How much should you pay for a PEO?

My mom explained to me one day the difference between price and value. It always stuck with me even to this day. It goes likes this - price is what you pay, and value is what you get. In every instance, since I learned this it has rang true.

In the world we work in price plays an integral role in who our clients choose as their Professional Employer Organization. As this relates to PEO, it’s vital to understand what you are paying for. Keep in mind each PEO is different, but these are the standard items you will pay for.
 

Administration Fee

Your administration fee is what you pay the PEO for their core services - payroll, HR, benefits administration and workers’ comp administration. The administration fee can either be a fixed flat fee or a percentage of payroll. Either way can work best for your organization depending on your business.

If you have a large payroll, a flat fixed fee is best, if you have a small payroll or seasonal business a percentage of payroll is best. What you should avoid are PEOs that do not disclose their administration fee. PEOs who do this bundle their administration fees with your State and Federal taxes as well as your Workers’ Comp insurance.

PEOs who are not transparent with their administration fees typically use the exorbitant fees to “buy down” the medical rates. While this is not illegal, it’s not in your best interest.
 

Employee Benefits Administration

A major part of joining a PEO is because of access to Fortune 500 Employee Benefit Plans at affordable rates. An often overlooked but huge aspect is that PEOs alleviate all of the benefits administration. The PEOs handle your enrollments, COBRA processing, claims management, renewals, ACA and provides service to your employees.

Outside of the PEO, these responsibilities fall on your staff, and the costs for COBRA and ACA can be rather expensive. Couple that with the fact that most PEOs experience single-digit benefit renewals.

Workers’ Compensation Administration

In PEO Workers’ Compensation Insurance is either a non-issue or a reason for joining one. Either way, the PEO manages your policy handles your claims, and offers you a Pay-As-You-Go option eliminating year-end audits. If you have riskier Workers’ Comp Class Codes, the PEO will save you money and also lower your Modification rate in most cases. Some PEOs even share an annual dividend to incentivize their clients.

If you are not in a PEO Worker’s Comp falls on your shoulders. If you operate a blue-collar business joining a PEO is the best way to manage your Workers’ Comp.

Payroll and Taxes

Payroll is the most important day to your employees, making sure your State and Federal taxes are paid on time is important to you being in business. The PEO handles both of these for you and ensures you are in compliance.

Because of Co-Employment, a PEO is required to ensure you are always compliant and will face the penalty in the event you are not. The PEO keeps all of your I-9s, W-2s, and relevant employee documentation. Without a PEO these responsibilities fall on you to take care of or outsource.

Human Resources

Having the right Human Resources advice is the difference between staying in business and going out of business. Most businesses are one to two lawsuits from being out of business and regardless of who wins, it’s never a pleasure. Being part of a PEO affords you access to SHRM certified HR experts that otherwise would be out of reach from a budget standpoint. To staff an HR department like a PEO would cost you out of business.

From employee handbooks, offer letters to ensuring you are state and federally compliant the PEO will make sure that you are covered. If the PEO makes a mistake the PEO will be on the hook for any loss, so not only are you covered but you are protected from a huge loss.  

So how much should you pay?

While the amount varies three factors to consider are how many employees you have, how big is the PEO and are transparent in what they charge? Administration fees should be clearly identified and like anything in life; they are negotiable.

When you are a smaller company, you will pay a larger administration fee, but as you grow it should be reduced. Ask your PEO what the administration fee will be as you grow and hire more employees. The size of the PEO also plays a part in how much you will pay. The large, publicly-traded, big-box PEOs have massive staffs and gigantic marketing budgets; therefore you will help pay for them. Smaller PEOs are more agreeable to negotiate administration fees. Lastly is the PEO transparent with the administration fees? If the PEO tells you they are bundled together and can not be broken out - then you should look elsewhere.

Price versus Value

The price you pay should be in line with the value you receive from the PEO. PEOs provide a myriad of services and help companies operate more efficiently at a reduced cost. The smart way to always ensure you are getting the best price for value is to compare PEOs and learn exactly what you will receive for the cost. If you would like us to help you, you can get started here.