PEO Pricing Guide
How Much Does a PEO Cost?
PEOs typically charge 2–12% of gross payroll or $80–$200 per employee per month. But the more important number is the ROI: NAPEO research shows businesses using a PEO save an average of $1,775 per employee per year — a 27.2% return on investment.
Pricing Models
The Two Ways PEOs Charge
Percentage of Payroll
A percentage of your total gross payroll. More common for smaller businesses and high-risk industries. Costs scale with payroll, which can be an advantage during slow periods.
Per Employee Per Month (PEPM)
A flat monthly fee per employee, regardless of salary. More predictable for budgeting. Common for professional services and white-collar workforces with higher average salaries.
Important: The headline fee is only part of the story. Some PEOs quote a low base fee but charge separately for workers' comp, benefits administration, or HR services. Always ask for an all-in cost comparison that includes every line item.
What Drives PEO Pricing
Number of Employees
Larger employee counts typically yield lower per-employee fees. Businesses with 50+ employees often negotiate more favorable PEPM rates.
Industry Risk Profile
High-risk industries (construction, healthcare, hospitality) pay higher workers' comp rates, which affects the overall PEO cost structure.
State of Operations
Workers' comp rates, state payroll taxes, and compliance complexity vary significantly by state. Florida, California, and New York have higher compliance costs.
Services Included
Full-service PEOs that include workers' comp, benefits, and HR technology cost more than payroll-only providers. Compare total cost of ownership, not just the base fee.
Benefits Selection
The health insurance plan your employees select drives a significant portion of total cost. PEOs offer multiple plan tiers to manage this variable.
Payroll Frequency
Weekly payroll processing costs more than bi-weekly or semi-monthly. High-frequency payroll is common in construction and hospitality.
The Business Case
Where the Savings Come From
NAPEO's research documents an average ROI of 27.2% for PEO clients — but where does that number come from? The savings are distributed across six primary categories:
| Savings Category | Without PEO | With PEO | Notes |
|---|---|---|---|
| Workers' Compensation | $2,000–$8,000/yr per employee (high-risk) | 30–50% reduction through group rates | Biggest savings driver for construction, healthcare, and hospitality |
| Employee Benefits | $6,000–$15,000/yr per employee | 10–25% reduction through group purchasing | Group rates unavailable to businesses with fewer than 50 employees |
| HR Staff Overhead | $65,000–$95,000/yr for one HR generalist | Eliminate or reduce dedicated HR headcount | Most relevant for businesses with 20–100 employees |
| Compliance Penalties | $1,000–$50,000+ per violation | Proactive compliance reduces penalty risk | FLSA, ACA, OSHA, and state-level violations |
| Payroll Processing | $150–$300/month for 10–25 employees | Often included in PEO fee | Eliminates separate payroll software subscription |
| HR Technology | $8–$25/employee/month for HRIS | Included in most PEO fees | Time tracking, onboarding, document management |
The hidden ROI: Beyond hard cost savings, businesses using PEOs grow 7–9% faster and have 10–14% lower employee turnover than comparable businesses that manage HR in-house. The cost of replacing a single employee is estimated at 50–200% of their annual salary — PEO-driven retention improvements represent a substantial but often uncounted return.
Sample Cost Scenarios
The following scenarios illustrate how PEO economics work in practice. Actual costs and savings will vary based on your specific situation.
Florida Construction Company — 15 Employees
Professional Services Firm — 35 Employees
Restaurant Group — 60 Employees (Seasonal)
Scenarios are illustrative estimates based on industry averages. Actual results vary. Request a custom analysis for your specific business.
Red Flags When Comparing PEO Quotes
No ESAC accreditation
Your payroll taxes and employee wages are not protected if the PEO encounters financial difficulty. This is a non-negotiable credential.
Workers' comp not included in the base fee
Some PEOs quote a low base fee but charge separately for workers' comp at rates that eliminate the savings. Get an all-in quote.
Long-term contracts with steep exit penalties
Reputable PEOs typically offer 30–90 day termination provisions. Multi-year lock-ins with large penalties are a warning sign.
No dedicated account manager
If your PEO cannot tell you who your account manager is, you will be dealing with a call center when you have an urgent HR issue.
Vague or bundled pricing
If a PEO cannot break down exactly what is included in their fee, you cannot accurately compare quotes or understand what you are paying for.
PEO Cost FAQ
How much does a PEO cost?
PEOs typically charge either a percentage of gross payroll (usually 2–12%) or a flat per-employee-per-month (PEPM) fee of $80–$200. The percentage-of-payroll model is more common for smaller businesses; the PEPM model is more common for larger employers. The total cost depends on company size, services included, industry risk profile, and geographic location.
What is the ROI of using a PEO?
According to NAPEO research, the average ROI of using a PEO is 27.2%, based on hard cost savings alone. This translates to approximately $1,775 in savings per employee per year. The savings come from reduced workers' comp premiums, lower benefits costs through group purchasing power, reduced HR overhead, and avoided compliance penalties.
What is included in a PEO fee?
A PEO fee typically includes payroll processing, payroll tax filing and remittance, HR compliance support, employee handbook development, workers' compensation coverage (under the PEO's master policy), benefits administration, and access to the PEO's HR technology platform. Some PEOs charge separately for workers' comp, benefits, or additional HR services.
Is a PEO worth it for a small business?
For most small businesses with 10–150 employees, a PEO is worth it. The savings on workers' comp premiums alone often offset the PEO fee for businesses in high-risk industries like construction, healthcare, and hospitality. Even for lower-risk businesses, the time savings from outsourcing HR administration — typically 10+ hours per week for a business owner — represent significant value.
How do I compare PEO quotes?
When comparing PEO quotes, look beyond the headline fee. Ask: What is included vs. excluded? Is workers' comp included or billed separately? What benefits plans are available and at what employee cost? What technology platform is included? Are there setup fees or termination fees? Is the PEO ESAC-accredited? A lower fee from an unaccredited PEO may carry more risk than a slightly higher fee from an ESAC-accredited provider.
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