PEO Cost Per Employee: What You Actually Pay
How much does a PEO cost? $40 to $160 per employee per month, or 2% to 12% of payroll. Pricing breakdown, hidden fees, and PEO vs HR software.
PEO Cost Per Employee
What small businesses actually pay in 2026
When I started looking into professional employer organizations (PEOs) for my 12-person company, every provider told me the same thing: "Let us put together a custom quote." Three weeks and six sales calls later, I had quotes ranging from $87 to $172 per employee per month, with no clear explanation for why one PEO cost twice as much as another.
The pricing felt designed to confuse, so this guide shows what a PEO really costs and how to judge a quote.
After evaluating three PEOs and running the numbers against alternative setups, I learned that PEO pricing is not mysterious. It follows predictable patterns, includes costs that are often not disclosed upfront, and costs most small businesses significantly more than assembling an HR stack from standalone tools. PEOs benefit from opacity: without the typical price range, you cannot tell whether a quote is competitive.
The sections below cover the price bands per employee, the two main pricing models (per-employee and percentage-of-payroll), what major PEOs charge, the hidden fees, and how PEO costs compare with HR software. At FirstHR, we built an HR platform for small businesses specifically because the PEO model did not make economic sense for small teams that did not need co-employment or pooled benefits.
Average PEO Cost Per Employee
There is no current published average PEO cost per employee. What the market runs on instead is a band: about $40 to $160 per employee per month in administrative fees, or 2% to 12% of total payroll, according to market data from one large PEO's own cost guide (July 2026).
PEOs publish almost no prices. Providers do not file rates, and the same provider quotes different numbers to two companies of identical size.
The one industry average on record is dated. It comes from NAPEO, the National Association of Professional Employer Organizations, in a return-on-investment study (McBassi and Company, September 2019). The study puts the average PEO cost at $1,395 a year (about $116 a month) for each worksite employee, meaning each employee the PEO co-employs.
The $1,395 is PEO gross profit per worksite employee in 2018 survey data, not a quoted price. The same study reports average annual cost savings of $1,775 per employee and a 27.2% annual return counting cost savings alone. Read the study as the seller's case, and keep its age in mind.
| Metric | Low End | Mid-Range | High End |
|---|---|---|---|
| Monthly cost per employee (PEPM) | $40 | $100 | $160+ |
| Annual cost per employee | $480 | $1,200 | $1,920+ |
| Percentage of payroll | 2% | 5-7% | 12% |
| Annual cost for 10 employees | $4,800 | $12,000 | $19,200+ |
| Annual cost for 25 employees | $12,000 | $30,000 | $48,000+ |
| Annual cost for 50 employees | $24,000 | $60,000 | $96,000+ |
PEO Pricing Models Explained
PEOs use four pricing approaches built on two fee bases: a flat amount per employee and a share of payroll. You cannot compare quotes without knowing which one a provider uses, because a flat $100 per employee per month (PEPM) quote and a "6% of payroll" quote can represent very different annual costs at the same headcount.
The practical difference: for a 10-employee company with $600,000 total annual payroll ($60,000 average salary), a 6% of payroll model costs $36,000 per year ($300 PEPM equivalent). A $100 PEPM model costs $12,000 per year. The same 10 employees, but 3x the price. The percentage model penalizes companies with higher-paid employees.
What Major PEOs Actually Charge
Almost no PEO publishes pricing. Nearly all of them quote only after a sales call that collects your headcount, industry, location, and benefits needs. The table below drops the brand names and shows what each kind of provider puts on its own pricing page, checked in October 2026.
| Type of provider | Pricing Model | Rates Published | Published Price | Minimum Employees |
|---|---|---|---|---|
| PEO with published rates | Flat PEPM, two tiers | Yes | $79 and $124 PEPM, no base fee | 2 people, one may be an unpaid owner |
| Global HR platform with a US PEO | Flat PEPM | Yes | $125 PEPM | Not on the pricing page |
| National PEO with a flat-fee model | Flat PEPM, never a share of payroll | No | None, only a worked example at $150 PEPM | Required, number not published |
| Other national PEOs, including those owned by payroll companies | Custom quote | No | None | Varies by provider |
| HR platform with a PEO add-on | Custom quote | No | None, only a quote form | Not on the pricing page |
The pricing opacity is deliberate. PEOs customize pricing based on your risk profile (industry, claims history, state), which makes direct comparison difficult without requesting multiple quotes, and the PEO sales process is built around that.
