Understanding PEO Costs in the US
The Mystical World of PEOs
If you are a small or medium-sized business owner, you may have heard of the term PEO, which stands for professional employer organisation. It is a company that provides outsourcing services for employee-related tasks, such as payroll, benefits, compliance, and HR administration. By partnering with a PEO, you can save time and money, reduce risks and liabilities, and access better benefits and technology for your employees.
However, before you decide to work with a PEO, you may wonder how much does a PEO really cost? How do PEOs charge for their services? What are the additional costs associated with PEOs? And what factors affect the PEO costs for your business?
In this blog post, we will answer these questions and more. We will explain the different PEO pricing models, the additional costs associated with PEOs, and the factors that affect PEO costs, all within the context of the US market. By the end of this post, you will have a better understanding of PEO costs and how to choose the best PEO for your business.
Understanding PEO Pricing Models
Jumping right into it, one of the first things to understand about PEO costs is how PEOs price their services. There are three main pricing models that PEOs use: flat-fee pricing, percentage of payroll pricing, and hybrid pricing. Let’s take a look at each of them.
Flat-Fee Pricing Model
The flat-fee pricing model, also known as the per employee per month (PEPM) is where the PEO charges a fixed amount for each employee that is covered by the PEO services. The flat fee can range from $40 to $160 per month or from $900 to $1500 per year per employee.
The main advantage of this model is that it is simple and transparent. You know exactly how much you are paying for each employee and what services you are getting. However, it may not reflect the actual value or cost of the services provided by the PEO. For example, if you have high-paid employees or employees with complex benefits needs, you may be paying more than what the PEO is actually spending on them.
Percentage of Payroll Pricing Model
The percentage of payroll pricing model is also known as the bundled or all-inclusive pricing model. In this model, the PEO charges a percentage of your total payroll for all the employees that are covered by the PEO services. The percentage can range from 2% to 12% of wages.
The advantage of this model is that it is flexible and scalable. You pay according to your payroll size and fluctuations. However, it may not be clear or consistent. You may not know exactly what services are included in the percentage or how the percentage is calculated. Which may lead to you paying more if your payroll increases due to raises, bonuses, overtime, etc.
Hybrid Pricing Model
The hybrid pricing model is also known as the unbundled or a la carte pricing model. In this model, the PEO charges a combination of flat fees and percentages for different services. For example, the PEO may charge a flat fee for payroll administration and a percentage for benefits administration.
The advantage of this model is that it is customizable and transparent. You can choose which services you want from the PEO and pay accordingly. You can also see how much each service costs and how it is calculated. However, it may be complex and confusing as it may lead to dealing with multiple invoices and fees from different providers or vendors.
Additional Costs Associated with PEOs
Besides the main pricing models, there are some additional costs associated with working with a PEO such as implementation or setup fees which covers the cost of setting up an account, transferring of relevant data as well as integration of your local systems with the PEO’s preferred systems.
There may also be administration and termination fees on top of the main pricing model which covers closing of accounts, customer service, management of accounts, terminating of benefits, etc. and this could cost upwards of $5000.
Factors that Affect PEO Costs
The PEO costs for your business may vary depending on several factors, such as:
Number of Employees
The number of employees you have can affect your PEO costs in two ways. First, the more employees you have, the more you will pay in total for the PEO services. Second, the more employees you have, the lower your PEO costs per employee may be. This is because PEOs may offer discounts or economies of scale for larger groups of employees.
Location of Business
The location of your business can affect your PEO costs in two ways. First, the location of your business can affect the cost of benefits, such as health insurance, workers’ compensation, etc. Different states and regions may have different regulations, rates, and requirements for these benefits. Second, the location of your business can affect the availability and quality of PEOs. Some PEOs may not operate or have experience in certain states or regions. You may have to pay more or compromise on the services if you work with a PEO that is not familiar with your local market.
Choose the Best PEO for You
Working with a PEO can be a great way to save time and money, reduce risks and liabilities, and access better benefits and technology for your employees. However, before you choose a PEO for your business, you need to understand how much a PEO really costs.
PEO costs depend on various factors, such as the pricing model, the additional costs, the number of employees, and the location of business. You need to compare different PEOs and their costs based on these factors and your business needs. One such service, as mentioned, is payroll handling, and if you ever find yourself in need of such a service, do consider Aniday.
We, at Aniday, hope this blog post has helped you understand PEO costs and how to choose the best PEO for your business. If you have any questions or comments, please feel free to contact us. We would love to hear from you!
