How Much Does a PEO Cost? Compare Quotes Without Bad Math

There is no public, authoritative PEO price benchmark that can tell a specific employer what it should pay. PEOs generally use custom quotes, and the total invoice can combine an administrative fee, health and ancillary premiums, workers compensation, employment taxes, and incidental charges. A range without quote dates, sample size, employer mix, and included cost categories is an estimate, not a market rate.

Buyers can evaluate a proposal by comparing its components instead of relying on one "all-in" number.

The two common administrative-fee models

Per employee per month, or PEPM. The PEO charges a stated administrative amount for each active employee. Confirm how the contract treats part-time employees, employees on leave, mid-month hires and terminations, owners, and zero-pay employees.

Percentage of payroll. The administrative fee is calculated from gross wages. This makes the fee rise with salaries, bonuses, commissions, and raises unless the contract excludes them. Convert the fee to PEPM before comparing it with a flat proposal.

Use this formula:

annual percentage fee = included annual payroll × quoted percentage

equivalent PEPM = annual percentage fee ÷ 12 ÷ average covered employees

For example, if a proposal charges 3 percent on $1.2 million of included payroll for 20 employees, the hypothetical administrative fee is $36,000 per year, or $150 PEPM. The 3 percent and the result are an arithmetic example, not a claim about the market.

Unbundle the invoice

Require every finalist to return the same cost schedule. At minimum, separate these categories:

1. Administrative fee. State the pricing model, the employees and wages included, minimum charges, and scheduled increases.
2. Health and ancillary premiums. Show each plan and coverage tier, employer contribution assumptions, participation requirements, and the effective date.
3. Workers compensation. Show payroll by class code, rate per $100 of payroll, experience-rating treatment, assessments, and policy fees.
4. Employment taxes. Separate FICA, FUTA, and each state's unemployment and other payroll taxes. Identify whose account and rate apply.
5. Incidental fees. Include implementation, off-cycle payroll, checks, garnishments, tax amendments, reporting, integrations, and termination charges.

Do not compare a bundled PEO invoice with a payroll-software subscription. The PEO invoice may contain insurance and statutory amounts that would exist under either structure. Compare like with like.

Why state unemployment needs its own line

State unemployment reporting is not governed by one national PEO rule. Florida, for example, allows a PEO to use either its regular method or a client-level method. Under the client method, the state creates separate accounts and rates for the PEO's clients. The Florida Department of Revenue explains both methods and how an employer's rate may be treated after leaving.

For each state, ask the PEO to identify:

• The account under which wages will be reported
• The state-assigned rate and the effective rate charged to the client
• Whether the PEO adds a service charge or markup
• How the client's experience develops while in the arrangement
• What happens to that experience when the relationship ends

The answer should come from the PEO and, for a material state, be checked against the state tax agency.

Test the benefits claim with the same census

A statement that the PEO has "better buying power" is not a quote. Benefits results depend on the carrier, network, plan design, employee locations and ages, participation, employer contribution, underwriting or funding structure, and renewal timing.

Give the PEO and the outside benefits adviser the same census and effective date. Compare total premium and employee payroll deductions, but also compare coverage. A cheaper plan with a narrower network or higher out-of-pocket exposure is not the same product.

PEO health arrangements can also have different legal structures. The Department of Labor explains that PEO arrangements covering employees of multiple client employers are generally multiple employer welfare arrangements. Ask who sponsors the plan, who insures or funds it, which documents govern, and which state regulators have authority.

Compare the non-PEO alternative accurately

Payroll software is usually priced as a monthly base fee plus a per-person fee. As checked on July 14, 2026, the official starting prices published by Gusto and OnPay were each $49 per month plus $6 per person.

At those published starting prices:

Employees	Monthly software price	Effective PEPM
5	$79	$15.80
10	$109	$10.90
25	$199	$7.96

Those figures cover the advertised entry-level software plan, not health premiums, workers compensation premiums, state registrations, an HR professional, or every add-on. Vendor prices can change, so follow the linked pricing pages before using the figures in a budget.

Contract costs buyers miss

The price is not limited to the recurring invoice. Read the service agreement and fee schedule for:

• Implementation and setup charges
• Minimum monthly charges and annual fee increases
• Benefits-renewal notice and the time available to shop alternatives
• Off-cycle payroll, corrections, custom reports, and integrations
• Workers compensation audits and class-code changes
• Data-export fees, formats, and delivery timing
• Termination notice, anniversary windows, and early-exit charges
• Tax responsibilities and indemnification after termination

Treat a long or narrow exit window as a financial term. It can force an employer to accept another renewal or operate an expensive transition.

How to judge published price ranges

A price range is useful only when its method is clear. Check whether the publisher discloses:

• Quote collection dates
• Number of quotes and unique PEOs
• Employer headcount, payroll, industries, and states
• Whether high-risk industries or very small groups were included
• PEPM versus percentage pricing and the conversion method
• Whether taxes, benefits, workers compensation, and fees were excluded or included
• Median and percentile results, not just the lowest and highest observations
• Whether providers paid to participate or could review conclusions before publication

If those details are missing, treat the range as a planning estimate and base the decision on normalized quotes for your workforce.

The buyer's decision sheet

Give every provider the same census. Require the same cost categories. Convert percentage fees to PEPM using actual payroll. Compare benefits at equivalent coverage, inspect state unemployment treatment state by state, and price the exit terms. That process produces a conclusion the employer can defend even when the market does not publish a dependable average.

Primary and official sources

• Florida reemployment tax for PEOs, Florida Department of Revenue
• MEWAs Under ERISA, U.S. Department of Labor
• Gusto pricing, Gusto
• OnPay pricing, OnPay