PEOs promise peace of mind—one invoice, one system, one solution for all your HR headaches. And for a while, that might feel like exactly what you need. But what if that peace of mind is quietly costing you $20,000. Or more a year, and holding your business back from growing through its people? Today, we're talking about the real PEO price tag—what you're paying for, what you're losing, and how to know when it's time to bring HR back in-house or to a fractional partner who actually grows with you. Welcome to The HR Connection, the podcast proving that small business growth happens through people, and HR is how you make it happen. I'm your host, Sabrina Baker, CEO of Acacia HR Solutions. After more than a decade helping small employers build people strategies that actually drive results, I've seen one truth hold steady: growth doesn't start with your business plan; it starts with your people. Every week, we unpack how HR, when done right, becomes the engine behind every great small business. So whether you're the one-person HR department, a founder figuring it out, or someone who just got HR added to your job description, this show is for you. If you've ever launched or scaled a business with just a handful of employees, you know how messy HR can feel. Payroll, benefits, compliance—it's a lot. And most small employers don't have the time or the expertise to get it all right. That's where a PEO, or a Professional Employer Organization, steps in. They essentially co-employ your team. They handle payroll, benefits, workers' compensation, and compliance, while you handle the everyday people side of things happening inside your business. And for small teams, usually under 15-20 employees, that's a great deal. You get access to benefit plans you could never negotiate on your own, and everything feels simple. It's not wrong to start with a PEO, and in fact, I often recommend it in the early stages if enterprise-level benefits are important. But like most things in business, what works at five employees rarely works at 25. Here's what happens. You start growing, you add new hires, your team stabilizes, your systems mature, and suddenly the PEO bill starts to climb. You're charged a percentage of payroll or a per-employee fee, and it adds up really fast. I had a client who had around 20-ish employees. They came to us because the low costs the PEO had promised in the beginning were continually climbing, and benefit renewal rates were doubling every single year. When we ran the numbers, their PEO fees were topping $8,500 a month. That's over $100,000 a year. And they still needed us because the HR support the PEO actually offered was pretty minimal. We priced out moving them off the PEO, setting up their own payroll, benefits, HR systems, and compliance processes, and they saved $33,000 annually. $33,000. That's advertising dollars. That's training. That's bonuses. That's growth money. And that's not an unusual story. We've seen this pattern again and again. Somewhere between 15 and 25 employees, the PEO model stops being efficient. Because by then, you've outgrown shared HR. You need tailored HR. Now let's talk about the cost that doesn't show up on a spreadsheet: the people cost inside your business. When you're inside a PEO, your employees technically work for another company on paper. Their pay stubs, benefits, onboarding systems all carry the PEO's name, not yours. It creates distance. Subtle, but it's real. Employees don't always know who to go to for answers. Managers feel handcuffed by slow responses. You can't tweak a policy or communicate a certain change without going through another layer of approvals from people who have nothing to do with your business. And the supposed HR support they give is not really support, certainly not for the things that really matter, like employee relations issues or training and development. So you still need an HR person who works with the PEO. You lose control, not just over systems, but over the employee experience. And that's where growth through people starts to stall. Because culture doesn't thrive inside a third-party system. It thrives in relationships, in transparency, and in trust—the exact things a PEO unintentionally puts distance between. So how do you know when you've hit that wall, when you've hit that tipping point, when the PEO's benefits no longer outweigh the cost? Here are a few signs. First, you are paying admin fees that feel higher than the value you're getting. Number two, your managers and you are frustrated by slow responses or lack of flexibility. Number three, employees are getting the runaround on who to talk to when they have questions, or they come to you anyway because they need help deciphering what the PEO shared with them. Number four, you can't customize your own benefits or policies to match your company's culture. If any of that sounds familiar, it's time to run a cost comparison. Because while the PEO model simplifies HR, it also standardizes it. And small businesses don't win by being standardized. They win by being personal. That's the difference between growth through systems and growth through people. Here's what I recommend. You are going to want to do a simple cost comparison. Step one is to add up your total PEO costs. That means not just the admin fees, but also the benefit premiums, extra service charges, and hidden costs like onboarding and offboarding fees. You would be surprised how many hidden fees you might be paying that you didn't know about, or by how much your prices have gone up year over year. PEOs are notorious for offering low first-year rates and then increasing significantly in year two and beyond. And then step two is you're going to price out what it would cost to bring those same functions in-house or to a fractional HR partner. Here is a small list of things you're going to want to price out. First is payroll. You're going to price out an all-in-one system. We've talked before about why this is our favorite option. We find that the cost difference in payroll only and the full suite of modules in an all-in-one, such as applicant tracking, onboarding, performance management, engagement surveys, expenses, and more, it's really minimal from payroll only to that. It's nowhere near as expensive as the PEO. In fact, this is likely going to be your largest cost-saving opportunity. So go for an all-in-one that allows you to add sophistication and consistency to your HR practices. The second thing you're going to price out, of course, is benefits. You're going to work with a really good broker. Tell them your goals. I suggest running a benefit survey with your employees before you decide to price this out to determine what is really even important to our employees. We often think we know, but sometimes we don't. And losing rich benefits off the PEO may not be as big of an idea or big of a deal as you think if you can replace it with a lifestyle benefit they would all enjoy. Now, here's where pro PEOs consultants often get into my messages and give me some pushback. It is true that most of the time, small businesses can get better benefits on a PEO, certainly. But a really good broker might be able to surprise you. We have a relationship with a few brokers who really help us crunch numbers. They go to market to see what makes sense and offer real suggestions for offsetting costs that benefit both employee and employer. And you know, here's my thoughts on this. My honest take is I'm just not one who is convinced that you need traditional enterprise-level benefits in a small business. We don't have them. We did an entire episode with our benefits expert, and we talk about the creative ways you can offer benefits without going the traditional route. We see clients all the time doing this, really more and more in this day and age, and employees really like it as long as it's something they can use. But let's say that you want to be able to offer similar benefits off the PEO, but the quote you get from your broker is, uh, going to be really expensive, or they're going to be less rich, or there's some change there.  