What should you be paying for your PEO?
Professional Employer Organizations offer a plethora of advantages to their clients. So it’s no wonder they have become so popular amongst small and medium size businesses. While it’s undoubtedly to your advantage to use a PEO, most don’t know which pricing model is best. I’d imagine some people might not even know that different models exist.
First, you need to know what an administration fee is and it’s quite simply the fee the PEO charges you per employee for the PEO’s services. Every PEO charges it, and it is based on a few things, those are.
Your team size
PEO’s offerings - are HRIS, ATS, Recruiting, TimeClocks, etc.
Location
Your ability to negotiate
A lot of companies that we work with make a rookie mistake. They push the PEOs to lower their fees for this and that without being with them for any length of time.
Ultimately, the PEO will make it up later in the relationship.
Different types of PEO Administration Fees
There are two different types of Administration Fee structures that PEOs use. The first is a Flat Fee per employee per month (PEPM). The second is a Percentage of Payroll (POP).
Flat Fee PEPM is just like it states, and you pay a flat, transparent fee per employee per month for each team member. This is ideal for high-wage base industries. A flat per-employee-per-month administration fee is a fixed charge applied to each employee every month, regardless of their payroll size.
This means that the administration fee will be the same for each employee, regardless of their salary or wage level.
Percentage of Payroll (POP) is based on the wages of your entire company. On the other hand, a percentage of the payroll administration fee is a charge calculated as a percentage of the total payroll for the organization. This means that the cost of the administration fee will vary based on the total payroll for the organization and varies as your payroll does.
PEOs that charge a POP often bundle your workers’ compensation and state and federal taxes. This makes it difficult to know exactly what you are paying.
If you are currently using a PEO and not sure what your Administration Fees are, use our calculator to find out.
Which one is best?
If you have a high wage base, then a Flat Fee PEPM is best. A POP is better for you if you have a low-wage base. Here’s why.
A high wage base will be charged more if you use a PEO that charges a Percentage of Payroll (POP). So it’s desirable to use a PEO that prices using a Flat Fee PEPM. A low wage base will make more sense using a Percentage of Payroll (POP); it often works well for hospitality businesses, restaurants, and seasonal companies.
Which PEOs charge what?
Each PEO has its own Administration Fee pricing model. The greatest way to ensure you get the fairest deal on your PEO is to work with a PEO Broker like Dinsmore Steele, and we can help you decipher which PEO makes the most sense for you and use our volume to get you a stellar deal. Get started today.
