What is a PEO agreement?

By the HRPricing editorial teamReviewed October 18, 2026How we research and score

A PEO agreement, often called a client service agreement (CSA), is the contract that sets up co-employment between your business and a professional employer organization: which employer duties the PEO takes on, which stay with you, what you pay and how either side can end it. Read the exit terms first. None of the PEOs in our research publish full exit terms, and Deel's US PEO promotion requires a two-year minimum term.

A PEO agreement is the client service agreement between a business and a professional employer organization that allocates employer responsibilities under co-employment and sets fees, term and termination rules.

On this page

What a PEO agreement covers
What it costs: a 15-employee example
The tax rules behind the contract
Exit terms buyers run into

What a PEO agreement covers

Clauses to read in a client service agreement
Clause	What it settles	What to check
Allocation of duties	Who handles payroll, tax filing, benefits, workers comp, hiring and firing	Duties that stay with you, such as safety and supervision
Fees	Per employee per month or percent of payroll	Whether admin fees sit inside workers comp or benefit lines
Benefits	Plans offered and renewal timing	How renewal increases are passed on
Term and renewal	Monthly, annual or multi-year	Auto-renewal and notice window
Termination	Notice method and fees	Early termination and transition fees
Records	Payroll, tax and benefit records after exit	W-2 and 941 access, 401(k) plan transfer
Minimum headcount	Smallest team accepted	What happens if you drop below it

Based on published PEO terms and buyer complaints in our research, Oct 2026.

What it costs: a 15-employee example

Justworks, Deel and Remote are the only PEOs in our research that publish US PEO prices (checked October 16, 2026):

PEO Basic: $79 x 15 = $1,185 a month, or $14,220 a year.
PEO Plus: $124 x 15 = $1,860 a month, or $22,320 a year.
Remote US PEO: from $99 x 15 = $1,485 a month.
Deel US PEO: $125 x 15 = $1,875 a month. Its promotional order forms (signed July 15 to December 31, 2026) credit three months of platform fees but require a two-year minimum term: $1,875 x 24 = $45,000 at list price, with full list price owed if you leave early.

Health premiums, workers comp and state unemployment tax come on top. TriNet, Insperity and ADP TotalSource quote only; a third-party range is $40 to $160 per employee a month or 2% to 12% of payroll (Fit Small Business, October 2026). See what a PEO costs per employee and the PEO rankings.

The tax rules behind the contract

If the PEO is IRS certified, the agreement is a CPEO contract. Under 26 USC 7705(e)(2), the CPEO pays wages and employment taxes, shares responsibility for recruiting, hiring and firing with you, and keeps employee records. Under section 3511, for wages it pays, the CPEO is treated as the employer for federal employment taxes, and the Social Security and FUTA wage bases do not restart when you join or leave mid-year. At least 85% of the people at the work site must be covered by CPEO contracts. Check names on our IRS-certified PEO list and read what certified PEO means.

Exit terms buyers run into

Notice: a Gusto guide (secondary source) says Paychex PEO requires written notice by mail or carrier with proof of delivery, plus a transition fee and an early termination fee based on headcount and days left.
Renewals: ADP TotalSource reviewers on Capterra reported renewal increases of 8% in 2025 and 18% in their second year (reviews from April 2025 and May 2024, more than a year old).
Fees in other lines: a Capterra reviewer said ADP TotalSource admin fees were hidden in workers comp rates (October 2024, more than a year old), and an October 2026 Trustpilot review describes ADP bundling fees into its admin and workers' comp charges.
Leaving: plan the 401(k) transfer and health coverage before the end date; see Justworks alternatives and our TriNet review.

For the difference between this contract and an ASO agreement, where you stay the only employer, see PEO vs ASO.

Frequently asked questions

What is a PEO agreement?

A PEO agreement is the client service agreement that creates co-employment between a business and a professional employer organization. It sets which employer duties each side handles, the fees, the term and the termination rules.

What is a client service agreement?

Client service agreement (CSA) is the name most PEOs use for their contract with a business. It covers allocation of employer duties, fees, benefits, workers comp, term, termination and records.

Is there a minimum term in a PEO agreement?

It depends on the PEO. Justworks bills monthly, TriNet says most contracts have flexible terms, and Deel's US PEO promotion requires a two-year minimum term with full list price owed on early termination (checked Oct 16, 2026).

How do I cancel a PEO agreement?

Follow the notice clause exactly. Most PEOs do not publish exit terms; a Gusto guide says Paychex PEO requires written notice by mail with proof of delivery and charges transition and early termination fees.

Does a PEO agreement shift payroll tax liability?

Only with a certified PEO. Under 26 USC 3511 a CPEO is treated as the employer for federal employment taxes on wages it pays. Section 3511 applies only to certified PEOs, so a non-certified PEO's contract does not carry that federal treatment.

Sources (10)

Justworks: Justworks pricing page (checked Oct 16, 2026)
Deel: Deel pricing page (checked Oct 16, 2026)
TriNet: TriNet PEO pricing page (checked Oct 16, 2026)
IRS: Certified professional employer organization (checked Oct 16, 2026)
IRS: Active CPEO list (report date 8/7/2026) (checked Oct 16, 2026)
Gusto (competitor guide, secondary): How to cancel Paychex (Aug 2, 2026) (checked Oct 16, 2026)
Capterra: ADP TotalSource reviews, page 4 (checked Oct 16, 2026)
Fit Small Business: Best PEO companies (third-party range, updated Oct 15, 2026) (checked Oct 16, 2026)
Remote: Remote pricing page (US PEO) (checked Oct 16, 2026)
Trustpilot: ADP reviews (Oct 1, 2026 review on fees bundled into admin and workers comp) (checked Oct 16, 2026)

This page is general information, not tax, legal or accounting advice. Rules and rates change, so check the official source linked above before you file or sign a contract. Read our disclaimer.