PEO Pricing: Understanding the Percentage Model: Part 4 of 4

This article continues our discussion of PEO pricing options. As an HR leader, you know firsthand the immense effort required to handle your company’s HR needs. From payroll and compliance to recruitment and training, HR tasks are critical yet time-consuming. Often these functions pull your focus away from more strategic initiatives that drive business growth.

Partnering with a Professional Employer Organization (PEO) can lift these burdens so you can devote your talents where they matter most. PEOs take care of HR services like:

  • Payroll and tax administration
  • Health insurance and retirement plans
  • Compliance with employment regulations
  • Hiring, onboarding, and training
  • Workplace safety programs

In this article, we’ll explain the payroll percentage fee structure commonly used by PEOs. Understanding how PEO pricing works can help you evaluate if outsourcing your HR through a PEO makes business sense.

Image of an HR leader considering PEO pricing.

Payroll Percentage Model

This PEO pricing option is not an approach that nickel-and-diming clients with per-service fees, PEOs can charge a single bundled fee. This fee is a percentage of the client’s total payroll, typically ranging from 3-15%.

The exact percentage depends on factors like:

  • Company size and number of employees
  • Industry risk level
  • Types of benefits offered
  • Degree of regulation

Larger companies with more employees generally pay a lower percentage. High-risk industries like manufacturing or construction pay a higher rate due to workers’ compensation costs.

How Payroll Percentage Pricing Benefits HR Leaders

This streamlined pricing structure offers multiple advantages:

It’s Simple

A percentage of payroll is easy to understand. You already know your payroll total, so applying a 3-15% fee provides a clear estimate of PEO costs. There’s no decoding complex pricing schemes.

It’s Stable

Since payroll tends to remain stable month-to-month, the PEO fee also stays relatively fixed. Sudden cost spikes are unlikely, enabling confident budgeting. The percentage may be adjusted at renewal but avoids surprise fees.

It Bundles Services

A single fee conveniently bundles a comprehensive suite of HR services. You don’t have to parse individual options. The fee covers everything required for complete HR support.

It Aligns Incentives

PEO revenue rises when client payroll rises. This shared motivation creates efficiency, as both parties want to control payroll costs wisely.

It Provides Quality Benefits

By accessing the PEO’s larger benefits pool, you can offer Fortune 500 benefits at an affordable rate. PEOs leverage scale to deliver savings passed on through the bundled fee.

It’s Tax Deductible

PEO fees are deductible business expenses, and the tax savings make services more affordable.

Let PEO Experts Handle HR Tasks

For HR professionals seeking to offload transactional duties and focus on high-value projects, a PEO can be an appealing option. While the payroll percentage model may seem unfamiliar at first, the simplicity and predictability of the pricing structure offer stability and confidence.

Partnering with PEO experts could free you from daily HR distractions. And contracting services through a single, straightforward percentage of payroll fee simplifies cost analysis. Evaluate whether outsourcing HR through a PEO supports your organization’s strategic goals so you can devote your talents where they matter most.

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