How to Read a PEO Quote and Compare Two of Them
A PEO invoice is not a price. It is your entire cost of employment run through one bill: gross wages, employer payroll taxes, workers compensation premium, benefits premiums, and somewhere inside it, the fee the PEO actually charges for its services. Two quotes are comparable only after you separate the money the PEO keeps from the money it passes through.
| Line item | Who sets the number | Negotiable? |
|---|---|---|
| Gross wages | You. This is your own payroll and belongs in neither quote. | N/A. Strip it out before comparing. |
| Employer FICA (6.2% Social Security up to the annual wage base, 1.45% Medicare with no cap) | Federal law. Identical at every PEO. | No. If one quote shows a higher FICA figure, the quotes are built on different payroll assumptions. |
| FUTA and state unemployment | Federal and state law (FUTA is the federal unemployment tax), but the rate applied depends on whose unemployment account the wages are reported under. | Rarely, but ask which account is used and at what rate. This is where quotes diverge most quietly. |
| Workers compensation premium | The PEO's carrier, based on your class codes (the industry risk categories that set your premium rate) and payroll. | Partly. Class code assignment is worth auditing; a misassigned code moves the number substantially. |
| Benefits premiums | The carrier, plus whatever the PEO adds before billing you. | The plan design is negotiable, the carrier rate is not, and the markup is negotiable only if you ask what it is. |
| Administrative fee | The PEO. This is the actual product you are buying. | Yes. This is the line to push on, and often the only one. |
The normalization exercise, which puts both quotes on the same footing, takes ten minutes and changes decisions. Take a 12-person company with $780,000 in annual payroll. PEO A quotes $149 per employee per month, described as all-inclusive: 12 employees times $149 times 12 months is $21,456 a year. PEO B quotes 4% of payroll, which is $31,200. A looks 31% cheaper.
The fine print changes the picture. B's 4% includes the workers compensation premium, while A bills it separately at 1.2% of payroll, or $9,360. A's real total is $30,816. The gap between the two quotes is not 31%. It is 1%.
Three questions force the comparison into the open. First: which of these line items are inside the quoted number and which are billed on top? Second: what is the administrative fee alone, in dollars per employee per month? Third: what does this quote assume about my payroll and headcount, and what happens to the price if either changes by 20%?
A PEO that will not answer the second question in writing is quoting a bundle you cannot audit, which is a fair reason to keep shopping.
Run both quotes and your current setup down the same column of line items before you compare anything. The worksheet below is the one I used, with the questions above on the second tab so the answers land next to the numbers they explain.
| A | B | C | D | E | F | G | |
|---|---|---|---|---|---|---|---|
| 1 | Line item | Quote A: in, on top, or not offered | Quote A annual | Quote B: in, on top, or not offered | Quote B annual | What we pay today | Notes |
| 2 | Gross wages | Strip out | Strip out | Your own payroll. It belongs in neither quote. | |||
| 3 | Employer FICA | Set by federal law and identical everywhere | |||||
| 4 | FUTA and state unemployment | Ask whose account the wages are reported under | |||||
| 5 | Workers compensation premium | Check the class codes assigned | |||||
| 6 | Benefits premiums | Plan design is negotiable, the carrier rate is not | |||||
| 7 | Benefits markup over the carrier rate | Invisible unless you ask for it in writing | |||||
| 8 | Administrative fee | The product you are actually buying | |||||
| 9 | Setup or implementation fee | One time, paid before anything starts | |||||
| 10 | Off-cycle payroll run fee | Per run | |||||
| 11 | Year-end reporting fee | Often per employee | |||||
| 12 | Registration fee per new state | Applies as you hire across state lines | |||||
| 13 | Continuation coverage administration | Charged per qualifying event, so it scales with turnover |
Hidden PEO Costs Most Quotes Do Not Include
Most quotes leave out the charges below. Apart from the renewal increase, no industry rate is published for them, so the dollar amounts come from your contract.
