How to choose the right PEO for your business
A PEO can take payroll, benefits, workers' comp and HR compliance off your plate. But PEOs differ a lot in pricing, plans and service. Here's how to compare them.
Six things to compare
1. Decide if a PEO is the right model
A PEO uses co-employment: it becomes the employer of record for tax and benefits purposes while you run the business. It fits companies that want bigger-company benefits and HR support. Standalone payroll software may fit better if you need specific integrations, already have HR staff, or want to own your benefits plans.
2. Understand the pricing model
Per-employee per-month (PEPM) fees are flat and easy to budget. Percentage-of-payroll fees grow as wages grow, even if your service needs don't. Always compare total cost: admin fee, health premiums, workers' comp and state unemployment tax.
3. Compare health plans
Look at carriers, networks where your employees live, deductibles and how renewals have trended.
4. Check workers' comp and SUTA rates
These are often bundled into PEO pricing and can make a big difference to total cost.
5. Evaluate HR support and technology
Ask who you'll talk to, how fast they respond, whether support is bilingual, and how the payroll, time and onboarding tools work.
6. Read the contract terms
Check the notice period, termination fees, and what happens to benefits mid-year if you leave.
Questions to ask every PEO
- Is the admin fee flat per employee or a percentage of payroll?
- What is the workers' comp rate for my class codes?
- What were the last three health plan renewals?
- Who is my day-to-day contact, and how fast do they respond?
- What does it cost to leave?
Frequently asked questions
How do I choose the right PEO for my company?
Compare total cost (admin fee, health premiums, workers' comp and state unemployment tax), health plan options, HR support and technology across several PEOs. An independent PEO broker can run that comparison for you.
How much does a PEO cost?
It depends on headcount, location, industry and benefits. PEO admin fees are usually either a flat per-employee monthly amount or a percentage of payroll. Compare the total cost, not just the admin fee.
Is a PEO worth it for a small business?
Often, if you want stronger benefits and HR support without hiring an HR team. It may not fit if you need specific software integrations or want to own your benefits plans.
What should I ask a PEO before signing?
Ask whether the fee is flat or a percentage of payroll, your workers' comp rate by class code, the last three health plan renewals, who your day-to-day contact is, and what it costs to leave.
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