How to Read a PEO Service Agreement Like a Lawyer

A Client Service Agreement is the contract behind the co-employment relationship. Most of the document is boilerplate. A handful of clauses define your real economics and exit options. Those are the ones to read carefully.

1. The fee schedule (usually an exhibit)

This is where pricing actually lives. Verify that every line you discussed in the proposal appears here, including renewal escalators, pass-through fees, and per-event charges (W-2 reissues, off-cycle payrolls, garnishment processing).

2. Plan change rights

Look for language that lets the PEO change benefit plans, carriers, or contribution structures with limited notice. 60 days' notice is reasonable; "from time to time at PEO's sole discretion" is not.

3. Termination terms

Three numbers matter: notice period (typically 30–60 days), effective date rules (end of pay period vs. end of month), and any mid-term penalty schedule. Confirm that termination triggers a clean transition of payroll history and unemployment account.

4. Indemnity and limitation of liability

Mutual indemnity is standard. One-sided indemnity (you indemnify the PEO for almost everything; they indemnify you for almost nothing) is negotiable. Limitation of liability capped at fees paid in the prior 12 months is common but worth pushing on for material breach scenarios.

5. Governing law and dispute resolution

Mandatory arbitration in a distant state is a quiet cost. You can usually negotiate venue or at least carve out injunctive relief.

The four sentences that matter most

If you read nothing else, find the sentences that define: (1) renewal fee escalation, (2) plan change notice, (3) termination notice and penalty, and (4) indemnity scope. Those four sentences set the tone of years two and three.