| Hidden Cost | How It Is Charged | When You Pay It |
|---|---|---|
| Setup / implementation fee | One time; some providers charge none | Upfront, before services begin |
| Benefits markup | A margin over the carrier rate, where the PEO adds one | Monthly, embedded in your benefits invoice |
| Workers comp audit adjustment | The gap between estimated and actual payroll, at your premium rate | Annually, after year-end payroll audit |
| Early termination fee | Whatever the contract sets for leaving early | When you leave before contract end |
| Off-cycle payroll fee | Per run, where charged | Each time you run payroll outside the regular schedule |
| Year-end reporting / W-2 fee | Per employee, where charged | Annually, at tax filing time |
| State registration fees | Per state, where charged | When adding employees in new states |
| COBRA administration fee | Per qualifying event, where charged | When employees leave |
| Benefits renewal increase | Average premiums rose about 6% for single and 7% for family coverage in 2025 (Medical Expenditure Panel Survey) | At plan renewal |
Two hidden costs hit small businesses hardest: benefits markup and workers comp audit adjustments. Where a PEO adds a benefits markup, it stays invisible, because the PEO presents "your" health insurance rate without disclosing how much it added on top of the insurer's rate.
Workers comp audit adjustments surprise employers at year-end when the PEO reconciles estimated payroll (used to calculate premiums at the start of the year) against actual payroll. If actual payroll was higher, you owe the difference.
Turnover drives a second set of charges most quotes never mention. Research reported by the Society for Human Resource Management (SHRM) puts up to 20% of employee turnover inside the first 45 days of employment.
An early departure costs more when the person leaving is already on the health plan. That exit is a qualifying event under federal law, and some PEOs bill a separate COBRA administration fee for each one on top of the regular monthly bill.
Ask for the complete fee schedule in writing before you sign.
What Affects PEO Pricing
Headcount, industry, and the benefits package move a PEO quote the most, and average salary joins them when the PEO charges a percentage of payroll.
| Factor | How It Affects Price | Impact |
|---|---|---|
| Number of employees | More employees = lower PEPM (volume discount). | High |
| Industry | High-risk industries (construction, manufacturing, healthcare) pay more due to workers comp and liability exposure. | High |
| Location (state) | States with higher workers comp rates, mandated benefits, or complex employment law cost more. | Medium-High |
| Benefits package | More comprehensive benefits (PPO vs high-deductible plans, dental, vision, 401(k) match) increase cost significantly. | High |
| Average employee salary | For percentage-of-payroll PEOs, higher salaries = higher costs regardless of headcount. | High (%-model only) |
| Claims history | Prior workers comp claims, unemployment claims, or health insurance claims raise your risk profile. | Medium |
| Contract length | Multi-year contracts may offer lower rates but include termination penalties. | Low-Medium |
| Services included | Bundled PEOs cost more; some offer modular pricing where you select only what you need. | Medium |
Most small businesses underestimate the benefits package. Employer-sponsored premiums at private-sector employers averaged $9,025 for single coverage and $26,281 for family coverage in 2025, according to the Medical Expenditure Panel Survey from the Agency for Healthcare Research and Quality. Plan design moves your total cost far more than the administrative fee you negotiate.
The Payroll Tax Mechanics Behind the Price
The largest one-time cost of a PEO relationship is usually not in the quote at all. It comes from the way employment taxes are attributed when your employees move onto the PEO's tax reporting and, later, off it. Whether that cost lands on you depends on one distinction most sales calls never raise: whether the PEO is certified by the IRS.
Certification also governs whether the annual wage bases restart mid-year. Social Security tax applies to wages only up to an annual base per employee, which the Social Security Administration sets at $192,300 for 2027 ($184,500 for 2026). Unemployment taxes stop at their own, lower wage bases, so both taxes fall away for high earners partway through the year.
