Have You Outgrown Your PEO?
Professional Employer Organizations (PEOs) offer a valuable solution for many growing businesses. By bundling HR, payroll, benefits administration, compliance support, and technology into one platform, they provide structure and simplicity during early stages of growth.
But what works well at one stage of your organization’s journey may not remain the best long-term strategy.
As companies scale, leadership teams often begin to ask:
- Are we paying more than necessary?
- Are our benefits competitive?
- Do we have enough flexibility?
- Is our current structure helping us grow or holding us back?
For many employers, evaluating their PEO reveals opportunities to reduce costs, improve benefits, and regain strategic control.
Understanding What You’re Really Paying for
PEOs typically combine multiple services into a single invoice. While this simplifies administration, it can also make true costs difficult to evaluate.
Employers commonly pay for:
- Administrative service fees
- HR and payroll support
- Workers’ compensation programs
- Benefits administration
- Technology platforms or HRIS access
According to industry data, PEO administrative fees can range from approximately 2% to 12% of payroll or $40 to $160 per employee per month, depending on services.
However, the largest cost driver is often health insurance.
Because medical coverage is bundled into the overall structure, many organizations never see a clear comparison against independent market options.
Why Health Insurance Drives Major Cost Differences
Within many PEO models, medical plans are standardized across pooled groups. While this provides convenience, it can limit flexibility as your organization grows.
Common challenges include:
- Limited plan design customization
- Pricing tied to pooled performance rather than your company’s risk profile
- Reduced transparency into carrier negotiations
- Fewer opportunities to tailor benefits to your workforce
Without benchmarking, employers may assume their pricing is competitive when stronger alternatives exist.
Option One: Stay in Your PEO and Carve Out Medical Benefits
Many employers believe leaving a PEO is the only way to improve benefits or reduce costs. In reality, some organizations can remain within their PEO structure while carving out medical coverage.
This hybrid strategy allows employers to maintain administrative simplicity while gaining flexibility in healthcare design.
One potential alternative is Association Health Plans (AHPs), which may offer:
- Large-group pricing advantages
- Lower premiums in certain scenarios
- Stronger or more flexible benefit designs
- Broad Blue Cross Blue Shield networks
Because AHPs bring multiple employers together, they can sometimes unlock negotiating power similar to larger organizations.
Not every employer qualifies, but evaluating this option can reveal meaningful opportunities.
Option Two: Transition Away from the PEO Model
For some organizations, the best path forward is moving toward an independent benefits and HR strategy.
Leaving a PEO may sound overwhelming, but a structured approach can make the process smooth and predictable.
Key steps include:
1. Full Cost Analysis
Break down bundled fees to understand administrative costs, insurance premiums, and long-term ROI.
2. HR and Payroll Platform Review
Modern standalone platforms often replicate or improve PEO functionality while providing greater flexibility.
3. Benefits Plan Benchmarking
Compare current coverage against independent carriers and alternative plan structures.
4. Employee Transition Planning
Clear communication and structured onboarding ensure a seamless employee experience during any change.
Employers who transition strategically often gain greater transparency, improved plan customization, and long-term cost control.
Signs It May Be Time to Evaluate Your PEO
You don’t need to leave your PEO immediately to benefit from a review. However, certain indicators suggest it’s time to explore options:
- Rising costs without clear improvements
- Limited benefit plan choices
- Desire for more strategic control
- Workforce growth that outpaces standardized solutions
- Lack of clarity around total investment
Even if you ultimately remain with your current structure, understanding your options provides valuable insight.
Why Independent Evaluation Matters
PEOs provide real value, but they are not always designed for long-term scalability.
A thoughtful evaluation helps answer critical questions:
- Are we maximizing value for our investment?
- Could alternative strategies improve employee experience?
- Are there opportunities to reduce costs without sacrificing coverage?
Many employers discover that small adjustments, such as a medical carve-out or benefits redesign, can deliver significant improvements without major disruption.
How Maddock & Associates Helps
At Maddock & Associates, we believe benefits strategy should evolve alongside your organization.
We help employers:
- Conduct comprehensive PEO cost analysis
- Evaluate medical carve-out opportunities
- Compare Association Health Plans and independent options
- Plan and implement full transitions when appropriate
As a privately owned firm focused on long-term relationships, our approach is simple: provide clear insight so employers can make confident decisions.
Ready to Evaluate Your Options?
Whether you’re considering staying in your PEO, carving out benefits, or transitioning entirely, the first step is understanding what’s possible.
Contact Maddock & Associates for a comprehensive evaluation: dave@maddockinsurance.com
Because your benefits strategy should support where your business is today and where it’s going next.
