How Much Does a PEO Cost? 2025 Pricing Guide with ROI Calculator

“How much will this actually cost us?” It’s the first question every business owner asks about PEO services, and y’know, rightfully so. After helping hundreds of companies evaluate PEO partnerships at Hotaling Insurance Services, we’ve learned that focusing solely on the sticker price is the fastest way to make the wrong decision.

The real question isn’t what a PEO costs—it’s what not having comprehensive HR support is costing you right now in inefficiency, compliance risks, and lost opportunities.

Let’s break down the true economics of PEO partnerships with real numbers, industry benchmarks, and a framework to calculate your specific ROI.

PEO Pricing Models: How Fees Are Structured

Percentage of Payroll Model (Most Common)

Typical Range: 2-12% of gross annual payroll

This model scales with your business size and provides predictable budgeting. The percentage decreases as your employee count increases, reflecting economies of scale.

Company Size Breakdown:

• 10-24 employees: 8-12% of payroll
• 25-49 employees: 6-10% of payroll
• 50-99 employees: 4-8% of payroll
• 100-499 employees: 3-6% of payroll
• 500+ employees: 2-4% of payroll

Per-Employee Monthly Fee Model

Typical Range: $150-$300 per employee per month

Some PEOs prefer flat per-employee pricing, which can be advantageous for companies with higher-paid employees since the fee doesn’t increase with salary levels.

Service Level Variations:

• Basic package: $150-$200 per employee
• Standard package: $200-$250 per employee
• Premium package: $250-$300+ per employee

Hybrid Models

Many modern PEOs combine both approaches:

• Base percentage of payroll (2-4%)
• Plus per-employee fee for premium services ($50-$100 monthly)
• Additional charges for specialized services

Real-World Cost Examples by Industry

Technology Startup (35 employees, $3.2M payroll)

• PEO fee: 6% of payroll = $192,000 annually
• Per employee: $457/month
• Includes: Full benefits, stock option administration, multi-state compliance
• ROI drivers: 40% reduction in benefits costs, avoided $25K compliance penalty

Manufacturing Company (85 employees, $4.8M payroll)

• PEO fee: 5% of payroll = $240,000 annually
• Per employee: $235/month
• Includes: Workers’ comp management, safety programs, OSHA compliance
• ROI drivers: 35% workers’ comp savings, eliminated safety violations

Professional Services Firm (22 employees, $2.1M payroll)

• PEO fee: 8% of payroll = $168,000 annually
• Per employee: $636/month
• Includes: Professional liability coordination, client-required certifications
• ROI drivers: Access to enterprise benefits, freed 15 hours weekly for billable work

A Houston accounting firm recently shared: “We calculated that our senior partner was spending $75,000 worth of billable time annually on HR tasks. The PEO cost $145,000 but freed him to generate $200,000 in additional revenue. The net benefit was obvious.”

Get a customized cost analysis based on your specific business profile.

Hidden Fees and Cost Gotchas to Avoid

Common Additional Charges

Setup and Implementation Fees:

• One-time setup: $500-$5,000
• Data conversion: $1,000-$3,000
• Employee onboarding: $25-$100 per employee
• System integration: $500-$2,500

Ongoing Additional Fees:

• Multi-state operations: $100-$500 per state monthly
• Custom reporting: $50-$200 per report
• Additional payroll runs: $25-$100 per run
• Termination fees: 30-90 days of service fees

Premium Service Upgrades:

• Executive benefits: $100-$500 per executive monthly
• Enhanced workers’ comp: 0.5-2% of payroll additional
• Premium technology features: $5-$25 per employee monthly
• Dedicated account management: $500-$2,000 monthly

Red Flags in PEO Pricing

Avoid PEOs that:

• Quote prices significantly below market (4%+ below competitors)
• Require long-term contracts with heavy termination penalties
• Bundle mandatory services you don’t need
• Lack transparent fee structures
• Quote without understanding your business needs

Questions to ask every PEO:

1. What services are included in the base fee?
2. What additional charges should we expect?
3. How do fees change as we grow or shrink?
4. What are the contract terms and termination requirements?
5. Can you provide client references with similar business profiles?

The True Cost of DIY HR Management

Before evaluating PEO costs, calculate what you’re currently spending on HR functions:

Internal HR Costs Breakdown

Personnel Costs:

• HR manager salary: $55,000-$85,000 annually
• Benefits for HR staff: 25-35% of salary
• Payroll administrator: $35,000-$50,000 annually
• Administrative support: $25,000-$40,000 annually

Technology and Systems:

• HRIS platform: $3,000-$15,000 annually
• Payroll software: $1,200-$6,000 annually
• Benefits administration: $2,400-$8,000 annually
• Compliance monitoring tools: $1,000-$5,000 annually

Professional Services:

• Employment law counsel: $5,000-$25,000 annually
• Benefits consulting: $3,000-$10,000 annually
• Audit and compliance support: $5,000-$15,000 annually
• Recruitment services: $10,000-$50,000 annually

Risk and Liability Costs:

• Employment practices liability: $2,000-$8,000 annually
• Workers’ compensation (self-insured): $15,000-$100,000+ annually
• Compliance penalties (average): $5,000-$50,000
• Legal settlements and defense: $10,000-$250,000+

Total Internal HR Cost Example (50 employees)

Annual Internal Costs:

• Personnel: $85,000
• Technology: $12,000
• Professional services: $20,000
• Insurance and risk: $35,000
• Total: $152,000 annually
• Per employee: $3,040 annually ($253/month)

Comparable PEO Cost:

• 50 employees at $2.5M payroll
• 6% PEO fee: $150,000 annually
• Per employee: $3,000 annually ($250/month)

The numbers often surprise business owners. A PEO frequently costs the same or less than quality internal HR management while providing superior services and risk protection.

