What’s Negotiable in a PEO Arrangement?

The best time to negotiate any contract is before you sign on as a customer. Yet one of the most overlooked aspects of joining a PEO is knowing what can actually be negotiated.

Going at it alone requires both a deep understanding the PEO model and some serious negotiating skills. That’s why working with a PEO broker like ProHealth PEO Advisors can be so valuable. We know the levers to pull, and we make sure our clients secure the lowest possible pricing from the start.

In this blog, we’ll walk through the key areas to should focus on as you’re going through the PEO evaluation process to ensure you're not paying over inflated prices.

1. Workers’ comp Rates

Workers’ comp rates are tied to each employee’s job function, salary, and state of residence. They’re billed as a percentage of payroll, which makes them a prime area for PEOs to mark up- since the average client doesn't fully understand how the math works.

I often describe overpaying for workers’ comp as a “slow bleed.” It’s a background expense that quietly snowballs as your company grows. That’s why it’s vital to tackle this upfront and lock in the lowest rate possible.

Tip:Never accept the initial set of quotes a PEO provides. At the very least, ask your rep to reduce them by 15% off the bat. You’ll be surprised at how much flexibility suddenly appears!

We’ve helped clients save tens of thousands annually by leveraging competition and pitting PEOs against one another to drive costs down even further.

2. Services Fees

Always make sure the PEO’s fee structure is fixed and on a per employee, per month basis so you have ultimate visibility. Some PEOs like ADP TS and Insperity tie their fees to your overall payroll, which means as your company grows, and as bonuses and commissions are paid out, your PEO costs grow right alongside them. That can quickly become a serious drain on your bottom line.

The good news? There’s always room to negotiate admin fees, especially if you have competing offers on the table. PEOs will often lower or even match a competitor’s price to win your business, particularly toward the end of a month or quarter.

At ProHealth PEO Advisors, we use our industry relationships to push negotiations even further. In many cases, we’re able to secure an additional free month of admin fees for the clients we place with our PEO partners.

Tip: The setup / implementation fee can most always be waived.

3. Medical Pricing

Everyone wants the lowest health insurance pricing; there's no doubting that. Though not at the risk of facing a massive renewal spike in the future. It's not a sustainable, long term strategy which is why I warn company's to avoid the temptation of "honeymoon" rates.

Our rule of thumb: negotiate only a 2-4% relief in medical premiums at most. That way, you capture some savings now without jeopardizing future stability. A company that receives high renewals (15%+) is often seen by competing PEO's as a scarlet letter and will most likely decide not to quote your company due to the perceived risk profile. That's why we have to balance initial cost savings with a longer term plan.

Our thought is that we'd prefer to use our bullets to negotiate a rate lock or do not exceed. Depending on the time of year you're’ evaluating, this strategy for our clients can save you from painful, unexpected increases down the line and the potential to be stuck with accepting a high renewal because competing PEO's have blackballed the company.

4. SUTA

SUTA (State Unemployment Tax Act) is a state payroll tax that employers pay to fund unemployment benefits. The oversimplified way to think of this is that each state has their own rate. Since a PEO takes over the administration of taxes, the client company will join at the set PEO rate. However, this is often a major profit lever for PEO's as they often quietly mark up their SUTA rate which translates into company's paying more to the PEO's unknowingly. There is hope here so digging in to the weeds and using the services of a broker like ProHealth PEO Advisors is crucial for getting clarity and making sure you aren't overpaying.

Final Thoughts

Negotiating a PEO agreement isn’t just about chasing the lowest initial price. It’s about structuring a sustainable partnership that balances cost savings today with stability tomorrow.

By focusing on workers’ comp, admin fees, and medical pricing strategies, you can ensure you’re not leaving money on the table. And with an experienced PEO broker guiding the process, you’ll gain the leverage you need to secure the best possible deal.

Book a consultation to see how much you can save.