Successor-employer treatment is what carries the year-to-date wages across. When employees move to a CPEO mid-year, the statute treats the CPEO as the successor employer and the customer as the predecessor, so nothing restarts. When the arrangement does not qualify, the clock can reset, and the 6.2% Social Security tax then resumes on wages that already cleared the base once.
Unemployment tax behaves the same way, with smaller numbers on the federal side and larger ones on the state side. The federal unemployment tax, FUTA, is 6.0% on the first $7,000 of wages per employee. A credit of up to 5.4% for timely state unemployment payments brings the usual net cost down to 0.6%, or about $42 per employee per year.
A restart of the federal base is therefore a rounding error. State unemployment is not: state taxable wage bases run from $7,000 in some states to $82,000 in Washington for 2027 ($78,200 for 2026), and the rate applied depends on whose account the wages are reported under.
Ask directly whether your wages are reported under the state account of the PEO or under your own client-level account. Some states settle it by law: Washington has required PEO clients to be reported separately since 2008, so each client gets a rate that reflects its own layoff history, while Indiana lets the PEO choose between its own account and each client's.
Which account your wages are reported under matters on the way out as well as on the way in. If your favorable experience rating (the low rate your own layoff history earned) sat dormant under the PEO's account for three years, the rate you get when you leave may be the state's new-employer rate rather than the rate you earned before you joined.
Confirm how each state where you have employees treats a departing client's rating before you sign, not when you are drafting the termination notice.
Tax credits are one more reason to confirm certification. With a CPEO, the tax code assigns payroll-based credits, including the Work Opportunity Tax Credit and the research credit some companies take against payroll tax, to your company rather than to the PEO.
PEO Cost vs HR Software Cost: The Comparison No One Shows You
PEO costs run far above those of an HR software stack for a company that does not need co-employment or pooled benefits.
PEO marketing skips that comparison and sets PEO costs against the cost of hiring a full-time HR person. Two classifications bracket that hire in the Bureau of Labor Statistics Occupational Employment and Wage Statistics survey (May 2025): human resources specialists, the category that covers in-house generalists, at a median of $75,940 a year, and human resources managers at $149,280.
In private industry, benefits make up 30% of total compensation, according to the BLS Employer Costs for Employee Compensation survey (June 2026). That works out to about 43% on top of either salary, so a specialist hired at the median costs close to $108,000 fully loaded.
The HR-hire comparison is still misleading for a small business, because the real alternative to a PEO is not a full-time HR hire. It is HR software plus standalone payroll plus a benefits broker, which costs about 55 to 90% less than a PEO at 10 or more employees, for companies that do not need co-employment or pooled benefits.
| Component | PEO Cost (10 Employees) | HR Software Stack (10 Employees) |
|---|---|---|
| HR administration (onboarding, documents, HRIS, e-signature) | Included in PEPM | $98/month flat ($1,176/year) |
| Payroll processing and tax filing | Included in PEPM | $40-$80/month + $4-$8/employee ($960-$1,920/year) |
| Benefits administration | Included, with any markup built into the premium | Benefits broker (typically commission-based, $0 direct cost) |
| Workers compensation insurance | Billed through the PEO's master policy, outside the admin fee | Your own carrier policy, priced on your class codes |
| HR compliance guidance | Phone/email support line included | Quarterly attorney consultation ($200-$600/quarter) |
| Co-employment (shared liability) | Included (core PEO value) | Not available (employer retains full liability) |
| Total annual cost (10 employees, workers comp excluded) | $12,000-$19,200 | $2,900-$5,500 |
| Cost per employee per year | $1,200-$1,920 | $290-$550 |
The critical distinction: a PEO bundles everything (HR, payroll, benefits, workers comp, compliance) into one contract with one provider. An HR software stack separates each component, letting you choose the best provider for each function and avoid paying for services you do not need. The trade-off is that you manage multiple vendors instead of one.
