PEO vs Payroll Software: Compare Scope Before Price

Payroll software and a PEO are not equivalent products. Payroll software automates payroll and related filings under the employer's structure. A PEO combines payroll with a contractual allocation of employer functions that may include benefits, workers compensation, and HR support. The software subscription is usually much cheaper, but the PEO may be replacing several separate costs.

The comparison becomes misleading when payroll software is assigned an inflated per-employee price or when a PEO's bundled invoice is compared with software alone.

What payroll software costs

As checked on July 14, 2026, Gusto's official pricing listed its Simple plan at $49 per month plus $6 per person. OnPay's official pricing also listed $49 per month plus $6 per person.

At those published entry prices, five employees cost $79 per month, or $15.80 PEPM. Ten employees cost $109 per month, or $10.90 PEPM. Prices and plan features change, and add-ons can increase the total, so verify the vendor pages before budgeting.

Those subscriptions do not include health premiums or workers compensation premiums. They also do not automatically include every state registration, an assigned HR adviser, legal advice, or the employer's internal time managing the system.

What payroll software does

Modern payroll platforms can calculate payroll, make direct deposits, file federal and state payroll taxes, produce W-2s and 1099s, and maintain employee records. Product scope varies by plan. For example, Gusto's published entry plan is described as single-state payroll, while higher tiers include different HR and multi-state features.

The client remains responsible for choosing coverage, registering where required, making employment decisions, and checking the vendor's work. Outsourcing the calculation does not transfer every underlying employer duty.

What a PEO may add

Benefits access and administration. A PEO may offer plans that are not the same as the employer's direct small-group options. That can improve price or coverage, but neither result is guaranteed. Compare carrier, network, plan design, contribution, participation, funding or underwriting, and renewal terms on the actual census.

Workers compensation. A PEO may provide a pay-as-you-go program, claims support, and safety services. Payroll software may integrate with a separate pay-as-you-go policy as well, so compare the policy and services rather than the billing cadence alone.

HR support. Some PEOs provide an assigned adviser, leave administration, handbooks, and training. Service models and contractual scope vary widely. Ask who answers questions, their qualifications, response time, and which decisions the PEO will not advise on.

Employment-tax structure. A PEO may file aggregate returns under its EIN. A CPEO receives specific federal tax treatment for remuneration paid to qualifying worksite employees. The IRS distinguishes CPEOs from other third-party payers, so verify the entity and arrangement instead of relying on the PEO brand.

The benefits claim is conditional

A small employer can receive a stronger benefit proposal through a PEO, but "large-group purchasing power" is not a sufficient conclusion. The U.S. Department of Labor explains that a PEO health arrangement covering employees of multiple clients is generally a multiple employer welfare arrangement. The arrangement can be fully insured, self-funded, or structured in another permitted form, with federal and state regulation depending on the facts.

Use the same census to obtain the PEO quote and a broker-sourced alternative. Compare total premium and employee payroll deductions at equivalent coverage. Include the PEO administrative fee and contract terms when evaluating the difference.

Compare the full alternative

A fair non-PEO comparison may include:

• Payroll software and relevant add-ons
• Benefits premiums and broker or administration costs
• Workers compensation premium and policy fees
• HR consulting or internal staff time
• State registration and compliance costs
• Retirement-plan administration
• Implementation and switching costs

The PEO comparison should use the same categories. Exclude pass-through amounts from both sides or include them on both sides.

A decision framework without arbitrary cutoffs

Payroll software deserves serious consideration when the employer can source acceptable benefits and workers compensation directly, has manageable state complexity, and has someone accountable for HR decisions and vendor coordination.

A PEO deserves serious consideration when the employer needs a benefit option available through the PEO, wants consolidated workers compensation and HR support, operates across difficult jurisdictions, or can document that the combined service solves work the company cannot handle efficiently.

Headcount is an input, not the answer. A small employer with a difficult benefit census may value a PEO. A larger employer with strong direct coverage and internal expertise may prefer software or an ASO. Price the same scope on the same workforce and read the contracts before choosing.

Official sources

• Gusto pricing, Gusto
• OnPay pricing, OnPay
• Third party arrangements, Internal Revenue Service
• MEWAs Under ERISA, U.S. Department of Labor