A PEO is a price for a bundle. The comparison only works once you unbundle it.
A PEO quote folds payroll services, HR support, compliance help and a benefits plan into one fee, usually quoted per employee or as a share of payroll. We separate the benefits piece, price what the same employees would pay and receive on a program of your own, and put the two side by side on your census. Sometimes the PEO wins, and we say so.
The benefits cost inside a PEO is rarely printed as its own line.
PEO pricing blends the service fee and the benefits rate, and margin can sit on either side. We rebuild both so the comparison is between equivalent things.
The Service Fee
Whether it is billed per employee per month or as a percentage of payroll changes how it grows. A percentage fee rises with every raise you give, so we project it on next year’s payroll, not this year’s. Projecting fees on future payroll shows true PEO cost.
The Benefits Rate
A PEO plan is rated on the PEO’s pool, not on your group. We compare its rates to what your census would draw in your own market, because a young group can be subsidizing the pool while an older one is benefiting from it.
The Plan Design Actually Offered
PEOs offer a menu chosen for their whole client base. We match deductibles, networks and prescription tiers plan for plan, so a lower rate is not hiding a thinner plan. Plan-for-plan matching makes PEO comparisons fair. A lower rate can hide a thinner plan.
What You Would Replace
Leaving a PEO means buying payroll, HR support and compliance help somewhere else. We price those as a real cost in the direct scenario, which is why the answer is never simply the benefits difference. Pricing replacement services makes PEO exits realistic.
Your size decides which market you shop in once you leave.
Inside a PEO, a small employer buys at the PEO’s scale. Outside it, you are rated as yourself, and which rules apply depends on how many employees you have and where they work.
Small Groups Return to Community Rating
A small employer leaving a PEO buys fully insured coverage priced on age, location and tobacco use, not health. That protects a group with serious claims, so for that group the direct option is often steadier than the PEO pool.
Larger Groups Need Their Own Data
A larger employer is underwritten on its experience, and PEOs do not always release claims data by client. We ask for it early, because without it every direct quote carries a carrier’s cautious assumption. Claims data makes direct quotes more competitive.
The Employer Mandate Does Not Move
Under the ACA, applicable large employer status follows your company, not the PEO. Moving in or out does not change whether the mandate applies to you, only who helps you meet it and report it. ACA employer status follows your company, inside or outside a PEO.
The same employees, the same plans, two totals, over more than one year.
A first-year comparison flatters whichever option was priced hardest to win you. We model the renewal that follows too.
Year One on Your Census
We price both scenarios on your actual employees, dependents and current elections, because a per-employee average hides who is enrolled in family coverage and who waived. Census-based pricing makes PEO comparisons accurate, because averages hide who enrolled in which tier.
Year Two and the Way Out
PEO renewals follow the pool’s experience; direct renewals follow yours. We show both paths and the cost of leaving later, so the decision includes the exit as well as the entrance. Multi-year modeling shows the true cost of a PEO decision, including what it costs to leave later.
What Employees Feel
Payroll deductions, networks and deductibles often change more than the employer total does. We show the paycheck view by coverage tier, which is where a switch is judged by the people who live with it. The paycheck view shows how employees will feel a PEO switch.
What employers ask before choosing between a PEO and going direct.
Is a PEO always cheaper for a small employer?
No. It can be, particularly where a group would rate poorly on its own or genuinely needs the HR support. It can also cost more once the fee grows with payroll, which is why we run your numbers rather than rely on a rule of thumb.
Can we keep the PEO for HR and buy benefits ourselves?
Some PEOs allow it and some require their plan. We read the service agreement first, because that clause decides whether a hybrid is on the table at all. The service agreement decides whether a hybrid PEO setup works. Read the clause first.
Who handles compliance if we go direct?
You become the plan sponsor, with the plan document, notices, COBRA and ACA reporting that come with it. We set that up and keep it on a calendar, and we can help you with the filing. Going direct makes you the plan sponsor with its duties.
Where the Rules Come From.
The laws and rules named on this page link to the statute or regulation they come from. This is general information, not legal or tax advice, and rules change, so check the current text.
COBRA Continuation Coverage (29 U.S.C. 1161)
Requires many group health plans to offer temporary continuation coverage after a qualifying event.
Affordable Care Act (Public Law 111-148)
The 2010 health reform law, with later amendments, behind employer coverage, reporting and market rules.
Leaving a PEO: Tax and Checklist
Wage base restarts and the exit checklist.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
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