PEO pricing can be confusing. Different providers use different models, quote different rates, and include different services. Understanding common pricing structures and what’s included helps you compare proposals accurately and budget appropriately.
Three Main Pricing Models
1. Percentage of Gross Payroll
The most traditional model charges 3-12% of your total gross payroll.
How it works: If your annual payroll is $1 million and the PEO charges 8%, your cost is $80,000 per year.
Advantages:
- Scales automatically with your business
- Simple to calculate
- No surprises when adding employees
Disadvantages:
- Costs increase even if services don’t
- Higher-paid employees cost more to service (even though administrative work is the same)
- Can be expensive for businesses with high salaries
Typical range: 3-12% depending on company size, industry, and services
2. Per-Employee-Per-Month (PEPM)
Charges a flat fee per employee per month, regardless of salary.
How it works: If the PEO charges $150 PEPM and you have 25 employees, you pay $3,750 monthly or $45,000 annually.
Advantages:
- Predictable budgeting
- Fair pricing regardless of salary levels
- Easy to calculate as you hire
Disadvantages:
- Can be expensive for very small teams
- Doesn’t account for complexity differences between employees
- Some PEOs charge different rates for different employee types
Typical range: $80-$300 PEPM depending on services, company size, and included benefits
3. Hybrid or Unbundled
Some PEOs charge separate fees for different service components.
How it works:
- Base administrative fee: $50-$100 PEPM
- Benefits administration: $30-$50 PEPM
- Workers’ comp: Based on payroll and classification
- Additional services: À la carte pricing
Advantages:
- Pay only for services you need
- Transparency about cost components
- Can eliminate unused services
Disadvantages:
- Complex to compare
- Hidden fees more common
- Can end up more expensive than bundled pricing
- Requires careful tracking of what’s included
What’s Typically Included?
Core Services (Usually Included):
- Payroll processing and tax filing
- Benefits administration
- Workers’ compensation insurance
- Basic HR support and guidance
- Employee onboarding
- Compliance assistance
- Access to HRIS platform
Often Included:
- Time and attendance system
- Employee handbooks
- Job description templates
- New hire reporting
- Basic reporting and analytics
Sometimes Included (Or Extra Cost):
- 401(k) administration
- Recruiting and applicant tracking
- Learning management system
- Advanced analytics
- Dedicated HR consultant
- On-site support
Usually Extra:
- Benefits (actual insurance premiums)
- Implementation/setup fees
- Specialized training programs
- Legal services
- International employment services
Understanding Benefits Costs
Benefits are almost always separate from PEO administrative fees.
How Benefits Pricing Works:
- You select health plans, dental, vision, etc.
- Employees choose coverage during enrollment
- You pay actual insurance premiums (employer portion)
- Employees pay their portion through payroll deductions
PEO Benefit Advantage: Even though you pay actual premiums, they’re typically 20-40% lower than you’d pay independently due to the PEO’s purchasing power.
Watch For: Some PEOs mark up benefits costs beyond actual premiums. Ask for transparency about actual carrier costs versus what you’re charged.
Hidden Fees to Watch For
Implementation/Setup Fees: $500-$5,000 one-time charge to onboard your company. Some PEOs waive this; others don’t. Always ask.
Technology Fees: Some PEOs charge separate fees for HRIS platform access that should be included. Question any technology surcharges.
Per-Check Fees: A few PEOs charge $1-$3 per paycheck processed. With weekly or bi-weekly payroll, this adds up.
Employee Changes: Some PEOs charge fees for adding/terminating employees mid-cycle. This should be included in your base rate.
Report Fees: Occasional PEOs charge for custom reports, data exports, or specialized analytics. Standard reporting should be free.
Compliance Updates: Your PEO fee should cover staying current with regulations. Beware “compliance update fees” or “regulatory adjustment charges.”
State Expansion Fees: If you hire in new states, some PEOs charge setup fees. Ask upfront about multi-state expansion costs.
Exit Fees: Some contracts include penalties for leaving before the term ends. Understand these terms before signing.
Comparing Proposals Accurately
When comparing PEO proposals, create an apples-to-apples comparison:
Step 1: Identify Total Annual Cost
- Administrative fees (PEPM or % of payroll)
- Implementation fees (one-time)
- Technology fees (if separate)
- Any other monthly/annual charges
Step 2: Compare Benefits Costs
- Request quotes for identical plan designs
- Compare carrier networks and quality
- Verify employer vs employee premium split
- Calculate total benefits costs (employer + employee portions)
Step 3: Calculate Workers’ Comp
- Get rates for your specific classifications
- Ensure apples-to-apples coverage comparisons
- Factor in any safety program benefits
Step 4: Add Everything Up
- Total administrative costs
- Total benefits costs
- Workers’ comp costs
- Any additional fees
Now you can compare total cost of ownership across PEOs.
Sample Cost Breakdown
25-employee company, $1.25M annual payroll:
PEO Option A (Percentage Model):
- Administrative fee (6% of payroll): $75,000/year
- Benefits: $125,000/year
- Workers’ comp: Included
- Setup fee: $2,000 (one-time)
- First-year total: $202,000
PEO Option B (PEPM Model):
- Administrative fee ($140 PEPM × 25 × 12): $42,000/year
- Benefits: $115,000/year (better rates)
- Workers’ comp: Included
- Setup fee: Waived
- First-year total: $157,000
Option B saves $45,000 in year one despite similar services.
Negotiation Opportunities
PEO pricing is often negotiable:
What’s negotiable:
- PEPM rate or percentage (especially for larger companies)
- Implementation fees (can often be waived)
Contract length (annual vs multi-year)
- Rate guarantee periods
- Specific service inclusions
What’s usually not negotiable:
- Actual benefits costs (insurance premiums)
- Workers’ comp rates (set by carriers)
- Core platform features
Negotiation leverage:
- Multiple competitive proposals
- Larger company size
- Multi-year commitment
- Strong claims history
- Low-risk industry
Red Flags in PEO Pricing
- Unwilling to provide complete cost breakdown
- Vague about what’s included
- Prices significantly lower than all competitors (probably hidden fees)
- Complex, confusing fee structures
- Reluctance to put pricing in writing
- Different prices quoted at different times
- Benefits markups not disclosed
Questions to Ask About Pricing
- What’s your total all-in cost for our company?
- What services are included in that price?
- What costs extra?
- Are there implementation or setup fees?
- How do you charge for benefits? Is there markup?
- What happens to pricing when we add employees?
- Do you charge for state expansion?
- What are the contract terms and exit provisions?
- How much will rates increase at renewal?
- Can you guarantee rates for multiple years?
Understanding ROI
Even “expensive” PEOs often provide positive ROI through:
- Benefits savings (20-40% reduction)
- Workers’ comp savings (30-50% reduction)
- Eliminated HR staffing costs ($55K-$70K)
- Reduced compliance penalties
- Lower employee turnover
- Founder time savings
Calculate total value, not just PEO fees.
Making Your Decision
The lowest price isn’t always the best value. Consider:
- Total cost of ownership (not just administrative fees)
- Service quality and responsiveness
- Technology capabilities
- Benefits options and quality
- Your comfort with the provider
Better to pay slightly more for excellent service than save money with a PEO that creates problems.
Want help comparing PEO pricing and negotiating the best rates? Contact PEO Consulting Partners for a free consultation. We obtain competitive proposals, create accurate comparisons, and negotiate optimal pricing on your behalf—at no cost to you.