Business Finance

How Much Does it Cost to Use a PEO?

How Much Does it Cost to Use a PEO?
Written by John

The day to day administration can cause difficulty in finding time to manage and grow your business productively. Have you briefly heard of a PEO company, and wondered what is a PEO company? A PEO company stands for a Professional Employer Organization, which is a company that can help small businesses with managing there payroll-related taxes, human resources, and any other employee-related administration tasks that are needed to run your business.

How Does a PEO Work?

PEO companies are different from HR outsourcing firms because they become co-employers of your businesses employees. While you are running your day-to-day business, your employees have two employers, you as their direct supervisor and the PEO company for legal, compliant HR, benefits, and payroll processing.

Businesses employees are combined together, so that a PEO can negotiate better rates on insurance. PEO companies have established partnerships with larger insurance companies, which helps them negotiate for better benefit plans and services than a small business can obtain on their own. This is why PEO companies can offer a more extensive selection of services at reasonable prices, like commuter benefits, 401(k) plans, and workers compensation insurance.

A PEO as a Co-Employer

Co-employment involves both your business and the PEO company sharing the legal responsibility of your employees. You maintain control of everyday business decisions, including marketing, customer service, or directing what work gets done. But, HR-related issues such as safety, labor law compliance, and employment discrimination are handled by the PEO.

The Cost of a PEO Companies

Each PEO company has their own fees they charge, and usually they charge in two ways, such as flat per-employee, per year charge, or as a percentage of total payroll. A per-employee, per-year (PEPY) quote charges a flat fee per employee, usually between $900-$1,500 per employee, per year, charging this way helps your business expenses be more predictable. The other method of pricing for PEO companies is calculated by taking a percentage of total payroll for each pay period (usually between 3-8 percent). Good PEO companies will charge by either method subject to the requirements and preferences of your business.

You are paying a PEO company for HR compliance and support, payroll and tax administration, workplace safety and risk management, employee benefits administration, and access to HR technology. In both fee scenarios, your business could incur additional fees because of other items, like additional employee benefits, talent management merchandise, and recruitment services. For a small business that is growing, a PEO company is less than the cost of hiring a full-time employee to complete these tasks. Some other fees that can impact your pricing are setup fees, monthly service fees, training and consulting fees, health insurance premium contributions, workers compensation contributions, workers compensation premiums, and any other company-sponsored benefits.

Who Should Work for a PEO Company

PEO companies are best for smaller businesses that do not have in-house HR, benefits, or payroll administration that want to reduce their risk of labor costs, or offer benefits. A small business benefits the most from partnering with a PEO company, and receives the perks that larger companies can offer. Here are companies that would benefit from using a PEO service:

  • Start-up businesses that want to provide employees with full benefits
  • Small businesses that want to keep their workers compensation costs low
  • Companies that are forward-thinking and want to improve experiences for their employees, recruiting top talent and employment brand
  • A small business that want to be sure they are accurate with their hiring and payroll
  • A small business that wants to reduce compliance risks

Take Away

A PEO company is a co-employment option for small businesses that will help with human resources, pay, and employee benefits. PEOs will charge based on employees and can range from under a hundred a dollar a month per employee to thousands of dollars a year, depending on the PEO companies payment structure. If you are a start-up or small business and need help with payroll compliance, tax processing, and employee benefits, a PEO company might work for you.

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John

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