November 2025

The PEO industry has a major trust problem—and after 18 years in this space, it’s been incredibly disappointing to watch unfold. I still believe—without hesitation—that the PEO model is the best way for most fast-growing startups to manage HR, benefits, and payroll. When roughly 75% of a company’s total spend is tied to its people, getting this part of the business right isn’t optional—it’s existential.

And yet here we are.

Many startup leaders will spend aggressively on salaries, but when it comes to HR infrastructure—the very thing that protects their people, reduces operational risk, and supports organizational health—they suddenly become “lean-startup purists.” It’s backwards. And into that backwards thinking, a new wave of PEOs has stepped in—PEOs built on SaaS platforms, chasing massive client-acquisition targets, and subsidizing medical premiums to “buy” business.

And that’s exactly where the industry has broken down.

These artificially low premiums have completely eroded trust.

For decades, partnering with a PEO meant freeing up founders to focus on what truly mattered—building product, finding customers, and scaling the business—while a trusted partner handled the complexity of HR, compliance, payroll, and benefits. It was built on operational efficiency and trusted support.

But today?

The buying experience often feels more like a shell game.

Most HR decision-makers end up evaluating PEOs almost entirely on service fees and medical premiums. And traditional PEOs have long been able to make this easy because many of them move the “profit shell” around—via workers’ comp margins, insurance commissions, payroll tax arbitrage, and numerous other revenue streams. They can showcase low service fees or attractive medical premiums while quietly making money elsewhere.

Now layer on the newcomers—PEOs built around tech platforms with minimal HR support—who intentionally underprice medical plans to win deals. They “buy” clients knowing they will make it up later. And their underwriting teams often struggle not just because they’re new, but because startups scale unpredictably, making it extremely difficult to accurately price medical risk when rapid client acquisition—not risk protection—is the priority. When a PEO buys business instead of safeguarding its pool, major losses can follow.

And here’s the reality:

While numbers do vary regionally, the cost of major care—cancer treatments, pregnancies, surgeries—is approximately the same across the United States.

There is no magical carrier that can make these claims materially cheaper.

The math always catches up.

This is why renewals this year have been so brutal.

I’ve seen 25%, 50%, even 65% increases. And while the broader insurance market has risen, these spikes are only partially market-driven. Yes, utilization plays a role, but utilization only becomes a crisis when the PEO never priced the risk correctly to begin with. These massive increases are the bill coming due for pricing that was artificially deflated to win the deal.

And once a startup is on a PEO, switching is painful. Payroll, HR systems, banks, carriers, doctors—every employee feels the disruption. Vendors know this. They bank on it. And they structure their business growth strategy around it.

I’ve personally supported over 650 PEO clients in my career, and if there’s one thing I’ve learned, it’s this:

Your PEO works directly with your employees and is an extension of your internal team. They act on your behalf and should represent your values in every interaction. This is why partnership and trust must be at the center of any PEO engagement.

If a PEO undercuts everyone else simply to buy your business…

If they manipulate first-year pricing knowing they’ll recoup it later…

If they profit at your expense through hidden levers…

That is not a partnership.

And it shouldn’t be treated like one.

As someone who represents a PEO that does not manipulate first-year pricing, I lose deals—many deals—to vendors who heavily discount rates through diluted products, restricted networks, or quiet revenue streams. But manipulating pricing just to win the deal isn’t good for the client, for the industry, or for long-term trust.

This is how mistrust spreads.

This is how the industry fails its customers.

And this is why leaders must rethink what they’re actually solving for.

The real question facing PEO buyers today is whether they’re selecting partners for short-term price advantages or for long-term business support. Many may not even recognize they are, in effect, buying for the short term when they chase artificially low premiums or subsidized first-year pricing. And while medical pricing absolutely matters—cost containment will always matter—the PEO industry is, at its core, a service industry, and this service is critical to the success of a startup and the livelihood—and health—of every employee who depends on it.

Administrative service fees exist for a reason: the value comes from the humans supporting your humans. Leave administration, employee guidance, compliance oversight, payroll accuracy, and day-to-day HR administration simply cannot be delivered by a tech platform alone. This is why working with a PEO you trust—one that focuses on long-term partnership instead of short-term wins—is essential for any organization that depends on stable, reliable support for its people. The industry must take a hard look in the mirror.

We need to solve for this trust problem, because today, many HR buyers have no real way of knowing whether their PEO is being fully truthful or putting their needs first. Until this changes, the cycle of mistrust will continue—and both startups and their employees will pay the price.

DISCLAIMER

The opinions in this newsletter are solely my own and don't represent any affiliated organization's views. Information is provided for general purposes only without warranties regarding accuracy or completeness.