Partnering with a Professional Employer Organization (PEO) offers businesses a wealth of benefits, from streamlined HR operations to access to competitive health benefits and payroll management. However, like any partnership, the relationship with a PEO needs to be actively managed to ensure it remains mutually beneficial over time. One of the most common pain points companies face is the potential for large, unexpected cost increases in PEO fees or benefit rates year over year.
With annual renewals often being a source of financial anxiety, companies must adopt strategic approaches to protect themselves—and their employees—from these financial jolts. By leveraging a PEO broker and implementing a proactive strategy that includes seeking competitive quotes and switching PEOs if necessary, businesses can keep costs in check while still reaping the advantages of PEO partnerships.
Here’s an in-depth look at how your business can sidestep massive PEO cost increases and remain in control of HR expenses.
Why PEO Costs Can Spike
PEOs are known for their efficiency, but working with them isn’t entirely free from challenges. Businesses may experience cost increases due to several reasons, such as:
- Rising Healthcare Costs: Health insurance premiums tend to increase annually, and PEOs may pass these rising costs directly onto their clients.
- Administrative Fee Adjustments: PEOs often charge a percentage of payroll or a per-employee fee, both of which can escalate over time, especially as your business grows.
- Lack of Competition Leverage: Without regularly evaluating options, businesses may lose negotiating power, leading to complacency on the PEO’s part and higher costs.
Proactive Strategies to Manage PEO Costs
To protect your business from unexpected and substantial cost jumps, it’s essential to be proactive in your approach. Here are some key strategies to help manage and contain rising PEO costs:
1. Leverage a PEO Broker
A PEO broker, like PairPEO, specializes in helping businesses find the right PEO for their needs and budget. Brokers bring competitive leverage to the table because they have access to a network of PEOs and can match your business with providers that fit your unique requirements.
How a Broker Can Help:
- Benchmarking Costs: Brokers compare PEOs across the market to identify fair and competitive pricing for your company.
- Negotiation Support: With their industry expertise, brokers negotiate on your behalf to secure better rates and terms.
- Tailored Recommendations: Brokers align PEO capabilities with your specific needs, keeping you from overpaying for unnecessary services.
By partnering with a broker, businesses gain a competitive edge and avoid being locked into non-negotiable, rising costs.
2. Regularly Bring Competitive Quotes to the Table
One of the most effective ways to manage PEO expenses is by keeping the market competitive. Even if you plan to stay with your current PEO, regularly bringing competitive quotes from other providers allows you to negotiate better terms.
Steps to Bring Competitive Quotes:
- Schedule regular financial reviews of your PEO costs (annually or every few years) with a PEO broker.
- Identify key areas where costs have risen, such as healthcare premiums or administrative fees.
- Work with a broker to efficiently solicit quotes on your behalf from alternative PEOs that can offer similar or better services.
- Present these quotes to your current PEO as leverage during renewal negotiations.
When PEOs know they’re competing for your business, they’re more likely to maintain competitive pricing and prioritize your satisfaction.
3. Consider Transitioning PEOs Every 2-3 Years
While switching PEOs may seem like a disruptive process, it can ultimately protect your financial interests. Transitioning to a new PEO every few years ensures you stay ahead of rising costs, gain access to more favorable terms, and adapt to your company’s evolving needs.
When to Switch:
- If your costs have consistently increased with no significant improvement in services or benefits.
- If other PEOs offer similar services at notably lower prices.
- If your company’s growth or industry demands specialized services your current PEO doesn’t offer.
With the guidance of a PEO broker like PairPEO, transitioning PEOs doesn’t have to be time-consuming or stressful. Brokers take care of the heavy lifting, from evaluating options and analyzing providers to managing the transition process. They also coordinate with senior service teams at your new PEO to ensure a seamless transition.
4. Audit Your Current PEO Plan and Costs
An often-overlooked step is auditing your current PEO plan to identify hidden costs or inefficiencies. Over time, your company’s goals and structure may shift, rendering certain PEO services less relevant.
What to Audit:
- Administrative fees and how they’re calculated (e.g., per-employee vs percentage-based fees).
- Health and benefits plans to ensure you’re not overpaying for coverage levels employees don’t need.
- Compliance support to confirm you’re only paying for services aligned with your operational footprint (e.g., state laws and multi-state regulations).
Ongoing audits, combined with the ability to bring competitive quotes, allow businesses to re-center their strategy and avoid unnecessary expenses.
5. Stay Open to Change
One of the biggest mistakes a business can make is becoming complacent. Comfort with a current PEO arrangement might lead to a reluctance to explore alternatives, even when costs rise significantly. To protect your company from large increases, it’s crucial to remain open to exploring new opportunities.
How PairPEO Helps Businesses Protect Against Cost Spikes
At PairPEO, we specialize in helping businesses find the perfect PEO match and stay protected against large cost increases over time. Here’s how we can help you take control of your PEO strategy:
- Comprehensive Market Analysis: Our team conducts in-depth research to evaluate PEO options that best align with your company’s size, industry, and growth goals.
- Tailored Solutions: Every business is unique, so we customize recommendations based on your specific needs and challenges.
- Seamless Transitions: If switching PEOs is the best path forward, we make the process smooth and efficient, minimizing disruptions to your operations.
- Ongoing Support: We’re not just here to set you up with a PEO—we’re here to ensure the partnership works for you, year after year.
Our expertise and industry connections allow businesses to hedge against rising costs while keeping employee benefits intact.
Take Control of Your PEO Costs
Large PEO cost increases don’t have to catch you off-guard. By staying proactive, leveraging expert insights from brokers like PairPEO, and adopting smart strategies like competitive quoting and transitioning PEOs, your business can protect itself while retaining access to the benefits a PEO provides. If you’re ready to take control of your PEO strategy and safeguard your company’s finances, let’s talk.. Our team is here to help you find the right fit, negotiate the best terms, and ensure your business thrives without breaking the bank.
