Why your CFO could not find an alternative PEO.

A distributor we worked with had been with the same PEO for more than twelve years. Service had deteriorated, medical cost had drifted, and at one point the provider had given the company incorrect advice on an employment matter. The company’s own CFO had attempted a PEO search — at least once — and had not been able to find a workable alternative.

That detail is worth sitting with. This is a finance chief running an eighty-year-old business, entirely capable of evaluating a lease, a credit facility or an acquisition. He tried to shop one category of spend and could not.

The mechanism

Under most PEO arrangements you receive one number. Administration, benefits, workers' compensation, state unemployment and payroll taxes arrive bundled, and the invoice does not decompose them.

That is fine while you are not shopping. The moment you are, it is disabling, because you cannot establish what you currently pay for administration as distinct from everything else. And without that baseline, every incoming proposal is being compared against a number you cannot see.

So the CFO does what any competent buyer does. He calls three providers, receives three proposals structured differently from each other and differently again from his current bill, and finds that none of them can be laid against what he is paying now. One quotes a percentage of payroll, one quotes per-employee-per-month, one bundles workers' compensation and one passes it through. He is not comparing options. He is comparing formats.

The rational response at that point is to stop, and most buyers do.

The second obstacle: the market does not answer strangers the same way

There is a less discussed problem. A PEO responds to an RFP differently depending on who sent it and what else is in the process.

A single employer requesting a quote is one prospect. The same employer inside a structured competitive process, against named alternatives, on stated criteria and a stated timetable, is a different commercial proposition — and the pricing reflects that. This is not a scandal. It is how any market with negotiated pricing behaves, and it is the same reason a company retains a broker for its property programme rather than calling carriers directly.

The effect is that a direct search can return the market’s cautious answer and the buyer reads it as the market’s answer.

What actually breaks the deadlock

Not more proposals. A baseline, and then normalisation.

Establishing the true current cost comes first, before any provider is contacted. Then every response is put onto a single basis — the same fee structure, the same assumptions about what is inside the rate and what passes through, modelled against a real payroll across a full year including seasonality, overtime and any bonus cycle. Only then does a comparison mean anything.

For the distributor, the result was $200,000 in overall savings, medical cost down over 12%, and on-location support the incumbent had never provided. But the change that will outlast all of it is that the billing is now unbundled with every fee and tax disclosed. The company can see what it is paying for. The next renewal can be tested without hiring anyone to do it, and without calling us.

The uncomfortable part

We are a broker for PEO and ASO services, and we are paid by the provider that wins your business. So there is an obvious reading of this article: the firm that does PEO searches has written a piece explaining why you cannot do your own.

Two things are worth saying against that. The first is that the obstacle described here is structural and checkable — ask your current provider for your administrative fee stated separately from benefits, comp and unemployment, and see how many exchanges it takes. The second is that the outcome we are arguing for is a buyer who can test their own arrangement afterwards, which is the opposite of a dependency.

It costs you nothing to find out either way. If the answer turns out to be that your current arrangement is priced correctly, that is the answer, and we are paid nothing for it.