Professional employer organizations (PEOs) provide valuable human resources, administrative, and finance support for small- to medium-sized businesses. When business owners can rely on a PEO to handle payroll, compliance, and benefits, they can focus on their actual business.
PEOs prove so beneficial because they provide a team of professionals with specialties customized to the needs of each business. One thing that can make business owners nervous is the cost.
Fortunately, PEO administrative fees are designed to fit your budget. You pay for only the services you need. The fees can be as low as 3% of your payroll expenses, which can be substantially less than hiring an in-house HR professional.
How PEOs Charge
There are a few ways PEOs can typically charge clients for services. Often, each individual business can choose to pay the way that works best for them.
- A flat “per employee” fee that is calculated by the year
- A percentage of the company’s payroll calculated by the year
The “per employee” fee is generally somewhere between $900 and $1,500 per employee year, depending on a number of factors. The percentage of overall payroll is usually between 3% and 10%.
When you discuss your business needs with your NetPEO representative, we can lay out the costs of each option. Your rate will be specifically laid out in your client service agreement so there should never be any confusion about what you’re paying and when.
If you are planning on working with a PEO to provide benefits and/or your company provides pre-tax benefits for employees such as Health Savings Accounts (HSAs), be sure to discuss this as part of your billing and fees conversation. Find out what administrative fees your chosen PEO will charge and how their percentage is calculated. You should also ask if the numbers are gross or adjusted.
Having a solid knowledge of billing and fees can make the numbers more predictable for your annual budgeting.
Choosing the Right Fee Structure for Your Business
There is no right or wrong answer as to which fee structure is a good fit for your business. More businesses tend to choose the flat, per-employee fee, but that does not make it an ideal choice for all business models.
If your business is growing and you anticipate hiring additional employees, the flat fee option may be a better fit. However, if your employee growth will largely be for lower-paid roles (such as part-time employees), a percentage of payroll may be a better choice for your business.
Whichever model you feel is best for your business, when you’re choosing a PEO to work with, there are several key pieces of information you should request.
- A breakdown of anticipated costs and a clear outline of services
- Designate which services are included in the admin fee and which are not included
- Provide straightforward answers about services provided and any additional services, fees, or choices
PEO services commonly include:
- Human resources functions
- Payroll processing
- Compliance with federal, state, and local laws and regulations
- Handling unemployment and workers compensation claims
- Obtaining benefits and benefits administration
Different PEOs offer a number of additional services that may be beneficial to your specific business and help you offer more attractive employment packages and also save time and money.
How PEOs Configure Their Rates
There are several standard rates that will be consistent regardless of which PEO you choose to work with.
- Federal Insurance Contributions Act (FICA) is a federal payroll tax
- Medicare, the federal health insurance plan for people age 65 and older and people with disabilities
- Federal Unemployment Tax Act (FUTA) is part of the payroll tax used to fund unemployment benefits
The State Unemployment Tax Act (SUTA) is a state-based payroll tax for unemployment benefits. This rate will vary based on the state where your chosen PEO is based, not where your business headquarters are based.
Different PEOs have different structures for human resources, administrative fees, and workers’ compensation. These fees often include items such as insurance deductibles and copays.
Some businesses enjoy having the ability to utilize all the services offered by their PEO, even if it’s just knowing that they’ll be able to take advantage of them in the future as the company grows. However, companies using PEO services on a more “a la carte” basis, may want to consider working with a PEO that does not have fee-inclusive billing in their admin fee.
Finding the Right PEO and the Proper Fee Structure
Working with NetPEO allows your business the opportunity to lay out specifically what your needs and desires are. We work with a nationwide network of PEO resources to find exactly the right fit for your business requirements and your budget.
We take the time to learn about your business and customize a PEO services package that works for you. You have the flexibility to grow or pull back as your business evolves.
Contact Us Today to Learn About PEO Admin Fees and More
At NetPEO, we pride ourselves on superior customer service. Our vast experience gives us the ability to clearly and plainly explain your PEO options and the related fees. Call NetPEO today at (678) 841-7146 or fill out the form. We will schedule a free business evaluation and provide you with options to save time and money while growing your business.