How Much Does a PEO Cost?

Whether you’re expanding into a new territory or simply want to reduce your in-house administrative duties, a Professional Employer Organization (PEO) can help. These organizations specialize in providing benefits administration, tax filing, and payroll services. However, the price range can vary significantly based on the PEO provider, the services you sign up for, and similar factors.

At its heart, a PEO is an HR business that provides important services and support to other companies. A professional employer organization is considered a co-employer, so it takes on some of the duties and responsibilities of being an employer. However, it is not the Employer of Record (EOR), so your company still carries some of the employer obligations.

Businesses of all sizes and types turn to PEOs for the cost savings. Because an outside payroll and HR team is handling many of your administrative tasks, you don’t have to expand your in-house payroll function and HR department as you grow. This offers a heightened level of flexibility and scalability. If you run a small business, a PEO can also help you access better employee benefits at a lower cost.

How much does a PEO cost? More importantly, what type of services do you get for that cost? 

As a business, the amount you have to pay for PEO services can vary based on a few key factors. In general, employers who have more workers will pay more than companies that have smaller headcount. You’ll also pay more if you process a higher payroll amount or need extra services. 

Finally, your industry’s risk level can impact the amount you are charged by the PEO. PEO pricing often includes the cost of workers’ compensation. In riskier industries, such as construction, fishing, or trucking, the workers’ comp costs go up.

While each PEO provider is slightly different, there are three major pricing models that are used by PEOs. However, there may also be extra fees for add-on services, so carefully read through your PEO contract’s terms and conditions before you sign up. 

Typically, PEOs charge a percentage of payroll, a fee per employee, or a flat fee.

• Percentage of Payroll: With this PEO pricing structure, you are charged a percentage of the payroll amount processed. As the payroll volume goes up, the dollar amount charged also increases. If you pay higher salaries for your employees, you’ll end up spending more on the same headcount.
• Per Employee Per Month (PEPM) Model: In the PEPM pricing model, the PEO cost per month is based on how many employees you have. As you add workers, the total amount you have to pay goes up.
• Flat-Fee Structure: In this PEO pricing structure, the PEO charges a flat fee that doesn’t change in response to payroll or headcount. While this makes predicting future PEO costs easier for the employer, the rigid structure makes scaling harder.

The amount charged can vary significantly based on the PEO pricing structure, the size of your business, add-on services, and other factors. In one survey, the typical small business paid between $140 and $150 per employee each month. For premium services, the average PEO cost goes up to $200.

Depending on the PEO you work with, the following costs may be included in the final price or listed separately. Often, special services, like providing dental insurance or handling onboarding, may be charged separately as an add-on. 

The following are some of the most frequent expenses charged by PEO providers.

• HRIS Fees: If the PEO uses a specialized HRIS platform, you may be charged an HRIS fee.
• Setup and Implementation Costs: When you first start working with a PEO, they’ll often charge setup and implementation costs. These may include charges for data migration, compliance audits, configuring your tech stack with the PEO’s tech stack, and policy development.
• Employee-Related Costs: Besides your annual PEO costs, you may be charged ongoing fees for different employee services. For example, you may want the PEO to handle your employees’ health, dental, vision, or life insurance. There are also different types of workers’ comp insurance, state unemployment insurance, disability coverage, and employee assistance programs that the PEO can administrate for you.
• Onboarding Fees: Many PEOs offer support with your employee onboarding. For example, they may handle Form I-9 processing. The PEO often has an online employee portal where the worker can sign up for employee benefits, read through the employee handbook, complete legal employment documents, and finish their employee training.
• Contractual Costs: If you leave the PEO, you may be charged an early termination fee. Because of this, you should be cautious about carefully reading through your contract for any contractual costs or early termination fees before you sign the PEO contract.
• Miscellaneous Costs and Other Administrative Fees: Depending on the services you need, there may be other miscellaneous costs and administrative fees charged. 

If you are struggling to understand PEO fees and how your pricing structure is set up, reach out to the Employsome team of PEO experts today and we’ll help you sort it out. For free.

A typical PEO costs 2% to 12% of the total payroll amount processed each month. While this may seem higher than your in-house payroll processing costs, it’s important to avoid comparing apples to oranges. The PEO handles your legal compliance, FLSA audits, onboarding processes, HR costs, and HRIS software. Before you can compare how much you spend in-house versus the cost of a PEO, you need to carefully add up how much it would cost you to pay an employee or buy a software program to handle all of these tasks. 

There are a few instances when a PEO is a clearly better choice than handling payroll and HR in-house.

• Expansion Expectations: If you’re expanding rapidly into new territories, hiring team members and ensuring your payroll staff are fully trained may be cost-prohibitive. 
• Business Size: A small business doesn’t have the headcount to justify an entire payroll and HR department, making a PEO clearly a better choice for managing these services.
• Liability Risks: If you don’t have the in-house capacity to handle employment laws, workers’ compensation, and other liability issues, a PEO can help you mitigate your legal risks.
• Access to Benefits: Whether you’re a small or mid-sized business, a PEO can give you access to the type of benefits normally offered by large corporations.
• Payroll and HR Department Size: If your company is scaling fast, you likely don’t have a full payroll and HR department yet. A PEO can help you navigate this stage of growth as painlessly as possible.

From better compliance to easier expansion options, there are a few common reasons why businesses work with PEOs. For many small to mid-sized companies, a PEO provides a more efficient way to offer payroll and HR services. This is especially true as the company grows in size. Rather than focus on training and hiring new payroll staff, your growing organization can focus entirely on its core business.

More importantly, a PEO helps you manage risks. PEO providers have years of experience working with employment laws, so they can help you avoid common mistakes. Over time, this can result in fewer lawsuits and lower legal costs. 

A PEO offers an easy way to expand into other states and countries. Each area has different regulations, making expansion challenging for growing businesses. For example, Washington State has a paid leave law that requires nearly all employees and employers to contribute. In comparison, a state like Texas has no state-mandated paid leave program. To ensure payroll accuracy, timely tax payments, and top-notch benefits, you need to work with an experienced PEO.