The Unexpected Upside to PEOs When Employee Offboarding

PEOs can streamline employee terminations and offboarding by providing specialized HR expertise, standardized processes and compliance support.

When done properly, offboarding can generate useful feedback, help protect company assets and polish your reputation as both an employer and as a company. It may even open the door for a former employee to return with greater experience and serve as an advocate for your company when recruiting top talent.

If done poorly, offboarding practices can introduce risks, hurt employee morale and damage your reputation.

In this article, we'll examine how PEOs, through their expertise and advanced technology, can help transform the offboarding experience, which is often viewed as a negative, into a positive one.

Understanding the Role of PEOs in Employee Offboarding

A PEO enters into a co-employment relationship with a client company. This means both the PEO and the client company share certain employer responsibilities as outlined in the client service agreement. The client company retains control over day-to-day work, hiring decisions, workforce management, and business operations. The PEO supports many HR administrative tasks, providing HR expertise, offering access to benefits, and assisting with risk mitigation.

Risks and challenges

Businesses face significant risks and challenges when managing employee terminations and offboarding. Attention to each area below is essential for compliance and maintaining a healthy workplace culture:

• Compliance concerns. Terminating an employee for illegal reasons, such as discrimination or retaliation, can result in wrongful termination lawsuits. Employers should have clear, factual reasons for involuntary terminations and avoid any action that may be seen as discriminatory, retaliatory or in breach of contract.
• Documentation requirements. Accurate documentation is critical throughout the termination process. The typical documents cover things like the reasons for dismissal, dates, severance agreements (when used) and evidence that policies and procedures were followed uniformly and consistent with past practice. Proper documentation could protect the employer in disputes and demonstrate fair, consistent practices.
• Notification requirements. Depending on the employee’s work location, employers may be required to meet certain notification requirements at the time of termination such as notifying unemployment agencies of the termination and employees regarding how to file for unemployment, etc. Multi-state employers should be aware of these requirements. PEOs help provide resources and requirements on when and what notification is required.
• Final pay. Employment-related laws require employers to deliver final paychecks that cover owed salary, unused paid time off (where required by law or company policy), and other wages by a specific deadline. Delays or miscalculations can trigger pricey penalties, fines, and interest.
• Benefits transition. It is equally important to promptly communicate the cessation of benefits and issue any required notifications (such as COBRA eligibility for U.S. employees). Failure to do so can result in fines and unnecessary benefit costs.
• Emotional and cultural impact. Employee terminations can often lead to anxiety, uncertainty and reduced morale among remaining staff. Poorly managed offboarding may erode trust, hinder collaboration, and increase turnover. Transparent communication and compassionate handling, however, can promote a positive workplace culture.
• Cost of mishandled terminations. Legal action resulting from wrongful termination or procedural errors can lead to significant damages, ranging from tens of thousands to millions of dollars.
• Reputational damage. Mishandled terminations can impact a company’s reputation, making it harder to attract talent and potentially resulting in lost business opportunities. Negative public perception may linger long after any cases are resolved.

Streamlining the Separation Process

A PEO leverages its HR expertise and scalable processes to help small businesses navigate the employee separation process. Here’s how a PEO can add value in each critical area of the offboarding process:

Exit survey and exit interview

PEOs provide templates and procedural support for exit interviews and exit surveys to collect employee feedback. This can help businesses identify patterns and improve employee retention and overall workplace culture.

Payroll adjustments and tax document preparation

PEOs have payroll experts and software to efficiently and effectively calculate final compensation, including wages, unused paid time off and bonuses.

Final pay is processed in accordance with applicable rules, requirements and company policies, helping to reduce errors and mitigate risks. A PEO can also prepare and distribute required documents, such as Form W-2s and other year-end tax forms, helping to ensure proper record-keeping.

Benefits termination and continuation management (COBRA)

PEOs promptly terminate benefits coverage in accordance with a plan’s requirements and deadlines, helping to avoid overpayment and other compliance concerns.

A PEO can also administer the COBRA process, by notifying eligible employees of their option to continue group health benefits, if desired.

Records retention compliance

PEOs are well-versed in the federal and state record retention requirements for their records.

Human Capital Management and Offboarding

The offboarding process is more than a compliance-driven HR process. It can be an emotional experience that benefits from the human capital management (HCM) support a PEO can provide. Departures, whether voluntary or involuntary, can trigger anxiety and uncertainty among remaining employees. Those existing may also experience a range of emotions, such as disappointment or resentment.

A consistent, careful approach can serve everyone's needs. A standardized offboarding process provides:

• Emotional stability. Clear communication, empathy and structured procedures help reduce stress for both the departing individual and remaining team members. This helps to preserve morale and trust within the organization.
• Compliance. Understanding and performing the required obligations.
• Reputation management. A respectful process reflects professionalism, fosters goodwill with former employees and strengthens your employer brand in the marketplace.
• Consistency. A standard process helps promote consistent treatment of all employees, reducing perceptions of bias and enhancing transparency across the organization.

Offboarding as Part of Transition Planning

A PEO can provide procedural guidance on how to conduct a termination meeting or process a resignation. For organizations seeking a more advanced level of support, a PEO can offer succession planning services to help preserve long-term leadership, maintain business continuity, and reduce employee turnover. These services include:

• Proven tools and processes for finding and hiring the best candidates in the first place.
• Organizational assessment tools that evaluate where your organization is today and point to areas to prioritize.
• Training and performance management programs to develop employees.
• Consulting services that align succession plans with overall HR and business objectives.

Formal, PEO-supported transition plans can strengthen current leadership development and help the company remain resilient in the face of unexpected departures. They also contribute to stronger employee engagement and morale, while supporting retention by making advancement pathways more visible and accessible.

The Benefits of Effective Offboarding Support with PEOs

TriNet provides offboarding support that can help small and medium-sized businesses address their unique needs.

Edge Electronics, a TriNet client, had concerns about potential compliance pitfalls, including those that can arise during offboarding. Before engaging with TriNet, Edge Electronics managed HR functions in-house and struggled to track the nuances of employment-related rules and requirements. With TriNet's services, Edge Electronics’ leadership gained greater confidence in handling these responsibilities.

"They know all the laws and rules for every state and that gives me a reason to be able to sleep better at night ... the compliance issue is huge," says Edge's CEO, Adrienne Giannone.

To find out more about how PEO services could help your business solve problems, take our quick, free HR Needs Assessment.