PEO cost: how pricing works and how to compare quotes

The two main pricing models

Ask each PEO to break the bundled rate into its components. Without that, you cannot compare quotes or check renewal increases.

See how EZTime works for your industry, from time tracking to shift scheduling.

What makes up the total cost

• Admin fee: the PEO’s charge for its services.
• Payroll taxes: employer Social Security, Medicare, federal and state unemployment taxes. These are owed whether or not you use a PEO, but the PEO’s state unemployment rate may differ from yours. See employer payroll taxes.
• Workers’ compensation: premiums based on job classifications and payroll. See our workers’ compensation guide.
• Benefit premiums: the employer’s share of health, dental, vision and other plans.
• Add-ons: services such as time tracking, recruiting software, learning, or advanced HR support, sometimes billed separately.
• One-time fees: setup, implementation or year-end fees.

Hidden costs and fine print

• Unemployment tax: some PEOs report under their own state account, so your rate may change, sometimes up, sometimes down.
• Payroll tax wage bases restarting: switching providers mid-year can affect how wage bases are counted under some arrangements. Ask how the PEO handles it.
• Workers’ compensation markup: some PEOs charge more than the underlying premium. Ask how the rate is set.
• Minimum fees or minimum headcount.
• Fees for off-cycle payrolls, corrections or extra reports.
• Termination fees, notice periods and costs of moving benefits when you leave.

How to compare PEO quotes step by step

1. List your current annual costs: payroll software, HR staff time, broker fees, benefit premiums, workers’ compensation and payroll taxes.
2. Prepare a census: each employee’s role, state, wages, hours and benefit elections. Give the same census to every PEO.
3. Ask each PEO for a detailed quote that separates the admin fee, taxes, workers’ compensation and each benefit plan.
4. Convert every quote into a total annual cost and a cost per employee per month.
5. Compare benefit plans on deductibles, networks and employee contributions, not just premiums.
6. Model growth: what happens to the cost if you add ten employees or give raises?
7. Check renewal terms and how increases are capped or explained.
8. Include the value of time saved, but estimate it honestly.

Our PEO cost calculator can help with the arithmetic.

A worked comparison (fictional numbers)

A 25-person landscaping company compares its current setup with two PEO quotes. The figures below are illustrative only, not market prices.

In this example the PEO options cost slightly more overall, but provide better benefits and save owner time. The decision depends on how the business values those benefits. Payroll taxes are left out here because they are similar in each case, but check any difference in state unemployment rates.

Look beyond price

The cheapest quote is not always the best value. A PEO that answers HR questions quickly, processes payroll without errors and handles workers’ compensation claims well can be worth more than one with a slightly lower fee. When you compare proposals, ask for a demonstration of the employee and manager portals, find out who your day-to-day contact will be and how quickly they respond, and speak to references in your industry and size range. Ask what happened when a client had a payroll error or a difficult claim. Consider how each PEO fits your growth plans, too: if you expect to hire in other states, check that the PEO operates there and how pricing changes. Finally, look at the exit. A provider that makes it easy and affordable to leave is usually confident that you will want to stay.

Questions to ask about pricing

1. Is your fee a percentage of payroll, PEPM or bundled? Can you itemize it?
2. Does the percentage apply to bonuses and overtime?
3. Are part-time, seasonal and terminated employees counted in PEPM fees?
4. How are workers’ compensation rates set, and are they marked up?
5. Which state unemployment rate will apply to us?
6. What are typical renewal increases for admin fees and benefits?
7. Which services cost extra?
8. What does it cost to leave, and how much notice is required?

Ways to keep PEO costs down

• Negotiate a PEPM fee if your payroll is high relative to headcount.
• Ask for multi-year pricing or caps on admin fee increases.
• Review workers’ compensation classifications to make sure jobs are coded correctly.
• Reduce overtime through better scheduling, since percentage-based fees rise with overtime pay. See how to reduce overtime costs.
• Avoid paying for add-ons you already have, such as time tracking or scheduling.
• Re-quote every few years.

Keep a simple file of each year’s invoices and renewal notices. When you can show exactly how fees and premiums have changed over time, renewal conversations become much more productive, and you will spot creeping charges before they become expensive.

A note on accuracy

Every PEO bill starts from your payroll, and payroll starts from hours worked. Errors in time data flow into wages, overtime, taxes, workers’ compensation premiums and percentage-based fees. Clean, approved timesheets keep every line on the invoice accurate. See how to calculate payroll hours.

How EZTime helps

EZTime records clock-ins, breaks and overtime and exports approved hours for payroll. Teams that use a PEO can keep scheduling and time tracking in EZTime and send the PEO clean data each pay period. Plans start at $2 per employee per month; see pricing.

Frequently asked questions

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