8 Steps for PEO Performance Evaluation | Best PEO Evaluation Checklist


If you are using a PEO or are thinking about one, it’s easy to do it once and forget. A PEO arrangement isn’t “set it and forget it.” Your company evolves, legislation evolves, and the quality of service you receive from your partner will also change over time. That’s why having a formalized PEO review in place is necessary.

Only too frequently, business leaders revisit their PEO decision after something has gone awry, such as payroll mistakes, compliance issues, or increasing benefits costs. But routine check-ups can head those disasters off at the pass. With over 900 PEOs active in the U.S., competition is fierce, and not all providers stay current with best practices.

This step-by-step guide takes you through eight straightforward, actionable steps for measuring your PEO’s performance. You’ll know what metrics to monitor, what questions to ask, and how to determine whether or not your existing partner is still the best fit.

Why Evaluate a PEO (and When to Do It)

A PEO ought to save time, minimize risk, and enhance benefits and payroll accuracy. If it’s not doing those things or if your business has changed size, moved into new states, or introduced remote workers, you must know. Research by industry indicates that businesses utilizing PEOs have higher growth rates and employee retention compared to similar firms, making it worthwhile to measure your PEO’s contribution.

Do at least a yearly evaluation, and again following major events: a payroll mistake that impacts numerous employees, an increase in workers’ comp claims, or benefits renewal. And now for the steps.

Step 1 – Start with the PEO Agreement: Are They Meeting Contractual SLAs?

Pull your contract and any service-level agreement (SLA). Compare promised deliverables to reality:

  • Payroll accuracy and timely payroll: Are checks distributed when they are supposed to be? How many payroll exceptions were there this year?
  • Payroll tax filings: Were there any late tax filings or notices?
  • Benefits deliverables: Did open enrollment go smoothly? Were employees enrolled correctly?
  • Support response times: Are PEO’s stated helpdesk/HRBP response times being met?

Record any missed SLAs and request remediation plans and timelines from the PEO. Agreements tend to contain penalties or exit friction—catch them now.

Step 2 – Measure Operational KPIs

A solid PEO performance evaluation focuses on data. Track these KPIs for the review period (quarterly and annual):

  • Payroll error rate (% of payroll runs with mistakes)
  • Time to resolve HR tickets (average days or hours)
  • Benefits enrollment error rate
  • Workers’ comp claim frequency and claim cost trend
  • Turnover rate for employees on PEO-administered benefits vs. prior periods
  • Total HR admin hours saved (estimate how many internal hours the PEO eliminated)

If your metrics aren’t being tracked today, begin gathering them today. Request from the PEO the same metrics—quality providers will provide dashboards or exportable reports.

Step 3 – Check Financial Transparency and Billing

Complex or opaque billing is one of the top causes of dissatisfaction. For a rigorous peo analysis, request and review:

  • Itemized invoices for the review period (payroll, taxes, fees, pass-throughs)
  • Fee-change history (any mid-year increases?)
  • Workers’ comp and insurance charges detail
  • Any setup, termination, or transition fees

Compare apples to apples with your internal cost baseline: benefits spend, payrolling processing time, and HR headcount expense. If the PEO cannot demonstrate clear line items, make them do so before the next renewal.

Step 4 – Audit Compliance, Risk, and Claims Handling

Compliance is a central PEO promise. Confirm:

  • Were all federal and state payroll taxes filed and paid on time?
  • Any notices, penalties, or audits this year? Who dealt with them, and were costs allocated?
  • Workers’ comp claims: Did the PEO process claims promptly, manage reserve costs, and have return-to-work programs?
  • OSHA or workplace-safety interventions: Did the PEO provide documented safety programs and training?

If you have operations in more than one state, confirm multi-state payroll processing and nexus assistance. A PEO should decrease, not increase, exposure.

Step 5 – Evaluate Benefits, Quality, and Employee Experience

One of the biggest reasons companies use a PEO is the benefits. Ask:

  • Are benefit plans competitive in your local labor market?
  • Did the PEO deliver better participation, lower premiums, or improved plan designs?
  • Employee feedback: Are people satisfied with benefits enrollment, claims, and HR support?
  • Does the PEO offer easy-to-use portals and mobile access?

Gather employee survey answers related to payroll, benefits, and HR assistance. A good employee experience is a direct ROI driver: happier employees remain, reducing turnover expense.

