits Administration switched “On”
◼ Close additional administrative gaps for go-forward basis
◼ New ID cards delivered, begin plan year

Question 25

Benefits Funding Options: Guarantee Cost

Answer 25

• Insured plan
• Predictable expenses
• Rates are set prospectively & guaranteed

Question 26

Benefits Funding Options: Fully-Insured

Answer 26

• Insured plan
• Participate in claims experience
• Fixed monthly premium costs

Question 27

Benefits Funding Options: Level-Funding

Answer 27

• Partially self-funded
• Pay fix amount& get % of surplus
• Premium tax savings

Question 28

Benefits Funding Options: Administrative Services Only (ASO)

Answer 28

• Self-funded
• Maximum cash flow
• You hold the reserves
• Protection against shock claims

Question 29

Benefits Funding Options: Minimum Premium

Answer 29

• Insured plan
• Fund claims as they are paid
• Premium tax savings
• You hold the reserves

Question 30

Lockton GPS Group Plan Strategy

Answer 30

− Are your benefits competitive to attracting and retaining talent?

− Are we paying for administration that we’re not leveraging or no longer need?

− If we make a change, how will it impact employees?

Question 31

3-Year Strategy Considerations

Answer 31

Purchasing Efficiency

Eligibility Management

Health Promotion & Risk Improvement

Participant Cost Sharing

Engagement

Question 32

Speed Bumps Part I

Answer 32

• COBRA takeover, who owns the run out?
Trinet charges on average $75 per enrollee

• EE advocacy: decision guidance support,
employees understanding which plan is
mapped to their Trinet plan and whether
alternates make sense

• Proactive education, what to expect, how to
prepare, especially treatment in progress

• RX lists differ between carriers and between
plans, provide formulary lists and pricing
guidance to assist employees with plan
selection

• Use it up: EEs will lose any remaining FSA and
commuter benefit dollars left with Trinet

Question 33

Speed Bumps Part II

Answer 33

• Taxability of disability changes: Trinet offers
options, Canva will need to elect whether to
offer a choice plan, or taxable/non-taxable

• FSA and 401K non-discrimination testing early
in the year. Canva will be its own employer,
best practice to review early before a year
goes by with a problem.

• Wrap plan document development, often
overlooked, must have for compliance

• Vol Life amounts: takeover versus grandfather
provisions, making sure every election is best
covered, often there are high amounts that
are reduced if not caught early

• Dependent Audit, best practice during
transition

Question 34

Lockton’s HR Tech Practice

Answer 34

▪ Ben admin & decision support

▪ ACA reporting, e-file, forms

▪ COBRA administration

▪ EDI feeds

▪ Carrier billing & rec

▪ Payroll & carrier integration

▪ FSA, HSA, HRA admin

▪ Call center

▪ Total comp statements

▪ Implementation support

Question 35

HR Tech Outsourcing

Answer 35

• Goes a step beyond the standard “guidance and support” to fully owning and driving the process on Canva’s behalf, freeing you up to focus on what
matters most.

• Owns the overall implementation project management of tasks.
• Facilitate weekly status meetings.
• Establish a project steering committee.
• Schedule analysis and review meetings.
• Escalate issues to appropriate resources.

Question 36

HR Tech Outsourcing Deliverables

Answer 36

• Own management of the following:
− Requirements gathering process.
− Issues/risk tracking process.
− Testing process.
− Go-live process.

• Reviews of key vendor deliverables:
− Statement of work.
− Project plan.
− Implementation design documents.
− Issues/actions log.
− Risk plan and log.
− Conversion strategy and plan.
− Testing strategy and plan.
− Change management strategy and plan.

Question 37

401(k) Spin-Off

Answer 37

Chose a 401(k) structure:
Determine whether a standalone 401(k) plan or participation in a Pooled Employer Plan (PEP) is preferable.

Market the Plan:
Whether implementing a new plan or participating in a PEP, gather proposals from three to five suitable vendor candidates. Create meeting minutes to document the rationale for choosing the new vendor.

Implementation:
Work with the new vendor to implement the new 401(k) structure. This typically takes 45 to 60 days.