For a 10-employee company where the founder handles HR, the HR software stack saves at least $6,500 a year, with the PEO priced at $100 per employee per month and the stack at the top of its cost range.
When a PEO Is Worth the Cost
PEOs are worth the cost when you need something you cannot get on your own (large-group benefits rates, pooled workers comp) or when the complexity of your situation (multi-state, high-risk, rapid scaling) justifies paying for expert compliance support.
| Scenario | Why PEO Makes Sense | Savings vs Alternative |
|---|---|---|
| You need group health insurance but cannot get good rates as a small employer | PEOs pool many client companies to reach large-group rates, which is the one thing a small employer cannot buy on its own. | Depends entirely on the small-group rate you are quoted today |
| You are in a high-risk industry (construction, manufacturing) | PEOs provide workers comp through their master policy, often at lower rates than individual small-business policies due to pooled risk. | Depends on your class codes and claims history |
| You operate in states with complex employment law (CA, NY, MA) | PEO compliance teams stay current on state-specific requirements. The cost of non-compliance (lawsuits, penalties) can exceed PEO fees. | Risk mitigation, not direct savings |
| You are scaling rapidly (hiring 5+ people per quarter) | PEOs handle onboarding, benefits enrollment, and payroll setup for each new hire. At high hiring velocity, the admin time savings justify the cost. | Admin time on every new hire, not dollars |
| You want one vendor for everything (simplicity over cost) | One contract, one invoice, one support team. Reduces vendor management complexity. | Time savings, not cost savings |
A stable small company in a low-risk industry with employees in one state is the opposite case: the PEO's core value proposition (co-employment, pooled insurance) may not apply.
When HR Software Costs Less Than a PEO
| Scenario | Why HR Software Wins | Cost Difference |
|---|---|---|
| You run a small team in a low-risk industry | PEO admin fees exceed the value of services used. HR software handles the admin at about 55-90% less from 10 employees up. | $6,500-$9,100/year saved at 10 people (PEO at $100 PEPM) |
| You already have a payroll provider you like | Switching payroll to a PEO creates lock-in. Keeping your payroll + adding HR software avoids the switch. | No transition cost |
| You do not need group health insurance (QSEHRA or no benefits) | PEO benefits pooling has no value if you are not using group insurance. You pay admin fees for a service you do not use. | The benefits share of the admin fee |
| Your workers comp rate is already low | Low-risk industries (tech, professional services) get competitive workers comp directly. PEO pooling does not help. | Depends on your class codes and claims history |
| You want pricing transparency | Flat-fee HR software publishes its price ($98-$198/month for up to 50 people). Most PEOs quote case by case, and not all itemize the fee. | Predictable budget vs opaque invoices |
| You are leaving a PEO | Transition to HR software + standalone payroll eliminates co-employment and reduces annual cost. | The admin fee and any benefits markup, every year after the move |
A lower price only helps if onboarding stays good, and its quality does not depend on whether you use a PEO or HR software. Employees are 3.4 times as likely to call their onboarding successful when the manager takes an active role in it (Gallup). What matters is how onboarding is run: whether it is structured with clear tasks, deadlines, and accountability.
Both a PEO and HR software can deliver that structure, so the difference is cost: the PEO charges $40 to $160 per employee per month on the market band, with onboarding as one of many bundled services. Flat-fee HR software charges $98 a month in total for a team of up to 10, with onboarding as the core product.
What It Actually Costs to Leave a PEO
Leaving a PEO has no standard price tag. The exit is where the true price of a PEO becomes visible, because everything the PEO was holding on your behalf has to be rebuilt in your own name at the same time. The fees in the contract are the smallest part of it. The sequencing is the expensive part.
