Questions to Ask a PEO
For small business owners and office managers vetting a Professional Employer Organization. These 20 questions dig into pricing structure, benefits renewals, workers comp, co-employment liability and exit terms.
The questions
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Which services are included in your standard bundle, and which ones cost extra?
Why ask it
PEO proposals often blur the line between core payroll and add-ons like recruiting, training libraries or applicant tracking. Getting the a la carte list up front stops surprise line items later.
What size company and which industries do you serve best, and how many of your clients are in our state?
Why ask it
A PEO built for 200-person manufacturers will treat a 12-person agency as an afterthought, and state density drives the health and workers comp options you actually get. Their answer tells you whether you are a core client or an edge case.
Who will be our day to day contact, and how many other clients does that person support?
Why ask it
The difference between a named HR business partner and a general support queue is the difference between advice and ticket numbers. Client-per-rep ratios of 50 or more usually mean you get the queue.
How is your fee structured: a percentage of gross payroll or a flat per employee per month rate, and what exactly does the admin fee cover?
Why ask it
Percentage-of-payroll pricing quietly raises your cost every time you give a raise, while PEPM stays flat. Ask them to quote both ways on your real census so you can compare in annual dollars per head.
Are you an IRS Certified PEO, and are you ESAC accredited?
Why ask it
CPEO status means the IRS treats the PEO as solely liable for federal employment taxes on your wages, so you are not on the hook twice if they fail to remit. ESAC accreditation adds a surety bond behind that promise, and both claims are verifiable in public lists.
Which health carriers and specific plan designs will be available to us, and can you show them side by side against our current plan?
Why ask it
Compare deductibles, out of pocket maximums, network breadth and prescription tiers, not just premiums. A lower premium on a narrow network is a cost shift to your employees, and they will tell you about it.
Is your health plan a single master policy that everyone joins, or can we choose among carriers, and how does that choice affect our renewals?
Why ask it
In a master policy your rate moves with the whole book of business regardless of your own claims, which can help a group with a bad year and hurt a healthy one. Carrier-choice models keep your experience closer to your own.
What have your average benefits renewal increases been for the past three years, and what happened to clients whose claims got worse?
Why ask it
Year one is often priced to win the deal, so the renewal history is the real number. Vague answers here are the single most common source of PEO regret.
How is workers compensation handled: is there a deposit, is there a year end audit, and how is our experience rating figured inside your master policy?
Why ask it
Many PEOs fold comp into a bundled rate with a pay-as-you-go structure, which improves cash flow but can obscure whether your safety record is earning you anything. Deposits and audit true-ups are real money you need to budget for.
What state unemployment insurance rate will apply to our employees under your account, and how does it compare to the rate we have now?
Why ask it
If your own SUTA rate is low from years of no claims, moving onto a PEO account with a higher rate can wipe out the savings elsewhere in the proposal. Ask for the number in writing, per state.
If we join mid year, does the Social Security and FUTA taxable wage base restart for our employees?
Why ask it
With a non-certified PEO the wage base can reset, meaning you pay employer payroll taxes twice on the same wages in one calendar year. On a payroll with several high earners that mistake can run into five figures.
Under the co-employment agreement, who is the employer of record for what, and how is liability split when something goes wrong?
Why ask it
Co-employment does not remove your exposure, it divides it, and the division is written in the service agreement rather than the sales deck. You need to know who is named in a wage claim, a discrimination charge and an OSHA inspection.
What employment practices liability insurance comes with the agreement, and what are the limits, the deductible and the main exclusions?
Why ask it
EPLI is one of the strongest reasons small employers use a PEO, but limits are often shared across all clients and wage and hour claims are frequently excluded. Ask for the actual certificate, not a summary.
How do you handle multi state compliance, including new state registrations, state leave laws, pay transparency rules and ACA filings, and who signs the 1094-C and 1095-C forms?
Why ask it
This is where a PEO either saves you from a penalty or hands you back the work. Knowing who signs the ACA forms tells you who owns the filing risk.
Is the retirement plan a multiple employer plan you sponsor, or would we keep our own 401k, and what happens to the plan and the balances if we leave you?
