How Much Does a PEO Charge?

The Two Pricing Models

PEOs use one of two pricing models. The first is a percentage of total payroll, typically between 2 and 6 percent. If your total payroll is $1 million and the PEO charges 4 percent, your annual fee is $40,000. This model scales automatically as your payroll grows, which means the fee goes up when you give raises or hire more people.

The second model is a flat per-employee-per-month fee, typically between $40 and $160. If you have 20 employees and the PEO charges $100 per employee per month, your annual fee is $24,000. This model is predictable and does not change when you give raises, which makes it more cost-effective for companies with higher average salaries.

What Is Included in the Fee

The PEO fee is not just payroll processing. It typically covers a bundle of services that would otherwise require multiple vendors and a full-time staff member.

• Payroll processing, tax filing, and year-end W-2 and 1095 forms.
• Health insurance administration and access to large-group plan rates.
• Workers' comp coverage and claims management (sometimes bundled, sometimes itemized).
• HR support, including hiring, onboarding, termination guidance, and employee relations.
• Compliance management, including federal and state labor law updates, poster requirements, and audit support.
• Benefits enrollment and ongoing administration through the PEO's HRIS platform.
• Risk management and safety program support.

Hidden Costs to Watch For

The quoted rate is not always the final cost. Some PEOs add fees that are not included in the headline number. Setup fees can range from $500 to $2,500. Technology or HRIS platform access fees can add $5 to $15 per employee per month. Workers' comp may be billed separately with a markup on the premium. And some PEOs charge extra for services like background checks, employee handbooks, or compliance training.

The solution is to ask for a fully loaded annual cost that includes every fee, every charge, and every markup. This is the only number that matters when comparing PEOs. As a broker, we require this from every PEO we compare, so you see the true total cost side by side.

A Real Cost Example

Consider a 20-employee company with an average salary of $50,000, for a total payroll of $1 million. A PEO charging 4 percent of payroll would cost $40,000 per year, or $167 per employee per month. A PEO charging a flat $100 per employee per month would cost $24,000 per year. The flat fee model saves $16,000 per year in this scenario.

Now flip it. Consider the same 20-employee company but with an average salary of $25,000, for a total payroll of $500,000. The percentage model at 4 percent costs $20,000 per year. The flat fee model at $100 per employee per month still costs $24,000. Here the percentage model is cheaper. The right model depends on your average salary, which is why you need to compare both.

How to Compare PEO Costs

To get an accurate comparison, gather your total payroll, employee count, current health insurance cost, current workers' comp cost, and what you currently pay for payroll processing and HR support. Then get quotes from at least three PEOs using both pricing models, with fully loaded cost breakdowns.

This is exactly what we do as an independent PEO broker. We collect your numbers once, then shop them across multiple vetted PEOs to find the best combination of price, service, and plan quality. You get a side-by-side comparison without having to sit through multiple sales pitches.