| What has to move | The trap | How to avoid it |
|---|---|---|
| Notice under the contract | Many agreements auto-renew unless written notice lands inside a defined window before the anniversary date. | Put the notice window on your calendar when you sign, not when you decide to leave. |
| Health plan | Leaving mid-plan-year restarts deductibles and out-of-pocket maximums under the new carrier, which employees experience as a pay cut. | Time the exit to the plan year, or negotiate deductible credit with the incoming carrier as a condition of placing the group. |
| 401(k) | PEO plans are usually multiple employer plans, meaning a single plan shared by two or more unrelated employers. How your account balances move determines whether employees can take distributions, and the answer is usually no. | Decide early whether you are spinning the assets into a new plan of your own or terminating participation, and get the answer in writing from both recordkeepers before the exit date. |
| Workers compensation | The PEO's master policy stops covering you the day you leave, and your claims history sat under their policy, so you may have no experience modification of your own. | Have your own policy start on the exit date and ask the PEO in writing for the loss runs (claims history reports) attributable to your employees. |
| COBRA | Former employees who elected COBRA under the PEO's plan do not disappear when you leave. | Assign responsibility for existing qualified beneficiaries in writing. If the PEO's plan stops covering them and you maintain another group health plan, the obligation can land on your plan. |
| Unemployment and tax accounts | You may need your own state unemployment and withholding accounts in every state where you have employees, and registration is not instant. | Start registrations 60 to 90 days out. In some states, an account number takes weeks. |
Two dates make the whole thing manageable. The first is January 1, which avoids the possible wage base reset described above and lines up with any calendar-year health plan.
The second date is 60 to 90 days before January 1, which is when the new payroll provider, the new benefits carrier, and the state account registrations all need to be in motion. A company that decides in November to leave on January 1 is not leaving on January 1.
Budget for the transition itself, but treat the recoverable items as the real prize: the administrative fee you stop paying, any benefits markup built into your premiums, and the workers compensation premium you can now shop on your own class codes.
For a 25-person company, the administrative fee alone is a five-figure annual cost anywhere in the market band: $12,000 a year even at $40 per employee per month. The one-time cost of leaving is weighed against a fee that recurs every year.
Total Cost Comparison: PEO vs HR Software Stack
At $100 per employee per month, a PEO costs more than the HR software stack at every headcount shown.
| Employees | PEO Annual Cost (at $100 PEPM) | HR Software Stack Annual Cost | Annual Savings |
|---|---|---|---|
| 5 | $6,000 | $2,700-$5,000 | $1,000-$3,300 |
| 10 | $12,000 | $2,900-$5,500 | $6,500-$9,100 |
| 15 | $18,000 | $4,400-$7,200 | $10,800-$13,600 |
| 25 | $30,000 | $4,900-$8,100 | $21,900-$25,100 |
| 50 | $60,000 | $6,100-$10,500 | $49,500-$53,900 |
The cost gap widens with every hire. A PEO charges more per employee added, while HR software on a flat-fee model charges the same whether you have 11 employees or 50. At 50 employees, the PEO costs $60,000 per year and the HR software stack costs $6,100 to $10,500.
The $49,500 to $53,900 annual difference is nearly half the fully loaded cost of an HR specialist hired at the median wage. Re-run this comparison at every renewal rather than once at signing, because the balance moves with each hire you make.
Frequently Asked Questions
How much does a PEO cost per employee?
A PEO’s administrative fee typically runs about $40 to $160 per employee each month on a flat model, or 2% to 12% of payroll on a percentage model. That range is market data from a cost guide one large PEO updated in July 2026, not a published rate card. Benefits premiums, workers compensation, and payroll taxes are billed on top of the fee. With almost no provider showing its prices, the bundled services, industry risk, state, and headcount decide where a quote lands. For a company of 10 people, the flat band works out to roughly $4,800 to $19,200 a year. The only industry-wide average is dated: a September 2019 white paper from NAPEO, the National Association of Professional Employer Organizations, drew on 2018 gross profit data and arrived at $1,395 per worksite employee a year, against average savings of $1,775 a head and a 27.2% return on savings alone. That is the seller’s case, so price your own alternative before you accept it.
What is the average PEO cost for a small business?