Why ask it
Joining the PEO's plan offloads fiduciary work and audits, but exiting later can force a plan termination or a spinoff that costs money and unsettles employees. Decide this knowing the exit mechanics, not just the setup.
What will our managers and employees actually use day to day, and does it connect to our accounting general ledger and time tracking?
Why ask it
Ask for a live demo of the manager view and the employee mobile app rather than screenshots. If payroll journal entries do not map to your chart of accounts, your bookkeeper inherits a monthly reconciliation chore.
When we want to terminate someone or investigate a complaint, do you advise us or decide with us, and can you show me how a recent case was handled?
Why ask it
Some PEOs give real guidance and will sit on the call, others send a template and a disclaimer. The distinction only surfaces in a crisis, so test it with a concrete example before you sign.
What does implementation look like week by week, who moves our historical payroll and benefits data, and what typically goes wrong in the first ninety days?
Why ask it
Open enrollment timing, year to date wage transfers and I-9 reverification are the usual stumbling points. A PEO that names its own common failures is telling you it has done this often and honestly.
Can we speak with three clients about our size who joined in the last year, and one client who left you?
Why ask it
Recent joiners tell you what onboarding really felt like and whether the sales promises held. A PEO willing to hand you a former client is unusually confident, and the refusal itself is informative.
What are the renewal terms, how much notice do we need to give to leave, and exactly which records and data do we take with us?
Why ask it
Auto-renewal clauses, 30 to 90 day notice windows and mid plan year benefits cutoffs can trap you for an extra year or leave staff briefly uninsured. Confirm in writing that you leave with payroll registers, tax filings, employee files and I-9s in usable form.
How to Evaluate a PEO Proposal
Practical guidance for the conversation itself
Running the Evaluation
Force every quote into the same format
Send each PEO the identical census: headcount, job titles, state, gross wages, and current benefit elections. Then ask all of them to price it two ways, as a percentage of payroll and as a flat per employee per month rate. Convert everything to total annual dollars per employee, with admin fees, benefits, workers comp and SUTA broken out separately. Bundled single-rate quotes are the easiest place for cost to hide.
Price year three, not year one
Introductory pricing and a good first-year benefits rate are standard. Ask for the last three years of average renewal increases across their book, and ask what contractual limits exist on how much your admin fee can rise. A PEO that will not discuss renewals is showing you its weakest area.
Verify the credentials yourself
Check CPEO status against the IRS published list and accreditation against the ESAC member directory rather than accepting a logo on a slide. Ask for certificates of insurance for the workers comp and EPLI policies, and read the limits and named insured lines.
Bring your CPA and an employee to the demo
Your accountant should look at how payroll journal entries map to your general ledger and how tax filings will be handled. Have one non-manager employee try the self-service app, because adoption problems become your support burden, not the PEO's.
Answers That Should Worry You
- They quote one blended percentage of payroll and will not itemize admin fee, benefits, comp and unemployment separately.
- They cannot or will not state the SUTA rate that will apply to your employees in each state you operate in.
- They dodge the mid year wage base question, or do not know whether they are a Certified PEO.
- No renewal history is offered, only a promise that increases are 'usually reasonable'.
- The EPLI limit is shared across all clients and they cannot tell you how much has been consumed.
- The service agreement auto-renews for a full year with a notice window of less than 60 days.
- Your named contact changes between the sales meeting and implementation, with no ratio disclosed.
- They will not give references from clients of your size in your state who joined recently.
Clauses to Read Line by Line Before Signing
- Term, auto-renewal trigger and the exact notice period and delivery method required to exit.
- Fee escalation language: what can change at renewal without your consent, and any cap.
- Indemnification: which claims you indemnify them for, and which they indemnify you for.
- Benefits termination date on exit, so you can line up replacement coverage with no gap.
- Workers comp deposit amount, audit true-up mechanics, and when a deposit is refunded.
- Data and records: your right to payroll registers, quarterly tax filings, employee files and I-9s in an exportable format.
- Retirement plan exit: what happens to the multiple employer plan account, and who pays for a spinoff or termination.
- Who holds authority over hiring, discipline and termination decisions, and what you must notify them about.