Professional employer organizations (PEOs) are a valuable outsourcing solution for small- and medium-sized businesses (SMBs). By acting as an employer of record for tax and benefit purposes, PEOs offer these businesses access to robust healthcare plans and employee benefits that would typically be unattainable for smaller companies.
PEOs aren’t just about cutting costs—they’re growth enablers too. SMBs that partner with a PEO grow 7% to 9% faster than their peers. Additionally, they reduce HR administration costs by 27.3%.
With the time and money saved, businesses can focus on strategic goals and provide competitive benefits to attract top talent. But before you jump into a partnership, it’s crucial to understand how PEO pricing works.
Assessing PEO Pricing for Your Business
When considering a PEO for your business infrastructure, it’s important to evaluate their services, reputation, and pricing structure. The cost should align with the services and capabilities your business needs to thrive.
Pricing structures often state costs as “X dollars per employee per year” or as a total percentage of your total wages, instead of a cost per person. However, these simple formulas don’t always capture the full picture.
There are several key factors that influence how much a PEO’s services will cost your organization:
1. Employee Employment Status
The makeup of your workforce—part-time versus full-time employees—plays a significant role in a PEO's pricing. Since management and benefits differ between these classifications, the final cost depends on a calculation of full-time equivalency (FTE). Generally, the more part-time employees you have, the lower your overall cost will be because part-timers often require fewer benefits.
2. Existing Benefit Offerings
What you currently offer employees in terms of benefits will also impact the cost of partnering with a PEO. If your business isn’t already providing extensive benefits, such as 401(k)s or healthcare plans, the PEO’s price might feel higher upfront. However, remember that PEOs pool resources across numerous companies, enabling them to negotiate lower rates for premium benefits. That’s how they provide high-quality benefits at a cost that’s more affordable than if you tried to secure them independently.
Even if you’re already offering benefits, most businesses discover significant cost savings by partnering with a PEO, which enhances the competitiveness and attractiveness of your overall employment package.
3. Business Location
Where your company operates also affects PEO pricing, particularly when dealing with payroll taxes and workers' compensation fees. Tax rates and reporting rules can vary widely between states. For instance, nine states don’t impose any state income tax, while others—like New York, California, and Illinois—have higher state taxes and workers' compensation costs. If your business operates across multiple states, tax compliance can become even more complex, increasing the value of the PEO’s support but possibly adding to costs as well.
Bundled vs. Unbundled Pricing
PEOs often provide pricing in two formats:
- Bundled Pricing: Summarizes all costs as a single charge per employee per year.
- Unbundled Pricing: Breaks down the costs in detail, showing items such as state and federal unemployment insurance, workers’ compensation, and taxes.
Requesting an unbundled rate gives you greater insight into where your money goes, making it easier to see what the PEO provides and how it aligns with your budget and needs. The best way to compare total costs is to look at the total amount that will be invoiced per payroll, including all the payroll taxes and workers' compensation and any other items that will be considered.
PEOs as Investments for Business Growth
While PEO pricing can sometimes seem costly upfront, think of it as an investment that drives long-term growth and efficiency.
Here’s why PEOs are worth the price tag:
- Streamlined Operations: By outsourcing HR, payroll, and compliance tasks, your team gains time to focus on core business objectives.
- Enhanced Talent Acquisition: Access to better benefits and streamlined HR processes makes attracting and retaining top talent easier.
- Cost Reductions Over Time: Savings on benefits, workers’ comp, and compliance penalties often outweigh the initial costs. PEOs also reduce risks associated with changing tax laws and employee regulations.
Ultimately, PEOs are about achieving more with less—saving time, money, and resources while enabling your business to thrive.
Partner with PRemployer for Expert PEO Support
Navigating the world of PEOs can seem overwhelming, but with over 25 years of HR expertise, PRemployer has the experience and commitment you need to succeed. From securing the best benefits to streamlining your HR processes, we’re here to help elevate your business to the next level.
Reach out to PRemployer today to learn how PEO services can transform your operations.
