5 Employee Benefit Pain Points SMBs Are Struggling With

Quick look: With a new year comes renewed focus on retention, recruitment, and cost control. This blog breaks down five of the biggest employee benefit pain points small and midsized businesses (SMBs) are facing, and explains how brokers can help clients build a more competitive benefits strategy with a professional employer organization (PEO).

As a new year begins, many small and midsize businesses (SMBs) are taking a closer look at their employee benefits strategies. In conversations with SMB prospects, a consistent theme is emerging: benefits remain one of the most powerful tools for attracting and retaining talent, yet they’re also among one of the most difficult areas to manage. Rising costs, limited plan options, and growing employee expectations are creating new pressures for internal teams.

For brokers, this moment represents both a challenge and a clear opportunity. The benefit-related pain points prospects are voicing today signal a need for more than transactional support. By understanding the most common challenges and how a professional employer organization (PEO) partner can help address them, brokers can position themselves as strategic advisors who bring long-term value, not just annual renewals.

Addressing these issues early in the year is a proactive step that allows clients to reset, refocus, and strengthen their benefits packages for the months ahead. Below are five of the most common employee benefit pain points we’re hearing from SMB prospects today, along with insights into how a PEO can help brokers deliver additional HR solutions.

Pain point #1: Rising healthcare costs

Healthcare premiums continue to rise year over year, and employees increasingly face higher deductibles, copays, and out-of-pocket expenses. Employers want to offer quality coverage but often feel stuck between escalating costs and employee dissatisfaction.

For SMBs, healthcare costs can quickly cut into already-tight margins. But when businesses are forced to pass more costs onto employees, morale and engagement suffer. SMBs may also struggle to compete with larger employers that can more easily absorb or offset rising prices.

How a PEO helps

A PEO enables small businesses to gain access to large-group health plans by pooling employees across multiple companies. This buying power often results in more competitive rates and a wider range of plan options than what SMBs could secure on their own. Additionally, some PEOs feature flexible plan designs, helping employers manage expenses while meeting diverse workforce needs.

Pain point #2: Limited access to quality benefits

Many small businesses may believe they can’t deliver the same caliber of benefits as larger organizations. Medical coverage alone isn’t enough anymore, but expanding benefit offerings can be expensive and feel overwhelming.

In a competitive labor market, limited benefits make it harder to recruit and retain top talent. Employees increasingly expect comprehensive benefits that support their physical and mental health, financial wellness, and work-life balance.

How a PEO helps

When you connect clients with a PEO, they can build Fortune 500-level benefits packages, including medical, dental, vision, retirement plans, wellness programs, and various voluntary benefits. Many PEOs also provide supplemental perks such as student loan repayment programs and family-forming support, plans that today’s employees greatly value.

PEOs also simplify enrollment and administration, reducing strain on internal human resources (HR) teams and improving the employee experience. Highlighting these expanded options positions brokers as professionals who bring big-business solutions to small-business clients.

Pain point #3: Administrative burden and compliance

From open enrollment deadlines to COBRA administration, ACA reporting, and ever-changing regulations, benefits administration has become increasingly complex.

Hefty administrative workloads can pull business owners and HR staff away from core operations, while manual processes increase the risk of errors, missed deadlines, and penalties.

How a PEO helps

A PEO’s benefits experts take on clients’ benefits administration, including filings, reporting, and compliance oversight at the local, state, and federal levels. SMBs receive a dedicated HR and payroll team that can answer questions, resolve issues, and stay ahead of regulatory changes.

Starting the year by helping clients reduce risk and reclaim reinforces your role as a trusted advisor.

Pain point #4: Employee confusion and low engagement

Only about half of employees feel completely or very educated about their benefits. As a result, valuable offerings go underutilized.

Low engagement leads to wasted benefits dollars and missed opportunities to improve employee satisfaction. When employees don’t understand their benefits, they’re more likely to feel disconnected from their employer and undervalue the total compensation package.

How a PEO helps

PEOs typically provide user-friendly tech platforms that make enrollment and benefits education easier, as well as onboarding and ongoing communication to help staff make informed decisions throughout the year. Additionally, some PEOs, like ExtensisHR, have dedicated employee support teams that serve as a direct resource for benefits questions.

These solutions shift conversations from “what we offer” to “how your employees will actually experience their benefits,” reinforcing a broker’s long-term value.

Pain point #5: Difficulty offering competitive retirement plans

SMBs want to help employees build long-term financial security, but sometimes struggle to match the 401(k) options of larger employers. However, without competitive retirement options, smaller companies risk losing talent to organizations with stronger plans.

How a PEO helps

PEOs provide access to high-quality, cost-effective retirement plans with simplified administration and built-in compliance support. Employee education and enrollment assistance further increase participation and perceived value.

Retirement planning is an ideal early-year discussion that can align employees’ personal financial resolutions with clients’ retention strategies.

Turning obstacles into opportunities with a PEO

Rising costs, limited options, administrative burden, and low engagement remain top concerns for small businesses. But these pain points are also chances to demonstrate value, especially at the start of a new year.

By positioning PEO partners as a solution that simplifies benefits, reduces risk, and enhances employee satisfaction, brokers can deepen client relationships and differentiate their services. Encouraging clients to tackle these challenges as part of their New Year planning also sets the foundation for a more resilient, competitive workforce.

When brokers determine that a PEO is the right next step for a client, choosing the right partner matters. ExtensisHR stands out from big-box PEOs with its:

• Flexible enterprise-level benefits: Competitive, comprehensive benefits while maintaining flexibility to meet SMBs’ needs as they grow and change.
• Boutique-style service: Clients receive multiple layers of personalized service, from a dedicated Implementation Manager to an assigned Account Manager, HR Business Partner, and Payroll Specialist. Plus, worksite employees gain a support team that answers the phone in 15 seconds or less.
• Complimentary recruiting services: ExtensisHR’s recruiting experts help clients hire the right people fast, at no additional cost.
• Risk and compliance management: By proactively monitoring federal, state, and local legislation, ExtensisHR keeps clients protected and freed up to focus on growth.

As SMBs set priorities in the New Year, employee benefits remain a catalyst for growth, retention, and employee satisfaction. By addressing common pain points early and partnering with a PEO like ExtensisHR, brokers can help clients build momentum for the year ahead while reinforcing their role as strategic, trusted advisors.

If you’re exploring new ways to help clients start 2026 strong,  ExtensisHR is a partner you can rely on. Contact us today to learn more about a partnership.