Compare what a professional employer organization would charge with what you spend running HR, payroll and benefits administration in-house.
Percentage model: annual fee = total gross payroll × rate %.
PEPM model: annual fee = employees × monthly fee × 12.
Difference = PEO fee − in-house costs it replaces.
Leave out costs you keep paying either way, such as benefit premiums, wages and your own time-tracking system if the PEO does not supply one.
A company with 25 employees and $1.2 million in payroll receives a quote of 3% of payroll: $36,000 a year, or $120 per employee per month. Its in-house admin costs are $44,000. On these numbers the PEO costs $8,000 less a year before counting any change in benefit premiums.
Fictional numbers for illustration only. Real PEO quotes vary widely.
A PEO becomes the co-employer of your staff for payroll, tax filing and often benefits. Owners consider one when HR paperwork starts eating management time or when they want access to a larger benefits plan. The decision is easier with a clear number on both sides.
Get written quotes from PEOs before you decide. Quotes differ in what they include: workers’ compensation, benefits administration, HR support and payroll tax filing are sometimes bundled and sometimes extra. Enter only the in-house costs that the PEO quote would actually replace.
The two pricing models react differently as your business changes. A fictional company with 25 employees and $1.2 million in payroll can see both side by side.
| Change | 3% of payroll | $140 PEPM |
|---|---|---|
| Today | $36,000 | $42,000 |
| Everyone gets a 5% raise | $37,800 | $42,000 |
| Headcount grows to 30 at the same average pay | $43,200 | $50,400 |
| Seasonal part-timers added (5 people, $60,000 total) | $37,800 | $50,400 |
A percentage fee grows with raises and overtime, while a PEPM fee grows with headcount. Businesses with many part-time or seasonal staff often pay less under a percentage, and those with high average pay often pay less per head. Run the calculator under the growth you expect next year, not just today.
The IRS runs a certification program for PEOs, created by the Small Business Efficiency Act. A certified PEO, or CPEO, is generally treated as the employer for federal employment taxes on the wages it pays, which shifts that liability away from you. With a non-certified PEO, the client business can remain liable if the PEO fails to remit. The IRS publishes a list of CPEOs on its website. Many states also require PEOs to register or hold a license, so check the state labor or insurance department as well.
Write the answers next to each quote before you enter anything in the calculator. That keeps the comparison on equal terms.
Commonly payroll processing and tax filing, benefits administration, workers’ compensation and HR support. Check each quote for exactly what is included.
No. A staffing agency supplies workers. A PEO co-employs your existing workers for administrative purposes.
Yes. A PEO pays your employees based on the hours you report, so accurate hours still start with you.
Usually, but check the contract terms and the work involved in moving payroll and benefits back.
Most PEOs process payroll from the hours you submit. Recording hours, breaks and overtime usually stays with you, and EZTime exports payroll-ready reports in Excel or PDF for whichever payroll provider you use.
Sometimes, mainly for access to benefits. Small groups often face minimum monthly fees, so enter that minimum in the calculator instead of the headline rate.
Whether you use a PEO or run payroll yourself, EZTime gives you approved, payroll-ready hours. Book a demo to see it.