A 49-person company was convinced their PEO deal was too good to leave. It wasn’t.
Attracted by a competitive workers’ comp rate, this employer had no idea their PEO was quietly making up the difference everywhere else. A free Benefits Collective consultation uncovered $86,000 in annual payroll fees — and saved them $78,000.
Company size
49
full-time employees
Annual PEO cost
$86k
actual fees paid
Annual savings
$78k
after extraction
Background
A growing lawn care and landscape services company with 49 employees had been with their PEO for several years. They were skeptical when Benefits Collective reached out — and for a reason many employers share: they believed their workers’ compensation rates were too good to walk away from.
Their PEO had originally won their business by offering significantly discounted workers’ comp coverage — a legitimate pain point for companies in field services and labor-intensive industries. From that point forward, the assumption was that the PEO relationship was a net win. Nobody had run the full numbers.
How PEOs use bait pricing
PEOs are self-funded entities, which means they control their own rate structures across workers’ comp, medical, and administrative fees. When a prospect has a specific pain point — say, a high workers’ comp modifier — a PEO can offer an attractive rate in that area and quietly make up the margin everywhere else.
The bait
Discounted workers’ comp rate — well below market, solving the company’s most visible cost problem and making the PEO deal look compelling
The switch
Elevated admin fees as a percentage of payroll, manipulated wage base limits, and opaque line items that recouped the discount many times over
There is no free lunch in a PEO. If one rate looks too good, the question isn’t whether you’re paying for it somewhere else — it’s where.
What we found
A Benefits Collective advisor conducted a full audit of the company’s PEO rate sheet and payroll records. The workers’ comp rate was indeed favorable. Everything else told a different story.
| Fee component | What the employer saw | What was actually happening | Type |
|---|---|---|---|
| Workers’ comp rate | Below-market — the reason they joined and stayed | Genuinely favorable, used as the anchor to justify the full relationship | Bait |
| Admin fee (% of payroll) | Listed as a small percentage — looked reasonable in isolation | Applied to total gross payroll. Every raise given to any employee increased PEO revenue automatically | Hidden impact |
| Wage base non-dropoff | Payroll tax line items blended with legitimate employer taxes | Social Security taxes were not dropped at the federal wage base limit (~$176,100). Employers continued paying 6.2% on earnings beyond that — a charge with no legal basis | Hidden |
| Bundled HR services | Included in the package as added value | The company was not using HR support services but was paying for them through elevated fee rates | Unused cost |
The math — breaking down $86,000 in annual fees
The workers’ comp rate was real — but at market rates for a company this size, comparable coverage was available independently for a similar cost. The perceived savings on workers’ comp did not come close to offsetting what was being paid everywhere else.
The outcome
Once the full cost picture was documented, the company moved off the PEO. They secured workers’ comp coverage independently through a direct carrier relationship at a comparable rate, selected a standalone payroll platform, and established their own benefits program.
Annual payroll service cost
$86,000
↓ after extraction
~$8,000
Annual savings
$78,000+
↓ every year going forward
ongoing
Workers' comp
PEO self-funded pool
↓ moved to
Direct carrier, comparable rate
Payroll technology
White-labeled PEO platform
↓ upgraded to
Best-in-class HCM
Key takeaway
The most effective PEO sales tactic isn’t a deceptive pitch — it’s a genuinely good rate on the one thing you care most about. Workers’ comp, medical rates, a strong HR platform. Whatever your pain point is, a PEO can solve it on paper and earn your trust. The problem is what happens to the rest of the invoice.
If you’ve never had someone audit your full PEO cost structure — not just the line items they show you, but the payroll tax rates, the wage base behavior, the fees embedded in your employer taxes — you likely don’t know what you’re actually paying. This company didn’t, until someone ran the numbers.
Company details have been anonymized to protect client confidentiality. All financial figures are based on actual client data reviewed during a Benefits Collective advisory consultation. Results vary by organization size, PEO provider, and fee structure.
Think Your PEO Deal Might Be Too Good to Be True?
A free Benefits Collective consultation includes a full fee audit — no obligation, no sales pitch.