What Does a PEO Cost?
PEO pricing comes in two shapes: a flat fee per employee per month, or a percentage of gross payroll. Both are usually quoted bundled with insurance and statutory costs, which is why two quotes are rarely comparable until you make the provider separate the administrative fee from everything it is passing through.
Two pricing shapes
Per employee per month (PEPM). A flat amount per employee, per month, for the administration. Predictable. Easy to compare — once you have it in isolation.
Percentage of gross payroll. A percentage applied to what you pay your people. It scales with your payroll, which means it scales with every raise, every bonus and every commission cheque, for no additional work by the provider.
The choice matters most for employers with high wages or lumpy compensation. A percentage that looked reasonable against a $60,000 average wage looks very different against $140,000 plus bonuses.
Why quotes are not comparable
Almost every PEO quote bundles at least four different things:
- The administrative fee — the provider's actual charge for the service.
- Statutory employer costs — employer FICA, federal and state unemployment.
You pay these today; a PEO does not make them go away.
- Workers' compensation premium — driven by your class codes and loss
history.
- Benefits — driven by plan design, enrolment and your contribution split.
Lines 2, 3 and 4 are largely pass-throughs. Line 1 is what you are actually buying. A quote that fuses them into one PEPM number cannot be compared to another quote that splits them differently — and the difference between two bundled numbers tells you nothing about which provider is cheaper.
| Component | Charged on | Modelled range | Status |
|---|---|---|---|
| PEO administrative fee (PEPM) | Per employee per month, flat | buyer-supplied quote | Unverified placeholder |
| PEO administrative fee (% of payroll) | Percentage of gross payroll | buyer-supplied quote | Unverified placeholder |
| Employer FICA (Social Security + Medicare) | Percentage of wages, statutory | 6.2% to the Social Security wage base + 1.45% uncapped | Unverified placeholder |
| Federal unemployment tax (FUTA) | Percentage of the first tranche of each employee's wages | gross rate less the standard state credit | Unverified placeholder |
| State unemployment insurance (SUI) | Percentage of wages up to the state wage base | state- and experience-rated | Unverified placeholder |
| Workers' compensation premium | Rate per $100 of payroll, by class code | class-code dependent | Unverified placeholder |
| Health and ancillary benefits | Per enrolled employee per month | plan- and enrollment-dependent | Unverified placeholder |
The questions that unbundle a quote
Ask these in writing and keep the answers:
- What is the administrative fee, stated separately from all insurance and
statutory costs?
- Is that fee PEPM or a percentage? If a percentage, on gross payroll including
bonuses and commissions?
- What is the workers' compensation rate per $100 of payroll, by class code, and
how does my experience modifier apply?
- What is the total benefits cost per enrolled employee per month, at a plan
design equivalent to my current one?
- Which state unemployment rate applies — the provider's or mine — and what
happens to my experience rating on exit?
- What is the implementation fee, and what triggers any other one-off charge?
- How can the administrative fee change at renewal, and is any increase capped?
A provider that answers all seven in writing is one you can evaluate. A provider that will not is telling you something about how the next three years will go.
The comparison that actually matters
Not "PEO A versus PEO B". It is total employment cost under the PEO versus total employment cost today, with plan design and employer contribution held constant. Change the plan design and the comparison becomes meaningless, which is why an apparently cheaper benefits line so often turns out to be a thinner plan.
Two costs buyers routinely omit from that comparison:
- Wage-base restart on a mid-year move to a non-certified PEO. See
- Exit cost. Fees, notice period, and the work of rebuilding your own payroll,
benefits and unemployment accounts.
Model your own numbers
Our calculator does arithmetic on the rate you were quoted and is explicit about what it cannot tell you. It will not pretend to know the market rate, because we have not verified one yet — and publishing an invented benchmark is exactly the failure mode we criticise in other people's pricing pages.
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Frequently asked
Why will nobody publish PEO pricing?
Because the quoted number depends on your workers' compensation class codes, your state, your benefit plan design and your enrolment rate. That is a real reason, but it is also convenient — opacity makes comparison shopping hard, which suits the seller.
Is a percentage of payroll ever better than a flat fee?
Occasionally, for a low-wage workforce. But it rises with every raise and every bonus, so model it against next year's payroll rather than this year's.
What should I ask for to make quotes comparable?
An administrative fee stated separately, in writing, with the insurance and statutory pass-throughs itemised beside it. If a provider will not do that, you cannot compare it and you should say so.
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