What Follows You to a New PEO in Texas, and What Doesn't

Most guidance on changing PEOs skips all of this, because most of it isn't written specifically for Texas.

What transfers automatically when you change PEOs in Texas?

Your state unemployment tax wage base.

Texas Labor Code Section 91.044 lets an incoming license holder apply wages already paid during the calendar year, by the client or by a prior license holder, toward that year's taxable wage maximum. The Texas wage base is $9,000 per employee per year. If your people have already crossed it under your current PEO, moving to another licensed Texas PEO mid-year doesn't make you pay it twice.

This one runs on Texas law, so it applies whether or not the PEO holds federal IRS certification.

What happens to your workers' compensation experience rating?

It follows you, on a schedule set by statute.

Under Texas Labor Code Section 91.042, when the PEO carries the workers' comp policy, premiums run on your own experience rating for the first two years. After two years, if you move to your own coverage, the premium is based on the lower of your prior modifier or the license holder's modifier at termination.

There's a wrinkle that cuts the other way, however. NCCI's Texas rules treat agreements that ran less than two years differently, applying the higher of the two modifiers rather than the lower. Switching between providers inside a two-year window can cost you. Confirm your own situation with a Texas comp broker before you plan around it.

What is your PEO required to hand over when you leave?

Texas Labor Code Section 91.042 requires it, and failing to provide it is a Class D administrative violation. Few companies use this. It's a statutory entitlement remaining unclaimed in most exits.

You need that claims history to shop coverage. An underwriter pricing your workers' comp wants loss runs, and without them you get a quote built on assumptions rather than on your actual record. Put the request in writing, keep the date, and start the clock early enough that 60 days doesn't land after your renewal.

What resets, and what the reset costs

Going in-house is the expensive version.

Section 91.044 provides that when a professional employer services agreement terminates, the contracting client is treated as a new employer without a previous experience record, unless it otherwise qualifies for experience rating. The same treatment applies if the PEO failed to file its reports or pay its taxes.

Something smaller resets too, and it snags on the first payroll. Texas Labor Code Section 61.018 bars an employer from withholding or diverting wages without written authorization from the employee. Because the PEO is the employer of record, changing PEOs means every voluntary deduction, benefits contributions, 401(k) loan repayments, uniform costs, needs authorization running to the new employer of record. Skip the re-papering and your first payroll under the new provider carries a Texas Payday Law problem.

The transition trap that only exists in Texas

Texas is the only state where workers' compensation coverage is optional for most private employers. That makes leaving a PEO that carried your policy different here than anywhere else.

Non-subscriber status also strips certain common-law defenses if an employee is hurt on the job. Becoming one by accident, in the gap between two providers, is a bad way to find that out.

The 401(k) item that belongs at the front of your timeline

Your PEO's retirement plan is a multiple employer plan, and you can't simply close it and open a new one.

The successor plan rule at 26 CFR 1.401(k)-1(d)(4) generally prevents terminating a 401(k) and distributing balances while a new plan covering the same employees is being stood up. The workable route is a spin-off and asset transfer into a new standalone plan, documented properly, with vesting schedules and distribution options preserved. Participants complete new deferral, investment, and beneficiary elections.

What does all of this tell you about a provider?

A PEO that can answer these questions before you ask them is showing you what you're buying.

At Lone Star PEO, whoever picks up the phone has your account, your state, and your claims history in front of them, because Texas is our home and where we operate. Payroll, benefits, compliance, and risk run under one agreement. Our 90-day money-back guarantee covers the part of a transition nobody else will put in writing: the first quarter, when you find out whether the answers you got were real.

Frequently asked questions