What is the cost of a PEO?

Last updated: January 9, 2026

Professional Employer Organizations (PEOs) may charge 2 to 12% of total payroll or $40 to $160 per employee per month.¹ These administrative costs vary depending on the services provided, location and workforce size.

Cost of a PEO key takeaways:

• Estimating the total cost of a PEO, like ADP TotalSource®, can be accomplished by breaking down charges as follows:
  • Administrative fees (billed as a percentage of payroll)
  • Workers’ compensation insurance (billed as a percentage of payroll)
  • Employee benefits (treated as a pass-through cost and billed separately)
• PEO pricing is also dependent on a business’s risk profile, total payroll, employee headcount, location and industry.
• Consequently, businesses of the same size that operate in different sectors or states may have different PEO costs.

What does the total cost of a PEO cover?

Employers who pay for a PEO relationship usually gain the following:

• Payroll processing and payroll tax withholding and remittance
• Workers’ compensation insurance and claims management
• HR compliance expertise
• Employment practices liability insurance (EPLI)
• Benefits and administrative support
• Unemployment claims management
• Talent management support
• Access to an HR technology platform

How do PEO providers structure costs?

All PEOs bill payroll taxes and workers’ compensation as a percentage of payroll, which is exactly how businesses pay these costs before joining a PEO.

Where cost structures differ is how PEO providers structure their administrative costs. There are two primary cost structures:

1. Percentage of payroll administration fee
   In this model, the PEO’s administration fee is also charged as a percentage of payroll. This fee can range from 2–12% of total employee payroll wages, depending on the services included and other factors, such as location¹.
2. Set dollar amount administration fee
   The administration fee for some PEOs is set at a dollar amount rather than a percentage. PEOs that use this pricing approach may set the rate by company, employee, year or payroll cycle. This fee can range from around $40 to $160 per employee per month, depending on the services included and other factors, such as location and number of employees¹.

Beyond payroll tax, workers’ compensation and administration fees, a PEO also invoices for employee benefits. Healthcare insurance is different from other types of insurance because the industry does not price it as a percentage cost. Instead, healthcare and ancillary benefit costs are determined by the benefit plan design and employer/employee contribution amounts, which are both unique to each company. Many PEOs treat benefits as a pass-through cost and bill separately for transparency.

In a PEO partnership, businesses pay one flat fee for numerous disparate services — potentially saving you big money in the long run.

Different ways in which a PEO can provide cost savings for small businesses

Competitive benefits and workers’ comp premiums

PEOs can use their scale and group purchasing power to negotiate competitive rates for employee benefits and workers’ compensation insurance. By pooling employees with thousands of others, small businesses can access plans and premiums similar to those offered by larger companies — something they could not do by negotiating benefits on their own. And PEOs provide economies of scale with the administration and commission costs of the plan.

Reduced risk costs

A reputable PEO will conduct upfront risk assessments and maintain strict underwriting standards to ensure every new client fits their risk profile. Additionally, businesses in a PEO gain access to worksite safety loss control specialists, safety training resources and workers’ compensation claims support. This can help reduce workplace injuries, lower claims and minimize hidden expenses.

Reduced compliance costs

A PEO becomes a go-to resource for understanding and managing HR and employment-related compliance changes, helping you navigate and address employee relations incidents, and more. Businesses can find savings by relying on the PEO’s expertise and protection. Similarly, businesses that find themselves paying fines for HR-related non-compliance can find savings with a PEO’s proactive guidance that helps keep them in compliance and avoid the need to potentially pay unnecessary penalties.

Save time and focus on growth

One of the most overlooked but important cost savings when it comes to a PEO is time. For many business owners, outsourcing HR means reclaiming hours spent on non-revenue-generating tasks like administering benefits, handling HR and employment-related compliance paperwork and managing employee claims. With a PEO assisting in streamlining these tasks, business owners and managers can focus on their business.

Additional cost considerations when choosing a PEO

Partnering with an accredited or certified PEO could equate to thousands of dollars saved. There are two accrediting bodies – the Employer Services Assurance Corporation (ESAC) and the Internal Revenue Service (IRS).

ESAC accreditation

ESAC is the PEO industry's official accreditation organization. They require their members to comply with more than 40 industry best practices and undergo quarterly verification of essential employer payments, including federal and state employment taxes, health and workers' compensation premiums, and retirement plan contributions. In short, an ESAC-accredited PEO is reliable because it has proven financial stability and adheres to regulatory requirements and operational standards.

IRS certification

The IRS has rigorous background, financial and reporting standards for PEOs. Meeting these requirements grants the status of certified PEO (CPEO).

Certification provides certain financial protections and tax benefits to PEO clients. It also eliminates the wage-base restart, so employers can change PEOs at any time during the year without waiting until their contract expires, potentially saving critical tax dollars.