Let’s be honest, outsourcing HR to a Professional Employer Organization (PEO) sounds great at first. Predictable costs. Full-service HR. A ready-made infrastructure. But as your company grows, the reality starts to shift. You begin to ask: What are we actually paying for? And more importantly: What are the PEO hidden fees we didn’t see coming?
The Sticker Price vs. the Real Price
On the surface, a PEO model looks clean: a percentage of payroll or a per-employee-per-month (PEPM) fee. But what many companies don’t realize is that these rates often mask layers of additional charges. Here’s what’s usually hidden in the fine print:
1. Markup on Health Benefits (Often 5–20%)
Most PEOs bundle benefits through a master plan and pitch it as “group buying power.” While that can mean short-term savings for very small companies, it quickly becomes expensive as you grow.
What’s really happening:
PEOs typically add a hidden markup to your premiums — sometimes as much as 20%. That means you’re paying more than the actual cost of coverage. And since the pricing is opaque, you don’t have visibility into the carrier rates or the broker commissions involved.
2. Annual Administrative Fees
Many PEOs charge yearly admin or compliance fees under vague line items. These can range from $2,500 to $10,000 depending on your employee count and payroll size.
Why it matters:
These costs often appear as “standard” or “mandatory,” but they rarely reflect any additional value being delivered. And because they’re bundled, you have no way to audit whether they’re necessary.
3. Setup and Implementation Charges
Initial onboarding with a PEO can carry hefty one-time costs for implementation, system training, and legal processing. These fees aren’t always disclosed upfront — and they can exceed $5,000 for a company with just 25–50 employees.
The problem:
These fees are often non-refundable, even if you leave the PEO shortly after joining. You’re paying for their process, not for outcomes or long-term service.
4. Early Termination Penalties
When you want to exit your PEO, you may face early termination fees or prorated penalties—often buried in your original agreement.
What we see often:
Termination clauses that include:
- 30–90 days written notice
- Penalties equal to remaining months in the contract
- Loss of access to payroll or HRIS data during the wind-down
At EmphasisHR, we help you review and negotiate your PEO exit, and ensure your data and payroll processes stay intact during the transition.
5. State and Local Tax Confusion
Because your employees are technically “co-employed” under the PEO’s Federal Employer Identification Number (FEIN), taxes are often filed under their information, not yours.
This can create real issues:
- Inaccurate state unemployment rates (SUTA)
- Missed local tax registrations
- Problems securing PPP loans or tax credits (because you’re not the primary filer)
6. Unnecessary Bundled Services
PEOs often bundle services like time tracking, performance reviews, learning management, and EAPs into their pricing—regardless of whether your company uses them.
The catch:
You’re paying for tools you’re not using, while locked into a system that won’t let you innovate. In contrast, Paylocity allows you to customize tools to your needs, with modern UX and built-in automation.
The Price of Being Small in a Big System
Here’s the truth: most PEOs aren’t built for growth companies. Their systems are rigid. Their support is transactional. Their platforms are outdated. As you scale, you’re still being treated like a small business, but you’re paying like a big one.
We hear this story every day. Companies that start in a PEO to get off the ground but soon find they’ve outgrown it. And by then, those PEO hidden fees are eating into margins, causing compliance headaches, and limiting flexibility.
EmphasisHR’s Approach: Transparent, Scalable, Client-Centered
At EmphasisHR, we work with growth companies every day who are exiting their PEO because they’ve discovered what many don’t realize until it’s too late. PEO hidden fees are real, and they’re costing you more than you think.
When you exit your PEO and partner with EmphasisHR, you’re not just ditching fees, you’re gaining clarity, control, and confidence.
We are not a PEO. We are a managed HR service built for growing companies operating on the Paylocity platform. Our approach is simple:
- No bundled surprises
- Dedicated HR support from real experts
- A platform (Paylocity) that scales with you
- Flat, transparent pricing
Thinking of Leaving Your PEO?
We specialize in guiding companies out of their PEOs and into a better way to manage HR. From compliance to benefits to onboarding and beyond, our team does the work so you can focus on growing your business.
Don’t let PEO hidden fees hold you back. Let’s talk about your transition off the PEO and into full-service HR support built for growth.
Schedule a no-pressure consultation with EmphasisHR today and get a side-by-side breakdown of your real costs and your real savings potential.