You can take the savings you are gaining from moving off the PEO and pay more of the cost share, or offer other benefits to offset the richness that they're losing. And you're still going to save money. Do not let benefits hold you hostage to an expensive PEO where costs are only going to rise. We move several clients off PEOs every year and have yet to see a savings under $20,000 a year. Most of the time, it's a lot more. The third thing you're going to need to price out is HR support. If you don't have dedicated HR support outside of the PEO, you are likely going to need that now. Depending on your size, a service like ours for fractional support based on a set number of hours per week is likely to make sense. Our services give you an entire HR team for the price of one in-house generalist. But if you don't want to go the fractional support route and you feel like in-house is the way to go, you could certainly hire a generalist, or maybe even part-time, depending on your size, to handle the human resources. And then finally, you are going to need to price out workers' compensation or other business insurances that the PEO may be carrying for you. We work with brokers who offer both health and insurance, business insurances, but you can find different brokers for each if you prefer. The company will need to ensure that it has all the proper business insurances once the transition is complete, and this is one that sometimes people forget about. Now, all of that seems like a lot, and we often have people say there's no way that when we price all that out, it's going to be cheaper if we bring it in-house. But again, you would be surprised. We have never, and I know that's a bold statement, but I'm standing by it. We have never done this cost comparison and not seen a savings by moving things in-house, even with adding HR support. When we price this out with clients, we often end up paying for our own services in the first year with the cost savings from the PEO. Now, let's decide that you say you want to switch off the PEO. I'm not going to lie, it does take planning to transition off of that situation. You want to give yourself at least 90 days, ideally more, if you want to not feel rushed in the decision-making process. I'm going to run through a very quick checklist here, but if you want the full rundown of what needs to happen pre-transition, before you officially transition off the PEO, check out the resource section of our website for a download. It is linked below. So the first thing is you're going to want to choose your new HRIS and benefits, of course. You're going to want to demo a few HRIS providers to see who best fits your needs. You want to take your time with the HRIS system. You don't want to rush and choose something that works now, but won't work when you scale in a year or two. And then once you've chosen, you actually have to implement those things. So again, this isn't something that can be done overnight. Implementation sometimes takes six weeks or more. For benefits, as I mentioned, you're going to work with a really good broker. Have them run numbers a few different ways so that you can make an informed decision that fits your budget and employees' needs. If the benefits are going to be less rich, are there lifestyle benefits you can add with the money you'll be saving moving off the PEO? We have a whole episode on this, as I mentioned earlier. You can check it out if you need some ideas. Also, with benefits, it's important to not just think about this year. You will experience benefit increases at renewal times. This happens with the PEO or without the PEO, so this shouldn't be a surprise. We suggest that you budget 10% increases, but sometimes they are more. Sometimes we have clients offer a very rich cost share initially, and they pick up most of the cost, and then they realize they can't sustain that when premiums go up year over year. So think about how you're going to scale with whatever kind of cost share you are offering to your employees. And then finally, you want to communicate early and often with employees so there's no confusion. Tell them you are transitioning and when they can expect info about new benefit options or when their first paycheck will be in the new system. Nothing will derail a transition faster than poor communication. If the benefits transition is going to be a big shift, then that's really a whole communication plan in and of itself. Time the move so coverage and pay cycles align. You want this to be seamless for employees. No gaps in coverage, no weirdness with their pay. It should feel as though not much has changed. We have this down to a science and can help clients transition mostly stress-free. If you would like to chat directly with me about how we do that, you can set up a free consultation in the show notes directly on my calendar. But if you'd like to go it alone, we do have those resources available to you. Those are also in the show notes. Most of our clients tell us that within three months, they not only saved money, but felt more in control of their business again. Their systems finally matched the size and sophistication of the company they'd built. Their employees feel like their people processes are more connected, and whoever is managing HR feels more empowered to make the best decisions for the company. A PEO can be a great starter solution. It gives you structure and compliance when you need it most. But it's not meant to be forever, because at some point, your business stops needing protection and starts needing possibility. And that's when you move from checking compliance boxes to partnering for growth. If you've been wondering whether your PEO still makes sense, it doesn't hurt to run the numbers. You can always decide to stay on the PEO, but you won't know what's possible until you do the math. So run the numbers, see what you could reinvest in your people instead. Growth doesn't come from the cheapest system. It comes from the smartest investment in your team. If you found this helpful, I would love for you to like, subscribe, follow, or maybe forward this to another small business pro who might find it helpful. Thanks so much for listening to the HR Connection.