Migrating
Off a PEO

When your PEO becomes a bottleneck

PEOs serve an important purpose for very early-stage companies. When you're 5-10 employees and don't have HR infrastructure, outsourcing payroll, taxes, and benefits to a co-employer can make sense. But as companies grow, the cracks become visible.

• Costs are spiraling. PEOs charge 3-15% of your total payroll. For a 20-employee startup with $100K average salaries, that's $60K-$300K per year in PEO fees alone. As your team and salaries grow, the percentage-of-payroll model compounds against you.
• Loss of control. PEOs co-employ your team. They technically own your employee relationships, control your benefits data, and make decisions that affect your culture without your input. Tax filings happen under their EIN, not yours.
• Inflexibility. Want to offer an ICHRA instead of the PEO's group plan? Can't do it. Want to switch 401(k) providers? Not allowed. PEOs bundle everything because it benefits them, not you.
• Hidden fees everywhere. That “all-inclusive” pricing includes massive markups on benefits premiums, administrative fees that scale with headcount, and surprise charges for services you assumed were included.

If any of these sound familiar, you're not alone. The question isn't whether to leave — it's what to do next.

What you're giving up with a PEO

Co-employment means both you and the PEO share legal employer responsibilities. Tax filings happen under the PEO's Employer Identification Number (EIN), not yours. This creates several hidden costs:

• Shared liability. If the PEO makes a compliance mistake, you may still be liable for the consequences. Fewer than 10% of U.S. PEOs hold IRS Certified PEO (CPEO) status — without it, you're exposed.
• Opaque tax filings. Because filings happen under the PEO's EIN, you have limited visibility into what's actually being filed on your behalf. Reconciliation becomes a black box.
• Vendor lock-in by design. When you leave a PEO, you need to re-establish tax accounts, set up new benefits, and manage the transition. Everything was under their name — now you're starting from scratch. This complexity is a feature, not a bug, from the PEO's perspective.

Modern payroll platforms can deliver everything a PEO does — automated tax filings, benefits administration, multi-state compliance — without the co-employment arrangement. You keep full control, everything is under your EIN, and you're never locked in.

Making the decision

A PEO may still make sense if: you have fewer than 10 employees, no dedicated HR person, and the PEO's large-group benefits rates are significantly cheaper than what you could get on your own. At this size, the convenience of bundled services can outweigh the downsides.

It's time to leave if:

• You have 25+ employees and a dedicated HR person who wants control over payroll and benefits
• You're approaching 50 employees and becoming eligible for large-group insurance — the PEO's bundled benefits lose their cost advantage entirely
• Your percentage-of-payroll fees are growing faster than your team
• You want benefits flexibility — ICHRA, custom carriers, or plan designs the PEO doesn't support
• You need full visibility into your compliance filings and tax accounts

Replacing your PEO's health benefits

When you leave a PEO, you lose access to their group health plan. This is often the biggest concern — but you have better options than you think.

Option 1: Traditional Small Group Insurance

You become the plan sponsor and work with a broker to select carriers (Aetna, Blue Cross, United, Oscar). Familiar for employees, but expensive at small scale. One high-cost claim can trigger 15-30% premium increases at renewal. Best for teams of 15-25 with predominantly young, healthy employees.

Option 2: Individual Coverage HRA (ICHRA)

You set a monthly allowance and employees buy their own insurance from the individual marketplace. You reimburse them tax-free up to your set amount. Complete budget control — no surprise renewals, no risk pooling, no premium spikes. Common ranges: $300-800/month per employee. This is the option most startups leaving PEOs choose.

Option 3: QSEHRA (Qualified Small Employer HRA)

Like an ICHRA but simpler, with lower contribution caps. 2025-2026 limits: $6,350/year single, $12,800/year family. Best for companies just starting benefits with modest budgets. Most companies skip this in favor of ICHRA's unlimited contribution flexibility.

The 50-employee inflection point

At 50+ employees in most states, you become eligible for large-group insurance. This is the natural PEO exit point for a reason: the PEO's bundled benefits — their primary value proposition — lose their cost advantage entirely.

Large-group plans offer better rates, more carrier options, and custom plan designs. You can negotiate directly with carriers instead of being limited to the PEO's pooled plans. Combined with a modern payroll platform handling compliance, you get better outcomes at lower cost with full control.

If you're between 25-50 employees, ICHRA is typically the best bridge. It gives you budget predictability while your team grows toward large-group eligibility. Warp supports both models and can help you transition when the time is right.

Choosing the right benefits model

• Choose ICHRA if: You have 1-50 employees, want budget predictability, your team is diverse in age and health needs, and you want flexibility to scale contributions as you grow. This is the sweet spot for most PEO exits.
• Choose traditional group if: You have 15-25+ employees, your team is predominantly young, and you can absorb 15-30% annual premium increases at renewal. Better for companies that value the “set it and forget it” model.
• Choose large-group if: You have 50+ employees and want the best rates, most carrier options, and custom plan designs. This is the natural end state for growing companies.