The one published average is old: a 2019 study from NAPEO, the trade association for PEOs, put it at $1,395 a year for each worksite employee, meaning an employee of a client company whom the PEO co-employs. That figure is built on what PEOs earned in 2018. Current quotes are better judged against the market band of $40 to $160 per employee per month. At the middle of that band, $100, a 10-person company pays $12,000 a year, and at the top, $160, a 25-person company pays $48,000. Percentage-of-payroll pricing varies more: a 10-person company with $500,000 total payroll at 6% pays $30,000 per year, while the same 10 people at 2% pay $10,000.
Is a PEO cheaper than hiring an HR manager?
It depends on headcount, and the crossover is straightforward to compute. The Bureau of Labor Statistics puts the median wage for human resources specialists at $75,940 a year and for human resources managers at $149,280 (Occupational Employment and Wage Statistics survey, May 2025). Most small businesses hire the specialist, not the manager. Private-industry benefits come to 30% of the total compensation bill (BLS Employer Costs for Employee Compensation, June 2026), so that hire lands near $108,000 fully loaded. A PEO at $100 per employee per month costs $30,000 a year for 25 people and $60,000 for 50, so it wins easily at 25 and still wins at 50. It stops winning only as headcount keeps climbing, because its fee grows with every head while a salary does not: add HR software at $2,400 to $5,000 a year to the in-house column and the crossover sits somewhere past 90 employees. Run it with the monthly per-employee fee you were actually quoted rather than the $100 placeholder, because a quote at $160 moves the crossover sharply.
What is the difference between PEPM and percentage-of-payroll PEO pricing?
PEPM stands for per employee per month: a fixed dollar fee for every person on your payroll, whatever they earn. Percentage-of-payroll pricing instead takes a share of everything you pay in wages. PEPM is more predictable, since $100 PEPM for 10 employees is always $1,000 a month. A percentage moves with pay: 6% of a $500,000 annual payroll is $30,000 a year, but if raises lift payroll to $600,000, the PEO cost rises to $36,000 without adding a single employee. At the same headcount, a team with higher salaries therefore pays more under the percentage model, while the flat fee never changes with pay.
Do PEOs have hidden fees?
Yes, in the sense that several charges can sit outside the headline per-employee rate. Depending on the provider, they include a one-time setup or implementation fee, a markup on benefits premiums over the carrier rate, workers compensation audit adjustments (an annual true-up of estimated against actual payroll), early termination fees or notice periods, per-run fees for off-cycle payroll, and year-end reporting fees. None of them has a published industry rate, and some providers charge no setup fee at all, so the amounts are whatever your contract says. Before you commit, get every one of them itemized in a written fee schedule.
Can HR software replace a PEO?
It can replace the HR administration part of a PEO, but not the rest. Software covers onboarding, document management, employee records, signed policy acknowledgments, and training. It does not provide co-employment or pooled benefits, and payroll processing and workers comp coverage still come from a payroll provider and your own carrier. For a small business that mainly needs the administration and already runs payroll and benefits separately, flat-fee HR software at $98 to $198 a month for a team of up to 50 covers that layer at a fraction of a PEO’s cost. Add payroll and a benefits broker, and the full stack typically lands about 55 to 90% below the PEO for a team of 10 or more.
How much does it cost to leave a PEO?
There is no standard figure, because the cost depends on your contract and on how much has to be rebuilt in your own name. The pieces are early termination fees (if you leave inside the contract term), setup costs for replacement payroll and benefits, the hand-off of COBRA administration, the workers comp policy transition, and the time spent re-enrolling employees in new systems. PEO contracts typically require written notice before you leave, so read that clause when you sign. Plan the exit for January 1 to avoid a possible wage base reset, and factor the transition into your PEO vs alternatives analysis.
What does a PEO include for the price?
A typical PEO engagement covers payroll processing and tax filing, benefits administration (health, dental, vision, 401(k)), workers compensation coverage and claims management, HR compliance guidance, employee handbook templates, unemployment claims management, and an HR support line. The administrative fee pays for the administration and support, while insurance premiums and payroll taxes are billed separately. Some PEOs also include time tracking, performance management, and recruiting support. The breadth of services is the primary advantage over standalone HR software, which covers only the administration layer.