Partnering with a Professional Employer Organization (PEO) can provide valuable HR and payroll support, allowing you to focus on your core business functions. However, while PEO’s offer convenience and efficiency, as well as compliance and risk management, some companies may engage in questionable pricing practices, leaving you with hidden fees that can significantly impact your bottom line. We’ll shed light on hidden fees that may appear in a pricing contract, helping you understand what to look for and how to protect your interests.
Understanding Hidden Fees:
First, let’s define what hidden fees are. Hidden fees are costs that are not clearly disclosed or evident upfront in the pricing structure of a PEO company. They can be disguised under various headings or combined in a convoluted manner, making it challenging for you to identify and comprehend them. These fees can crop up at any stage of your engagement with the PEO, from onboarding to termination, and can vary across different industries.
Unmasking Payroll Fees:
One of the most common culprits for hidden fees lies within payroll processing. When a PEO offers numerous services, it can become overwhelming to reconcile all the fees listed on your invoice. As a client, you have the right to know the specifics of each fee and how it contributes to the overall cost. When you receive your invoice, take the time to go through it meticulously, and ask questions about anything that appears unclear. Remember, you should never receive an invoice that you cannot decipher or understand, and or is not immediately clear in what you are being charged for.
Understanding Pricing Models:
There are two common pricing models PEO’s may employ; Gross Payroll Percentage and Price per Employee per Month. Both of these models have their merits and both pricing models are okay for your company. Regardless of the chosen model, what matters most is that the costs are transparently presented and easy to understand.
Some companies might prefer Gross Payroll Percentage, which charges a percentage of the total payroll as the fee, while others may opt for Price per Employee per Month, which charges a fixed fee for each employee covered. Whichever you choose, it’s always a good business decision to ensure that the pricing structure aligns with your business requirements.
Moreover, it’s important to recognize that PEO pricing can vary based on factors such as geography and industry. This means that the costs might differ for businesses operating in various regions or belonging to different sectors. Don’t be alarmed if you come across these variations, as they are common and influenced by market conditions.
Benchmarking Standards:
When discussing pricing, consider benchmarking industry standards for PEO’s. Generally, Price per Employee per Month can range from $100 to $200 per employee, while Gross Payroll Percentage may fall between 2% to 6%. These benchmarks can provide insights into what is considered reasonable and competitive in the market and are a general guide to compare.
Consider the Gross Payroll Percentage and Price per Employee per Month models, both of which can be appropriate depending on your company’s needs. Look for transparent and easily understandable costs, while also acknowledging that pricing can be influenced by factors such as geography and industry. By comparing with industry benchmarks, you can gain a better understanding of the competitiveness of the offered prices and make an informed decision for your business. 
Recognizing Nickel and Diming Tactics:
Some, not all, PEO’s employ nickel and diming tactics, adding small charges here and there, which can accumulate and create a substantial additional cost. To safeguard yourself from such practices, carefully review the pricing model offered by the PEO. If anything seems ambiguous or too complicated, don’t hesitate to seek clarification. It’s your right to understand the pricing structure fully as a client.
Seeking Clarity in Unique Circumstances:
In certain situations, such as off-cycle onboarding or special projects, PEO’s might present unique pricing arrangements. While these may not be inherently bad, it’s a good idea to differentiate between standard fees and special circumstances. Again, always seek to clarify and ask questions to avoid being caught off guard by unexpected charges. Keep in mind, a PEO is also a service provider, so any extra services may be charged as such.
Questions to Ask:
When engaging with a PEO, arm yourself with pertinent questions to ensure transparency in pricing negotiations and contract conversations. Here are some example questions to consider:
- What is the breakdown of fees in the invoice?
- Are there any additional charges not listed in the standard pricing structure?
- What services are included in the package, and are there any services that incur an extra charge?
- How are termination fees calculated, and what happens if we decide to terminate the contract early?
Asking these questions demonstrates that you value transparency and are committed to understanding the true cost of the services you receive.
Emphasizing the Importance of Full Disclosure:
When considering a PEO partnership, insist on receiving full disclosure of all fees involved. A reputable PEO will have no qualms about providing a clear and transparent pricing structure, because they truly care about your wellbeing as a potential client. Review the contract thoroughly, and if necessary, consult with a legal expert to ensure that you are protected from any hidden costs.
While PEO companies can provide immense value, you should also be cautious about hidden fees that might lurk beneath the surface. By arming yourself with knowledge that hidden fees exist and being proactive in seeking transparency, you can safeguard your business from unfair pricing practices and make informed decisions that benefit your organization in the long run.
Frequently Asked Questions:
Are hidden fees only prevalent in big PEO companies?
No, hidden fees can exist in companies of all sizes. However, they might be more common in larger firms due to their complex pricing models.
Can termination fees be a significant hidden cost?
Yes, termination fees can sometimes be substantial. It’s crucial to understand how they are calculated and under what circumstances they apply before entering into an agreement with a PEO.
What should I do if I discover hidden fees in my PEO contract?
If you uncover hidden fees or unclear charges in your PEO contract, don’t hesitate to contact your service provider immediately. Request a thorough explanation and, if necessary, consider consulting with a legal advisor to assess your options.
How can I protect my business from falling victim to hidden fees?
To protect your business, prioritize transparency. Ask detailed questions about all fees involved, review the contract carefully, and seek legal advice if needed. Choose a reputable PEO with a track record of providing clear and honest pricing information.
Are there any government regulations that protect businesses from hidden fees in PEO contracts?
As of September 2021, there were no specific federal regulations governing hidden fees in PEO contracts. However, consumer protection laws may still apply, so it’s a good idea to be cognizant and aware of your rights as a client.
