Most companies renew their PEO contract because switching feels complicated. That is not a good reason to stay. Before you sign another year, pull these five numbers from your invoice. What you find may change your decision entirely.
Your Effective Administrative Rate as a Percentage of Total Payroll
Your PEO charges either a flat per-employee-per-month (PEPM) fee or a percentage of payroll. Either way, convert it into one clean percentage so you can benchmark it.
The math: Divide your total annual PEO administrative fees (not including actual insurance premiums or payroll taxes) by your total annual gross payroll. Multiply by 100. That is your effective admin rate.
Most business owners have never actually run this number. Their PEO has been happy to keep it that way.
The Markup on Your Health Insurance Premium
This is the number most PEOs least want you to calculate. Ask your PEO for the actual carrier invoice: the document that shows what the insurance company charges at the source. Then compare it to what your PEO is billing you.
The gap between those two figures is margin. It is not always disclosed, and there is no legal requirement that it be. Some PEOs bundle insurance costs with hidden administrative markups, making it genuinely difficult to understand how much you are truly paying for healthcare coverage versus how much you are paying the PEO to process it.
Your Workers' Comp Rate vs. Your Actual Claims History
Inside a PEO, your workers' compensation is pooled with their entire book of business. That arrangement makes sense when you are small and your own loss history is thin. As your company grows and accumulates clean claims history, the calculus changes.
Companies with few or no claims over three-plus years often qualify for standalone workers' comp policies at meaningfully lower rates than they are paying inside the pool. Your PEO has no incentive to tell you this.
Low-risk industries including professional services, technology, and financial firms are particularly likely to overpay inside a pooled PEO workers' comp arrangement.
What You Are Paying Per Employee Per Year, All-In
Take your total annual PEO invoice. Subtract the actual pass-through costs at face value: payroll taxes, benefits premiums at their true carrier cost, and any other direct costs that belong to your employees, not your PEO. Divide what remains by your headcount.
That is your all-in administrative cost per employee per year.
This calculation forces transparency. Most PEO invoices are designed to make this number hard to find. Do the math anyway.
Your Exit Penalty and Renewal Window
Pull your PEO agreement right now and find two things: the exit penalty clause and the renewal notification window.
Most PEO contracts include fees for leaving before the contract term ends. The exact amount varies, but it can be substantial. More importantly, most contracts auto-renew, and the window to opt out is typically 30 to 60 days before the anniversary date. Miss that window and you are locked in for another full year regardless of what you discover about your pricing.
What to Do With These Numbers
If any of these figures look off, you are not obligated to sort it out alone. A qualified benefits broker can audit your current PEO arrangement at no cost to you, run side-by-side comparisons against standalone alternatives for benefits, workers' comp, HRIS, and payroll, and tell you plainly whether the math says stay or go.
At IMA Financial Group, we run PEO exit analyses for companies across the country as part of our national PEO exit practice. No sales pressure. If the analysis says your PEO is the right answer, we will tell you that. But most companies that run these five numbers find at least one area where they are leaving real money on the table.
Get a No-Cost PEO Audit
We will run the numbers for you. No obligation. If staying with your PEO is the right call, we will say so.
Schedule Your Free PEO Review Typical turnaround: 5 to 7 business days. No commitment required.