How Much Does It Cost to Use a PEO?

Cost of a PEO

“How much does it cost to use a PEO” is an important question for any small business to ask. On average, a professional employer organization (PEO) will cost a business anywhere from 2% to 11% of all wages, or about $500 to $1500 per employee, per year. We’ll outline the many factors that determine the price of PEO services for your small business, so that you can determine how a professional employer organization like Canal HR can fit into your business’s budget.

Calculating the Cost of PEO Services

There are two main ways that a PEO will address the question “how much does it cost to use a PEO.” Depending on how your employees are paid, a PEO will either charge you a flat fee per employee, or they will charge you based on a percentage of all wages earned at your company in one year:

  • Employee-Based Fee: An employee-based fee from a PEO is best if your employees’ pay is at least partially dependent on variables, such as commission. A PEO will calculate the fees for their services based on the number of your employees in order to get a more stable calculation of their services.
  • Payroll-Based Fee: This is a more reasonable method of calculating PEO costs if your business’s payroll remains stable from month to month and is not dependent on mobile variables. By calculating your fees based on a percentage of your annual payroll, a PEO can help you easily determine the annual costs of their services.  

Fees Included in a PEO Services Bill: How Much Does It Cost to Use a PEO? 

“How much does it cost to use a PEO” depends on a wide variety of factors, including the size of your business, the services you want your PEO to handle, or even the size and scope of the PEO you decide to hire. Though these factors may vary from state to state, there are a few standard costs that will likely be included in any invoice from a PEO:

  • Federal Unemployment Tax Act (FUTA)
  • State Unemployment Tax Act (SUTA)
  • Federal Insurance Contributions Act (FICA)
  • Workers Compensation
  • Medicare

These factors are recognizable to any small business owner because these are generally costs that your business handles directly. When you hire a PEO, your business is still responsible for paying these taxes. However, you will instead pay these fees to your PEO who will then remit these payments to your state government and the federal government. 

How Much Does It Cost to Use a PEO? Additional Costs to Consider

Occasionally, PEOs will also charge additional administrative fees to allow them to perform specialty services, such as HR training modules, recruitment activities, or administrative assessments. Before signing a service contract with a PEO, you should ensure that you are familiar with what services will be automatically included in your billing and which services will require additional costs when performed. 

Breaking Down Your PEO Costs

As a small business leader, it’s important that you understand the many factors that determine the cost of the PEO services your business needs. When requesting a quote from a PEO, you can discuss with the sales team a breakdown of all the services that the PEO’s fee includes.

How PEOs Save Your Small Business Money and Time

When asking the question “how much does a PEO cost,” you should also consider how a PEO can actually save your small business and employees additional time and money. Small business leaders can spend up to 40% of their days handling the human resources tasks that leaders of large companies abdicate to various departments. PEOs are meant to reduce the monetary costs that small business leaders generally spend on these necessary administrative tasks in order to focus on other business needs, such as outreach and growth. Ultimately, the costs of hiring a PEO to handle your business’s administrative needs are often less than the costs of performing these services independently.  

Looking to Hire a PEO for Your Small Business? Look No Further Than Canal HR

If you’re still asking “How much does it cost to use a PEO?” and want to learn more about the ways in which a professional employer organization can save you time and money, give Canal HR a call today.

Canal HR is a Louisiana-based PEO with small business clients across the Southeastern United States. From payroll administration and employee benefits to human resources compliance, let us handle the administrative aspects of your business so that you can focus on your most important tasks. Contact one of our PEO specialists today to learn more about the services and competitive prices that Canal HR offers.