Business owners frequently only look at the admin charge per employee when they compare providers. That’s a common error people make when choosing a PEO. Two PEOs could provide you with identical prices, but the things that come with them can be very different. Provide better health plans, improved workers’ compensation programs, and a dedicated HR team.
Another may only offer limited help and charge extra for services you thought were included. EY’s previous research found that payroll mistakes cost organizations an average of $291 per event in 2026. Those tiny mistakes compound quickly if a PEO’s systems are old or not very good. Things that seem cheap at first may end up costing a lot more in the long term.
A construction company that has a lot of workers’ compensation claims demands is significantly different from a computer startup that works remotely and does business in five states. Hiring people from more than one state has grown harder because of changes to tax and wage legislation. Some PEOs only work with certain types of businesses. Some are made for businesses with fewer than 20 workers. You need a partner who can grow with you if you want to go from 30 staff to 100 in the next two years.
When companies choose a PEO, one of the biggest mistakes they make is picking one based on what they need right now instead of what they will need in the future. Changing suppliers later can mean changes to payroll, benefits, and employees’ understanding.
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The wrong fit creates operational friction. The right one creates stability.
Your highest cost is probably payroll. But a lot of businesses don’t check a PEO’s technology before joining. Studies have revealed that companies that use standard payroll systems might make mistakes around 20% of the time. It takes time and money to fix those mistakes. It is thought that fixing payroll mistakes for a company with 1,000 employees costs more than $900,000 a year. Mistakes harm employee trust, even if your company is small. Almost half of workers said they would have a hard time making ends meet if their pay were late by only one week in 2026.
Not checking out the payroll platform is one of the worst mistakes you can make when choosing a PEO. Request a live demonstration. Look over how workers get their pay stubs, PTO balances, and benefits. Check to see if tax updates happen automatically. Check that the system cuts down on manual entry.
Look for things like automation, mobile accessibility, and intuitive design. In 2026, workers want self-service technology to work as well as the finest apps for consumers. If the platform of your PEO looks like it was made in 2010, look for a different PEO.
You don’t want to wait in a general call line when there is an urgent HR problem. Some PEOs have teams that work on their own. Some companies switch you between service reps. Most businesses don’t know how important that distinction is. If your employee has a problem with their benefits or you get a letter from a state agency, you need to respond quickly. Delays might lead to fines or unhappy workers.
Get to know the real people who will be in charge of your account. Find out how long it takes to get an answer. Find out how they deal with problems that get worse. Good customer service stops tiny problems from turning into big ones that cost a lot of money.
This is one of the less talked-about yet most serious blunders that PEOs make. PEO agreements may have conditions that automatically renew, set cancellation windows, require long-term commitments, or make service level assurances that aren’t explicit. If you miss one clause, you could be stuck in a relationship that doesn’t work for you anymore.
Most business owners don’t read contracts thoroughly because they are long, boring, and full of legalese. One of the worst things a firm can do when choosing a PEO is sign a PEO contract without fully comprehending the conditions.
Look over every detail carefully. Get your advisor or lawyer to look it over. Make sure the terms of termination and the fee structure are clear.
There are more than 500 PEOs in the US. It takes a lot of time to compare pricing models, benefits structures, compliance support, and service frameworks. If you try to compare everything on your own without benchmarks, you might not get the full picture. This makes it more likely that you’ll choose the wrong PEO because you might not know what questions to ask.
One of the best ways to choose a PEO in 2026 is to engage with expert advisors who know how pricing works and can help you compare your options. Even if you do the evaluation yourself, be sure you have a structured way to compare things. Don’t make decisions based on feelings or set deadlines too quickly.
The right PEO should:
The margin for error is lower than ever in 2026, when healthcare costs, changes to labor laws, and complicated payrolls are all on the rise. Making the proper choice today will save you time, money, and your employees.
OEM America has helped businesses in Connecticut avoid costly mistakes when choosing a PEO and make decisions that really add value for more than 25 years. We are a Better Business Bureau-accredited business and a member of the National Association of Professional Employer Organizations (NAPEO). We offer honest advice, local knowledge, and service you can count on.
If you’re looking at PEOs and want to avoid making costly mistakes, let’s talk. We offer a free consultation and up to four hours of support, which includes a personalized cost study and a plan to help you save up to $1,000 per employee (terms apply).
The risks of choosing the wrong PEO include higher long term costs, payroll errors, compliance penalties, poor employee experience, and difficulty scaling as your company grows.
To understand how to choose a PEO in 2026, evaluate the total cost of employment, technology platform quality, compliance expertise, scalability, customer service model, and contract flexibility.
Switching can involve payroll transitions, benefits enrollment changes, and employee communication challenges. That is why avoiding common PEO selection mistakes upfront is important.
Pay close attention to auto-renewal clauses that automatically extend your commitment unless you give 60 to 90 days' notice, narrow termination windows that only allow cancellation at certain times, vague service level descriptions that let the PEO underdeliver without breaking the contract, fee increase provisions that let rates go up a lot with little notice, long initial commitment periods that lock you in for multiple years, and termination penalties that make leaving expensive even if the service is bad.