How Much Does it Cost to Hire a PEO Service?
As with every business expense, you want to ensure that the return on your investment is worth the price you pay. If you're considering partnering with a professional employer organization, you likely feel that your HR-related tasks have become too complex, too expensive, or too time-consuming (or possibly all three!). Before signing with a PEO, you want to make sure that the money you save justifies the cost of outsourcing your HR needs.
The Cost of Hiring a PEO
Although you want to get the lowest price for the best service, it's important to remember that cheapest isn't always – or even usually – best. You expect this company to handle vital functions and compliance, so you need it to be trustworthy and highly knowledgeable as well as affordable.
Pricing varies widely according to the services you select, the PEO's location, the level of support it provides, and numerous other factors. However, most PEOs charge for their services in one of two ways.
- Percentage of payroll rate plans typically charge between 2 and 12 percent of your total payroll, with the percentage varying based on the size of your organization and even by the type of worker. Most PEOs charge a lower percentage for salaried workers than they do for hourly employees.
- Per employee flat fees are typically charged monthly (though you may see yearly fees) and range anywhere from around $40 per employee, per month to around $160 per employee, per month. Again, pricing varies based on your particular organization.
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Of the two options, the flat fee is more predictable when it comes to budgeting. Many PEOs offer both pricing methods. Some allow the client (you) to choose the rate plan while others vary the method by industry and organization type.
You may also receive additional fees as you add on more administrative functions, such as recruiting and employee performance services. Often, smaller companies can partner with a PEO for less than the price of hiring a full-time, on-site HR person.
Sample PEO Costs
As stated, rates vary widely, but the following estimates should give you an idea of what to expect as you request proposals.
Justworks offers flat fee pricing based on the number of employees you have and whether you expect the PEO to provide benefits.
- For five to 24 employees, with benefits, expect to pay around $69 per month, per employee
- For five to 24 employees, without benefits, expect to pay around $49 per month, per employee
- For 25 to 99 employees, with benefits, expect to pay around $59 per month, per employee
- For 25 to 99 employees, without benefits, expect to pay around $39 per month, per employee
TriNet also offers flat fee per month, per employee pricing, based on the number of employees. Benefits are assumed in TriNet's fee structure.
- For five to nine employees, expect to pay around $155 per month, per employee
- For 10 to 19 employees, expect to pay around $140 per month, per employee
- For 20 to 29 employees, expect to pay around $135 per month, per employee
- For 30 to 49 employees, expect to pay around $125 per month, per employee
Percentage costs vary according to the total number of employees and the PEO services you choose. Costs start as low as 2 percent for basic plans with salaried workers. However, truly comprehensive plans cost more and percentages can go as high as 11 percent of your total payroll. Smaller companies typically consider the cost of these plans to be prohibitive.
What Factors Affect PEO Rates?
In addition to the services you choose, three main factors influence the rates you pay for PEO services.
How Large is Your Organization?
Like pretty much everything, buying in bulk saves you money, even with a professional employer organization. In other words, the more workers you have, the lower rate you pay. Remember, PEOs are businesses, with their own fixed costs for the services they provide. If an item costs the PEO $1,000, and that amount is spread out over 50 workers, the amount per worker is lower than if it were spread out over 10 workers. Even so, many PEOs offer packages designed specifically for smaller companies. What's more, the insurance savings a smaller company experiences after signing with a PEO are typically much greater than those experienced by a larger company.
Do Your Workers Receive Benefits?
Benefits represent a high percentage of the PEO's overall costs. If the majority of your workers receive benefits, your costs will be higher than if they do not.
Are Your Employees Hourly or Salaried?
PEOs charge more for hourly employees simply because hourly workers typically have a higher turnover rate. They are also more likely to have unemployment claims and file more disputes.
Additional Cost Considerations when Hiring a PEO
Do not forget that, even though you are spending money for the PEO, there is the potential for significant savings on current costs, particularly if you offer your employees health insurance or other benefits. Look carefully at the cost of the PEO in comparison to your current costs, such as whether you offer benefits through the Affordable Care Act's SHOP Exchange. What does your current benefits program cost you? What sort of tax breaks does it offer? It may be that hiring a PEO is cheaper than what you currently pay, or it may be more expensive. You won't know for sure until you compare those costs.
Consider also the cost of an in-house HR team, even if that team is a single employee. Salary, benefits, sick and vacation time – these are all typical employee costs. If you outsource your HR needs, you aren't paying for a human resources department.
Does your industry or business have a high turnover rate? Do you terminate a high number of employees? Hiring a PEO means that the cost of unemployment insurance, claims, and even attorneys rest with the PEO, not you.
Finally, what is peace of mind worth to you? With a PEO, you don't have to worry about compliance issues. You don't have to handle payroll. You don't have to worry about workers' comp insurance or claims. You don't even have to worry about defending unemployment claims. These issues all rest on the shoulders of the PEO. Only you know what that's worth to you.