5 questions: Could in-house HR be cheaper than your PEO?

by Mike Gazzano

Perhaps your PEO has been working for your organization for some time, but its fees are getting more expensive and you’re starting to question its overall value.

Now may be a good time to examine whether an in-house HR department could fit your needs better at less expense. While PEOs have their advantages, handling your HR needs internally can result in economies of scale, improved company culture and a better sense of control over your HR functions and offerings. You may be better off migrating from your PEO, especially if your organization is expanding.

“For high-growth companies, it’s a critical question,” writes Jacob Schaaf on BusinessJournals.com. “For organizations with a large and growing payroll, and/or highly compensated employees, PEO fees can get very expensive. Likewise, 401(k) fees charged by PEOs can be higher than those sourced through a retirement services broker.”

Five questions to answer when considering such a switch:

  1. Are your PEO’s services customized to your company needs? If not, you may be wasting money on benefits that are unneeded or unwanted by your employees, while missing opportunities to boost loyalty through more relevant offerings.

  2. Could your current HR staff effectively manage the tasks now being handled by your PEO, and if not would additional staffing be cost-effective? What salaries and training would be necessary to secure the talent you need? Compare projected costs with the outsourced HR services, which typically cost 4 to 8% of each employee’s pretax salary, according to buyers guide PriceItHere.com.

  3. Would bringing all your HR in-house require a significant investment in technology to keep your processes secure, efficient and aligned with your competitors? Could certain IT investments replace the need for human intervention? “There are many ways to put your business on autopilot without outsourcing,” notes Thomas Smale on Entrepreneur.com. “With these tools, there is always an upfront cost and time investment, but automation, or semi-automation, can free up a great deal of time and save you from having to hire experts in every department.”

  4. Could your best solution be a combination of in-house and PEO services? You may wish to retain a PEO to manage functions with strict (and frequently changing) regulatory elements such as drug testing, unemployment benefits, worker’s compensation and the Family and Medical Leave Act. In other cases, organizations hire PEOs just to handle their payroll or recruiting and hiring. “Determine how much control you want to relinquish and how scalable you want your HR outsourcing to be,” advises the PriceItHere article.

  5. When comparing in-house costs versus PEO costs, are you comparing apples to apples? Your PEO may be more valuable than you realize if it’s handling functions ranging from benefits administration to risk management, payroll, recruiting, staff and safety training, claims management and workers compensation. On the other hand, it may be overcharging for services that could easily be handled in-house.


The greatest resource at any company is its people. And because a migration away from a PEO involves so many elements that could affect your staff, it’s wise to seek professional advice from a Human Capital Management expert & seasoned broker for a thorough evaluation of all the pros and cons. Call Mike Gazzano, a partner with Lockton Companies, to learn more about viable, cost-effective alternatives to your current PEO.

Breaking down PEO complexities to keep you in-the-know and up-to-speed on key PEO issues (employee insurance and benefits, news & current events, and more) and arming you with strategic solutions to your PEO problems.

Get tips for crafting your PEO exit strategy today!

Want to learn more about the prep work needed to exit your PEO?

Download our guide that outlines the 11 things you need to know in order to craft a friction-free PEO exit strategy. You'll learn about the key factors that impact the timing and process you should expect when taking the first steps.

Click below to download:

Download ebook
Smoothing the Way: 11 Tips for a Friction­-Free PEO Exit Strategy