Step 6 – Test the Technology and Integrations

Your PEO should make daily work easier, not create extra steps. In your PEO evaluation:

  • Test the HRIS/employee portal for speed, reporting, and accuracy.
  • Verify integrations with your accounting, time-tracking, or ERP systems. Are data transfers clean?
  • Check security certifications (SOC 1 Type II, SOC 2, encryption, MFA).
  • Ask about roadmap: what product improvements or automation features are planned?

If your PEO’s tech is clunky, the cost in wasted time quickly outweighs the fee savings.

Step 7 – Get Qualitative Feedback: Your Leaders and Your Employees

Numbers tell one story; people tell another. Gather:

  • HR leadership feedback: Did the PEO release strategic time? How frequently do you speak to an assigned HRBP?
  • Supervisor feedback: Are managers receiving prompt, accurate assistance with hiring, terminations, and performance matters?
  • Employee feedback: Employ a short, anonymous survey of payroll accuracy, benefits clarity, and responsiveness.

Look for patterns. If managers complain of delayed HR case resolution and employees complain about payroll errors, that’s a red flag that requires escalation immediately.

Step 8 – Benchmark and Consider Alternatives

After collecting data, benchmark your PEO’s performance against peers and market expectations. Ask for:

  • Comparable client references in your industry and state
  • Case studies showing similar-sized clients and outcomes
  • A straight-up comparison: what would it cost to bring HR back in-house vs. switching to another PEO?

Industry studies indicate PEO clients tend to expand at a higher rate and have a lower rate of failure compared to similar companies, but results depend on the provider, so benchmarking is crucial.

If you’re not performing well, request a remediation plan with deliverables. If the plan is inadequate or trust is lost, initiate an RFP based on the best PEO assessment checklist you currently have.

Quick Checklist: What to Ask Your PEO Right Away

  1. Provide itemized invoices for the last 12 months.
  2. Deliver payroll error and ticket-resolution metrics for the last 12 months.
  3. Share benefits renewals, carrier changes, and claim-trend reports.
  4. Give recent workers’ comp loss-run data and remediation actions.
  5. Produce sample SLA reports and your account’s compliance audit history.
  6. Provide three client references similar in size and industry to you.

Use those deliverables to validate the PEO’s verbal claims.

Red Flags That Should Trigger Immediate Escalation

  • Repeated payroll errors are affecting multiple employees.
  • Surprise mid-year fee increases without prior notice.
  • Lack of or evasive answers on who is responsible for tax filings and penalties.
  • No dedicated account team (or high turnover in your account team).
  • Poor or no data exports—if you can’t export your own employee and payroll data easily, exit risk grows.

Maximize Your PEO Partnership: Connect with OEM America Today

Your PEO performance review should always lead you back to one question: Is your partner enabling you to meet business objectives—such as quicker hiring, better benefits, reduced HR administrative burden, and reduced compliance risk? If the response is no, it’s time to insist on improvements or consider an alternative.

The most powerful companies don’t treat PEO assessment as an isolated activity. They have ongoing check-ins, measure value through data, and engage with partners who also mature along with their changing needs.

At OEM America, a NAPEO Member and a BBB Accredited Business, we assist companies to save money, mitigate risk, and drive growth. Schedule a consultation with an expert today—up to 4 hours of free assistance, a personalized study that can save you $1,000 per employee, and a clear plan to recapture your time. Call 860.528.5555 or complete our contact form to begin.

FAQs

Q: How often should I conduct a PEO evaluation?
A: At minimum once a year, and after major events like payroll failures, benefits renewals, or multi-state expansion.

Q: What are the most important KPIs in a PEO performance evaluation?
A: Payroll error rate, accuracy in paying payroll taxes, ticket resolution time, frequency and cost of workers’ compensation claims, benefits enrollment error rate, and turnover.

Q: What documentation should I request from my PEO during an evaluation?
A: Itemized bills, payroll and tax filing confirmations, workers’ compensation loss runs, SLA reports, and example reports/dashboards.

Q: Will switching PEOs mid-year cause payroll tax problems?

A: It may, based on your provider and if they are a certified PEO (CPEO). Plan payroll tax transitions with tax specialists and demand a clean data handoff.

Q: What technology features should I expect from a modern PEO?
A: Advanced PEO platforms today need to provide mobile-first design, employee self-service portals, real-time analytics, API integrations, and compliance monitoring automation. If your PEO technology is antiquated, it likely is.


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