Why It’s Important to Understand (and Negotiate) the Terms of your PEO Contract

We have a current client that used our PEO Comparison Service and found a new PEO that offered better service, a better payroll platform and saved them nearly $60,000 a year. Sounds great, right? Everything was going smoothly until they notified their current PEO that they were going to leave…. That is when they learned that they had signed a two-year contract with a very high penalty for early termination.

Never lock yourself into a long-term contract

This is not something we ever allow our clients to do. A PEO contract should always have a 30-day out, and it is something just about every credible PEO will do. Let the PEO keep your business because they deserve it, not because they have you handcuffed to strict terms. In this case the client really wanted out because the PEO was not meeting the company's needs. Payroll was late and there were multiple errors, plus the company was not satisfactory answers to basic questions.

They were going to charge them what???

When the client wrote the standard termination letter to their PEO with 30 days advance notice, they were told there would be daily service fees for each employee for the two-year period. This amounted to a $200,000 fee! The client, having signed under pressure and in the midst of covid, was not privy to these terms. As a result, they needed to pause implementation with their new PEO (this company has close to 200 employees, so implementation timelines were crucial), pursue legal options and continue to stumble along with a clunky payroll system and subpar service until there was a resolution.

The moral of this story about PEO Contracts…

Always review the terms of your contract. And if you are a current client looking for a reduction in costs, make sure your new contract does not lock you into an 18- or 24-month term. If you use PEO Spectrum’s services, we will always make sure your contract includes a 30-day out with notice.