PEO Buyer's Guide

Professional employee organization pricing

Pricing for professional employee organization services starts with an initial setup fee - typically $1,000-$5,000 - before the PEO vendor becomes your co-employer. This is a one-time charge you pay regardless of how long you work with the PEO.

You then pay the professional employee organization a percentage of gross payroll. The standard rate is 2-6% of each employee per pay period. The actual rate can vary based on the number of services you use and what industry you are in; restaurants with low salaried employees may charge a higher rate, for example. PEO vendors also have to factor in their workers compensation costs that can range from 1-10% of every employee's salary - clerical industries are at the low end with manufacturing sectors coming in much higher. Most PEO vendors will provide volume discounts for large companies.

There are professional employee organization providers that will bundle all services - everything from payroll and workers compensation to assisting with writing offer letters to prospective employees. That could cost as much as 12-15% of gross payroll, but it can be worth it if you take full advantage of all the services offered.

Some PEO vendors may offer fixed pricing based on your total gross payroll. This is essentially the same idea as percentage-based pricing - only they factor in the percentage and express it in dollar amounts. The one advantage to fixed pricing is that it's constant and isn't subject to salary increases and bonuses. However, a PEO provider will typically account for such changes when working on an agreement.

PEO services typically charge for other services beyond basic administration. Additional PEO costs include employee background checks ($40-$75), drug screenings ($75-$120), and adding or removing employees from the payroll ($50 each). Other costs - taxes, recruitment advertisements and copywriting, and onsite training - can be expressed as fixed rates or an additional percentage of salaries.

PEO client-service agreement
A co-employer arrangement with a professional employment organization vendor is a special kind of contract known as a client-service agreement. Generally, PEO vendors look for a one-year commitment.

If you want to cancel PEO services, you can simply choose to not call in payroll. This means that the PEO provider can't draw their fees, but then the immediate responsibility for your employees defaults back to you. If a PEO agreement isn't working out and you want to cancel it or migrate to a new provider, giving 30 days notice is standard.

Before you sign any contract, review the service agreement carefully. Make sure the vendor clearly states what the company's liabilities and responsibilities are so you are fully protected in case of an incident. Also find out what guarantees the vendor provides and what they will do if there is a problem.

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