ROI Calculator: Measuring PEO Value

Quantifiable Benefits

Direct Cost Savings:

• Benefits cost reduction: 15-30% typical savings
• Workers’ comp savings: 10-40% reduction in rates
• Reduced legal/compliance costs: $10,000-$50,000 annually
• Administrative time savings: 10-20 hours weekly

Revenue Enhancement:

• Owner/manager time redirect: 5-15 hours weekly to revenue activities
• Improved talent attraction: 25% faster hiring, 20% better retention
• Scalability improvements: Support 2-3x growth without proportional HR increases
• Client/investor confidence: Enhanced compliance posture

5-Year PEO ROI Projection (50-employee company)

Industry-Specific Cost Considerations

High-Risk Industries (Construction, Manufacturing)

Higher costs due to:

• Increased workers’ compensation requirements
• Enhanced safety program needs
• Additional regulatory compliance
• Higher liability exposure

Typical premiums: 1-3% additional on base PEO fees

Professional Services (Legal, Accounting, Consulting)

Specialized needs include:

• Professional liability coordination
• Client compliance requirements
• Flexible benefits for partners
• Project-based payroll complexity

Typical costs: 6-9% of payroll for comprehensive services

Technology and Startups

Unique requirements:

• Stock option administration
• Rapid scaling support
• Multi-state compliance from day one
• Flexible benefits for diverse workforce

Typical costs: 5-8% of payroll with growth-friendly contracts

Healthcare and Medical Practices

Specialized considerations:

• HIPAA compliance expertise
• Professional licensing tracking
• Malpractice insurance coordination
• Credentialing support

Typical costs: 7-10% of payroll for full compliance support

A medical practice client in Houston noted: “We thought 9% of payroll was expensive until we calculated that one HIPAA violation fine would cost more than three years of PEO fees. The peace of mind alone justified the investment.”

Negotiating Better PEO Pricing

Leverage Points for Better Deals

Company Strengths:

• Clean claims history
• Low-risk industry classification
• Strong financial position
• Multi-year commitment capability
• Referral potential

Market Timing:

• End of PEO’s fiscal year (often December)
• Slow sales periods (typically Q1)
• When switching from competitors
• During initial market expansion

Negotiable Terms

Fee Structure:

• Reduced percentages for multi-year contracts
• Graduated rates tied to employee growth
• Caps on annual increases
• Volume discounts for multiple locations

Service Inclusions:

• Waived setup fees
• Enhanced reporting at no additional cost
• Dedicated account management
• Premium technology features

Contract Terms:

• Shorter initial commitment periods
• Reduced termination penalties
• Performance guarantees
• Service level agreements

Making the Investment Decision

PEO Cost Justification Framework

Calculate your break-even point:

1. Current HR costs (internal + external + risk)
2. PEO all-in costs (fees + any additional charges)
3. Quantifiable benefits (savings + efficiency gains)
4. Strategic value (growth enablement + risk reduction)

Decision matrix:

• Total cost lower + services better = Obvious yes
• Total cost similar + services better = Strong yes
• Total cost higher + services significantly better = Depends on growth plans
• Total cost higher + services comparable = No

When PEO Costs Don’t Make Sense

Situations where internal HR may be more cost-effective:

• Very small companies (under 10 employees)
• Simple business models with minimal compliance needs
• Industries with specialized requirements not served by PEOs
• Companies with excellent existing HR infrastructure
• Businesses in stable, no-growth phases

Frequently Asked Questions

How much does a PEO typically cost?

PEO costs typically range from 2-12% of gross payroll or $150-$300 per employee per month. For a 25-employee company with $50,000 average salaries, expect to pay $75,000-$150,000 annually for comprehensive PEO services.

What factors affect PEO pricing?

Key factors include company size, industry risk level, geographic location, services selected, claims history, and benefits package preferences. High-risk industries and smaller companies typically pay higher percentages.

Are there hidden fees with PEO services?

Reputable PEOs include most services in their base fee, but watch for setup fees, termination charges, additional state fees, custom reporting costs, and premium benefit upgrades not included in standard packages.

Is a PEO worth the cost for small businesses?

PEOs often provide positive ROI for businesses with 15+ employees through benefits cost savings, compliance protection, and operational efficiencies. Companies with 25+ employees typically see the strongest return on investment.

How do PEO costs compare to internal HR departments?

For companies under 100 employees, PEO costs are often comparable to or less than maintaining quality internal HR capabilities, while providing superior expertise and risk protection.

Invest in Your Business Growth, Not Just HR Processing

PEO costs shouldn’t be viewed as an expense but as an investment in your business’s operational excellence and growth capability. The question isn’t whether you can afford PEO services—it’s whether you can afford the hidden costs, risks, and missed opportunities of inadequate HR support.

The companies that make the smartest PEO investments understand that the real value isn’t in the services they receive, but in the strategic advantages those services enable: better talent, faster growth, reduced risk, and the ability to focus on what they do best.

Ready to see exactly what a PEO would cost for your specific situation? Our team at Hotaling Insurance Services provides objective PEO cost analysis with no obligations. We’ll help you understand not just the costs, but the complete financial impact—positive and negative—of PEO partnerships.

Get your customized PEO cost analysis with detailed ROI projections based on your business profile.

About the Author The Hotaling Insurance Services team consists of licensed insurance professionals and business consultants with extensive experience helping companies optimize their HR operations and manage costs. We provide objective guidance on PEO partnerships and their financial implications.

Last Updated: September 29, 2025

Disclaimer: This article is for informational purposes only and does not constitute financial, insurance, or legal advice. Actual PEO costs vary based on numerous factors specific to your business situation.