Every PEO pricing model is one of two shapes: a percentage of your total payroll, or a flat fee per employee per month, usually shortened to PEPM. Industry guidance puts the percentage model anywhere from 2% to 15% of payroll, a wide band because the fee bundles very different things at different vendors: administration alone at one end, workers' compensation and unemployment insurance handling and benefits administration at the other. Comparing quotes across the two models, and across vendors within one model, only works once you convert everything to the same unit and separate the administrative fee from pass-through costs. This page explains both models, what sits inside the fee, and the variables that actually move a quote.
Percentage of payroll: simple to quote, expensive to grow with
Under the percentage model the PEO's fee is a fixed share of gross payroll, so the invoice rises automatically with every raise, bonus and new hire, whether or not the PEO's workload changes. That makes it easy to start with and progressively worse value as average salaries climb: a company of well-paid engineers pays far more per employee than a retailer with the same headcount, for the same administration. The model suits payrolls that are large in headcount and modest in average wage, and vendors like it because revenue scales with client growth. If you take a percentage quote, model it against your actual payroll trajectory for the next two or three years, not the payroll you have today.
Per employee per month: predictable, and easier to audit
The PEPM model charges a flat monthly amount for each employee, which makes the cost line predictable and the comparison across vendors direct. It decouples the fee from wages, so raises stop inflating the PEO's revenue, and it exposes tiering clearly: vendors typically price service bundles at different PEPM levels, with payroll-only tiers at the bottom and full benefits administration at the top. The number to interrogate is what the PEPM excludes. Benefit premiums, state unemployment costs and workers' compensation are frequently pass-through items billed on top, and two vendors quoting similar PEPM figures can differ widely once those are added. Ask for a sample invoice for a company your size; it settles what the tier really contains.
What moves a quote, whichever model you pick
PEO pricing is underwriting as much as it is a rate card. The variables that move a quote: your industry's workers' compensation classification codes and claims history, your state unemployment insurance experience, the average wage and the mix of salaried and hourly staff, headcount and its stability, and how rich a benefits package you want the PEO to administer or sponsor. This is why published prices are rare in the PEO market and why the same company can receive quotes that differ substantially for near-identical scope. It is also why IRS CPEO certification is worth checking alongside price: the certification program examines financial responsibility and tax compliance, the parts of a cheap quote you cannot see.
Converting quotes so they compare
Reduce every quote to the same three numbers: administrative fee per employee per month, itemised pass-through costs per employee per month, and one-time or exit charges. A percentage quote converts using your real payroll, not the vendor's example. Then compare against the alternatives on the same basis: an ASO, which administers without co-employment, typically charges per-employee monthly rates around $50 to $250; an employer of record, for hires abroad where you have no entity, charges a flat monthly fee on top of the full foreign employment cost. The verified vendor pricing on this site is gathered on exactly that like-for-like basis, and the client service agreement, not the quote, is what finally controls what you pay.
Questions people ask about peo pricing model
What percentage of payroll does a PEO charge?
Published guidance puts the range at roughly 2% to 15% of total payroll, with the spread reflecting how much the bundle includes, from bare administration to workers' compensation and full benefits handling. Convert any percentage quote to a per-employee monthly figure using your actual payroll before comparing.
Is percentage-of-payroll or PEPM pricing better?
PEPM is more predictable and easier to audit, and it does not inflate with raises. Percentage pricing can be competitive for large, lower-wage payrolls. The deciding factor is your salary mix and growth path, modelled over the contract term.
Why do PEO quotes for the same company differ so much?
Because quotes are underwritten: workers' compensation class codes, claims history, state unemployment experience, wage mix and desired benefits all move the price. Differences persist even for identical scope, which is why itemised quotes are the only comparable ones.
What should never be hidden inside a PEO fee?
Pass-through costs: benefit premiums, workers' compensation and unemployment charges. Insist these are itemised separately from the administrative fee; a blended single number cannot be compared across vendors or audited later.