Warp is a nationally licensed insurance brokerage (NPN: 22074328) that supports all of these models — ICHRA, small group, large-group, and QSEHRA. We'll run the numbers for your specific team demographics and show you what each option actually costs. No pressure, no commission games — just transparent pricing and honest advice.

The PEO exit timeline

What moves and how

Since your PEO filed taxes under their EIN, you'll need to establish tax accounts under your own EIN. This is the most complex part of a PEO exit — and exactly what Warp's AI compliance engine automates.

• Tax accounts: Warp automatically registers you with every required federal, state, and local tax agency. No paperwork, no waiting.
• Employee data: Complete transfer of employee records, pay history, PTO balances, and personal information.
• Year-to-date payroll: We import YTD data so employees receive a single consolidated W-2. No dual W-2s, no reconciliation headaches.
• Benefits coordination: We work directly with carriers to set up your new benefits — whether ICHRA, group, or both. Zero coverage gaps.
• Workers' comp: Seamless transition to pay-as-you-go workers' comp through our NEXT Insurance integration.

Getting your team on board

Employee communication is critical. Your team needs to understand what's changing, why it's changing, and what they need to do. The good news: most employees notice things got better, not worse.

• Same pay dates, same deposits. The transition is invisible on payday. Direct deposits continue without interruption.
• Better self-service. Warp's employee portal is faster and more intuitive. Employees update their info, view pay stubs, and manage benefits without waiting on HR.
• 60-day enrollment window. Loss of PEO coverage triggers a special enrollment period. Employees have 60 days to select new coverage — plenty of time with proper guidance.

Warp provides templated employee communications and your dedicated Account Manager helps coordinate the messaging timeline.

Push Digital Group: How a 70-person agency saved tens of thousands leaving their PEO

When two firms merged to form Push Digital Group, the result was a lean, 70-person digital political marketing agency operating across 18 states. Chief People Officer Timothy Nurnberger was dealing with a system built for a much smaller company.

“It worked when we were smaller. But with almost 70 employees, a dedicated HR function, and more complex needs, the PEO quickly became a bottleneck.”

— Timothy Nurnberger, Chief People Officer

The cracks were visible everywhere. Employees were confused by the process for even simple updates. Customer support meant calling the PEO's 1-800 number and hoping for the best. Benefits options were limited and rarely aligned with what employees actually needed. And costs continued to spiral.

The results

After transitioning off their PEO, Push Digital Group avoided a 23% cost increase projected by their former provider. Instead, they landed a more modest 10% increase — effectively saving 13%. That added up to tens of thousands of dollars saved for both the company and employees.

“Now we actually know the value of what we're paying for. It's not some black box of bundled services where everything is opaque.”

— Timothy Nurnberger, Chief People Officer

The shift didn't just save money. It gave HR its time back, empowered better decision-making, and improved the employee experience. Timothy stopped being the middleman between employees and the PEO. Employees got direct access to expert support, easy-to-use benefits tools, and faster resolution of their needs.

“Before, the tactical work took up huge portions of my day. Now I'm able to plan, build, and move the business forward.”

— Timothy Nurnberger, Chief People Officer

For companies at a similar inflection point — 25-100 employees, outgrowing their PEO, wanting control and visibility — the pattern is clear: exit the PEO, own your payroll, and use the savings to invest in your people.

How Warp makes PEO exits simple

Warp is the only AI employee management platform built for companies graduating from PEOs. Instead of fighting for attention from an overloaded PEO rep, Warp's AI agents open every state tax account, file every payroll form, and resolve every tax notice automatically.

• AI compliance engine replaces PEO manual processes. State registrations, tax filings, notice resolution — all automated under your EIN. NY DBL/PFL, CA SDI, SF PPLO handled automatically with full transparency.
• Licensed brokerage for benefits. We work with 30+ carriers including Oscar, Guardian, Aetna, United Healthcare, and Blue Cross Blue Shield. ICHRA, small group, or large-group insurance (50+ employees) — your choice. Everything syncs with payroll automatically.
• Dedicated Account Manager and Benefits Advisor. Every company gets personalized support that scales with you. Not a rotating cast of PEO reps — a dedicated team that knows your business.
• Free migration, live in days. We handle employee data, tax account setup, benefits coordination, and onboarding. Most companies go live in under a week.

The result: companies run payroll, HR, and compliance with a fraction of the overhead. $35/employee/month flat — no percentage-of-payroll fees, no co-employment, no lock-in. Your tax accounts stay in your name. Your benefits are your choice. And you can leave anytime.

Frequently asked questions about leaving a PEO