Questions to ask a PEO before you sign
A written checklist for comparing PEO proposals: license, fees, benefits, workers' comp, tax responsibility, contract and exit.
PEO proposals can look similar on the surface and differ a lot in the fine print. These questions help you compare like with like and avoid surprises at renewal or on the way out. Ask for answers in writing and keep them with the contract. General information, not legal advice.
Prepare a census first
Give every firm the same data: number of employees, pay by role, work locations, job classes for workers' compensation, current benefit plans and claims experience if available. Without this, quotes are not comparable. Keep a spreadsheet with one row per question and one column per firm.
License and standing
- What is your Texas license number, and is it a full or limited license? Verify it on this site and on the TDLR search. Is it held by the entity that will sign my contract?
- Are you an IRS-certified PEO? If yes, can I find you on the IRS list?
- Are audited financial statements available to clients?
- Have you had disciplinary action, and how did you resolve it?
Fees
- How is the fee calculated: per employee per month, a percentage of payroll, or something else?
- What does the fee include, and what costs extra (onboarding, off-cycle payroll, terminations, background checks, year-end forms)?
- Can the fee, benefit rates or workers' compensation rates change during the term or at renewal? How much notice do I get?
- Is there a minimum headcount, minimum monthly fee or setup fee?
Worked example (made-up numbers): Firm A quotes $100 per employee per month for 20 employees, which is $24,000 a year. Firm B quotes $85 but charges $150 for each off-cycle payroll and $200 per termination. B's base is 20 x $85 x 12 = $20,400. If you expect 12 off-cycle payrolls ($1,800) and 6 terminations ($1,200), its extras are $3,000, so B's total is $23,400 against A's $24,000. The gap is far smaller than the headline rates suggest, and it could reverse with different assumptions. Always ask for the all-in annual cost.
Benefits
- Who is the insurance carrier for each plan, and are the plans fully insured or self-funded?
- What plan options will my employees see, and are rates based on my group's own claims or on a pooled group?
- If I leave, what happens to coverage, deductibles already met, and continuation rights?
Workers' compensation
- Is coverage under your policy, and who is the carrier?
- How are claims reported and managed, and how are job classes assigned for my roles?
- How is my claims history handled if I leave?
Responsibility and risk
- Who files and pays payroll taxes, and what protection do I have if a deposit is missed?
- Which employment-law claims does the PEO help defend, and does the contract require me to indemnify it?
- Does the PEO carry employment practices liability insurance, and does it cover my business?
Service
- Will I have a named contact, and how fast do you respond to urgent payroll or HR issues?
- Can I speak with two or three current clients of similar size and industry?
- Where is my employees' data stored, and how is it protected?
Contract and exit
- What is the term, and how does it renew? Is there an auto-renewal, and when must I give notice?
- What are each side's termination rights, and are there exit fees or transition support?
- Which state's law governs, and where are disputes resolved?
What to watch for
- A fee quoted without benefit and workers' compensation rates.
- Pressure to sign before you have seen the client service agreement.
- Refusal to put answers in writing.
Have an employment lawyer or accountant review the client service agreement. For background, read what a PEO does, and if you are leaving a PEO, how to switch PEOs. See also Texas PEO licensing and IRS CPEO certification.
Scoring the answers
When you have answers from two or three firms, put them side by side. For each topic (license, fees, benefits, workers' compensation, risk, service, contract), note whether the answer was complete, partial or missing, and whether it came in writing. Do not boil it down to one number. A firm with a slightly higher fee but a clean exit clause and clear tax responsibilities may suit you better, and a firm with a low fee but vague answers may not. The scoring is only to make sure you notice what is missing.
Reference calls
When you speak to a current client, ask what surprised them in the first year, how renewal went, how errors were handled, and whether they would sign again. Ask about the last time something went wrong and how long it took to fix. Ask a client who has left the PEO if you can find one, since they can tell you what the exit was like.
Red flags and good signs
Items to notice, none of them proof of anything on their own: a fee quoted without benefit or workers' compensation rates; pressure to sign before you have seen the client service agreement; refusal to put answers in writing; and an unwillingness to name current clients. Good signs include a clear written breakdown of every charge, a sample client service agreement you can take to your lawyer, a named service contact and a straightforward description of the exit process. Neither list replaces reading the contract.
Finally, set a decision date and tell every firm what it is. A deadline keeps proposals comparable and stops one firm from setting the pace.
General information only, current as of the date above. The information on Texas PEO Finder is not a recommendation or a guarantee of anyone's work. A license record shows registration status on the date shown, not workmanship, insurance coverage at the time of your job, or suitability for your project. Confirm license, insurance and permits directly before you hire. Rules and programs change; check the official sources linked in this guide.