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When your PEO renewal goes up
The renewal letter shows one number. The real comparison has four lines. How to read it, when staying is right, and the window you have if it is not.
The short answer
A renewal increase is a prompt to compare, not a reason to leave. Put four lines side by side: the admin fee, the benefits premiums and their increase, the payroll taxes and workers' comp the PEO prices in, and what the same company costs to run on its own HRIS and payroll with benefits through a broker. Below about 30 people in one state the PEO usually wins on benefits alone. Above 50, or across several states, it usually does not. If the numbers say leave, count back 90 to 120 days from the renewal date, because state registrations take longest. If they say stay, negotiate the admin fee with the comparison in hand.
What the letter shows, and what it hides
The number in the letter is the admin fee, per employee per month or a percentage of payroll. It is the smallest of the four lines.
The increase hides in the other three. Benefits renew on the PEO’s master plan, and that increase arrives separately. State unemployment tax runs at the PEO’s rate, not yours, and you never see yours. Workers’ comp is bundled. A percentage-of-payroll fee rises every time you give a raise.
Ask for the renewal as four numbers, not one. A PEO that will not break it out is telling you something.
The four-line comparison
Write it down for the coming year, at the headcount you expect in month twelve, not today’s.
- Admin fee. Per employee per month, or the percentage times projected payroll.
- Benefits. Your share of the premiums on the master plan, after the renewal increase. Beside it, a broker’s quote for the same tier of plan on your own group.
- Taxes and insurance. The unemployment rate and workers’ comp the PEO charges you, beside the rates you would carry yourself. Your own rate may be lower or higher, and you cannot know without asking the state.
- Running it yourself. The HRIS and payroll software at the vendor’s published per-employee price, the broker, and whoever runs the work: an HR hire, or a firm like ours on a monthly plan.
Most companies have never seen line three. It is usually the surprise.
When staying is right
Stay if any of these hold:
- You are under about 30 people in one or two states and the benefits leverage is real: a small group in an expensive state gets better plans on a master policy than on its own.
- Nobody in the company can own HR this year, and you are not ready to pay someone to.
- The increase is in the admin fee only, and the PEO will negotiate it.
Negotiate from the comparison. Ask for a flat per-employee fee instead of a percentage, a cap on the benefits increase, and the unemployment rate in writing.
When leaving is right
Leave if these hold:
- You are past 50 people, or hiring across several states. The admin fee scales with headcount; the work it covers does not.
- You want your own benefits broker and your own plan, with the data and the renewal in your hands.
- The unemployment rate you would carry yourself is lower than the PEO’s.
- An acquisition, a new entity or a second country is coming. A PEO handles one of those slowly and the others not at all.
The exit is a project with a date, not a switch. Registrations in every state where you have people, benefits onto your own plan at the plan year, payroll run in parallel for one cycle, then the PEO contract ends on the day you chose.
The window
Count back from the renewal date.
- Notice. Most contracts want 30 days. Some want 60. Read yours.
- Registrations. Four to eight weeks per state, and some states are slower. They run in parallel, but the slowest one sets the date.
- Benefits. The cleanest cut is at the plan year. Off-cycle is possible and costs more.
- Payroll. One parallel run before the first live one.
Ninety days is tight. One hundred and twenty is comfortable. Six weeks is possible and expensive. If the letter arrived with less than that, the first call decides whether to go now or sign for one more year with the comparison on the table.
On one page
The renewal is four numbers, not one. Ask for all four. Under 30 people in one state, the PEO usually wins on benefits. Over 50, or across states, it usually does not. If you leave, registrations set the date, so count back 120 days. If you stay, negotiate the fee with the comparison in hand.
