Are You Overpaying Your Professional Employer Organization (PEO)?

Do you know if you're getting the best possible rate? This guide walks you through how to review fees and negotiate smarter.

What to Review in Your PEO Plan

1. Administration Fees

PEOs typically charge either:

Per Employee Per Month (PEPM):

A straightforward, flat fee—clear and easy to budget.

Percentage of Payroll (POP):

A bundled and less transparent fee that includes payroll, taxes, and workers’ compensation.

Tip: POP often costs more than PEPM—unless your employee wages are very low. Consider switching to a PEPM model if you’re currently on POP.

2. State Unemployment Tax (SUTA) Rates

Your PEO controls your SUTA rate—unless you’re in a “Client Reporting State,” where you retain control.

Ask your PEO for your SUTA rates across operating states and compare them to direct rates.

Client Reporting States Include:

Alaska, Arkansas, Connecticut, Delaware, Illinois, Iowa, Kentucky, Massachusetts, Minnesota, Mississippi, Nebraska, North Dakota, Pennsylvania, Rhode Island, South Carolina, South Dakota, Vermont, Washington, Wyoming

3. Workers’ Compensation Insurance

PEOs may markup coverage or apply blended composite rates.

Compare your current rates with broker negotiated quotes or a state insurance fund.

Look at class code-specific prices.

4. Health Insurance Quality and Cost

Quality health insurance benefits are something smaller businesses can’t always offer. PEOs offer access to national carriers and plans, but different PEOs offer different insurance options.

If you aren't using one, PEO-offered plans often offer better pricing and broader options.

Switching to a PEO that offers different carriers could benefit your employees and lower costs.

Evaluate your annual renewals, carrier quality, plan breadth, and premiums when considering switching.

5. Fee Schedule Transparency

PEOs can charge for services beyond basic administration—such as new hire fees or retirement plan setup (401(k), 403(b)). 

Request a detailed fee schedule.

If costs feel excessive, negotiate or explore other PEO options.

Quick Recap: Are You Being Overcharged?

Area

What to Review

Action Steps

Administration Fee Type

PEPM vs. POP

Switch to PEPM if POP is pricier

SUTA Rate

PEO vs. Direct SUTA rates

Negotiate if PEO's is higher

Workers’ Compensation

Compare PEO vs. independent quotes

Broker comparison & negotiate

Health Insurance Options

Renewal trends, carrier satisfaction, affordability

Review annually, consider new plans

Fee Transparency

Additional services charged

Request list, negotiate or pivot

Why Staying Vigilant Pays Off

Many businesses adopt PEO services but rarely reevaluate costs or structure. This can lead to overspending. Working with a PEO advisor at Dinsmore Steele means we regularly audit your PEO’s terms for you—especially during renewals—to ensure you’re not being overcharged.