What is the Average Cost of a PEO?

How does PEO pricing work?

Your company's needs are unique, which is why PEO pricing is tailored to work the way you work. For example, if you have an existing HR department, your team may simply need supplemental support with HR administrative tasks. But if you’re struggling to manage all HR tasks on your own, you’ll need comprehensive solutions, including payroll processing, benefits administration, compliance, risk management, employee support, and assistance with policies and procedures. Your PEO pricing model considers all your needs to ensure you get the correct value for your investment.

The cost of a PEO can also vary depending on the size of your business, your location, services needed, and your industry. But for the most part, PEOs typically charge for their services in one of two ways:

• As a percentage of total payroll (typically between 3-8 percent)
• As a flat per-employee-per-year (PEPY) fee.

In both cases, the exact price or rate will often depend on the services the PEO provides to your company.

As you weigh the costs of partnering with a PEO, it's important to consider the benefits they provide. PEOs can help you streamline processes, reduce administrative burdens, secure Fortune 500-level benefits for your team, and give you more time to focus on growing your business. It's an investment that pays off in efficiency, happier employees, and, ultimately, business success.

What is the average cost of a PEO?

As noted above, the cost of a PEO varies based on factors such as company size, service, scope, and location. Managing HR and administrative functions in-house costs an average of about $2,000 per employee annually. Outsourcing to a PEO can substantially reduce this rate creating an average PEO cost per employee of $1,395 annually, according to research from the National Association of Professional Employer Organizations (NAPEO).

Think of it this way: when you partner with a PEO, you get access to comprehensive HR services and support, affordable, Fortune 500-level employee benefits, integrated technology, and a full team of HR experts – for about the cost of one full-time employee.

What fees are associated with PEO costs?

When you decide to outsource some or all of your HR functions, it’s important to review and understand the fee structure of the PEOs you're considering. PEO costs and fees will vary, but common fees include:

• Administration Fee: PEOs charge this standard fee for overseeing HR tasks like payroll processing, benefits administration, and compliance.
• Implementation Fee: PEOs often charge a one-time onboarding fee, which covers services such as initial consultations, payroll and tax setup, employee orientation, and technology training.
• Optional Services Fees: Several PEOs offer additional HR-related services that are not included as part of their standard services, such as recruiting or accounting services. Fees for optional services will be outlined in your contract.

Do PEOs save money?

When evaluating the option of a PEO for your small business, it's important to weigh the average fees against the potential cost savings of working with a PEO. While there is an upfront investment, the long-term benefits (often leading to significant cost savings) can offset the cost of a PEO in several ways, including:

• Reduced HR costs: PEOs handle a large portion of HR tasks, including (but not limited to) payroll processing, benefits administration, and compliance assistance, eliminating the need to hire a dedicated HR professional or team.
• Improved efficiency: Partnering with a PEO means you streamline HR processes, freeing up your time and resources to focus on core business activities. This increased efficiency can translate to higher productivity, overall business growth, and ultimately more revenue.
• Reduced administrative burden: Managing payroll taxes, benefits administration, recruiting efforts, regulatory compliance, and much more can be a significant drain on your time. PEOs manage these complexities, allowing you to unload administrative burdens and focus on your core business needs.
• Access to competitive benefits: By pooling together employees from all of their clients, PEOs can leverage their significant buying power to negotiate lower rates for health insurance, dental plans, and other employee benefits. These cost savings can offset any PEO fees, while also giving you the ability to attract and retain top talent by offering competitive benefits packages.
• Reduced risk of errors and penalties: At G&A, our compliance experts stay up to date on complex HR regulations, helping to ensure our clients stay compliant with workplace regulations. This kind of support from a PEO can help you avoid costly penalties resulting from noncompliance with labor laws or inaccurate payroll tax filings.
• Improved employee satisfaction: Offering a wider range of attractive benefits and streamlining HR processes can lead to increased employee satisfaction and morale. This can translate to reduced employee turnover, which can be a significant cost saver for businesses.