Cost is one of the biggest factors that businesses look at when considering working with an employee leasing company (also known as a professional employer organization or PEO). There are two major factors that go into making the decision:
- How much the PEO/employee leasing company will charge
- How much money they’ll save you
Below, we’ll look at both the typical pricing models and how PEOs can save you money.
#1 The Cost of Employee Leasing
All PEOs base their prices on how many employees you have. Larger, more complex organizations require more HR work, so the price reflects this. However, depending on the PEO, they may offer one or both of these pricing models:
- A fixed rate per employee.This is typically charged on a monthly basis, so that price directly reflects the work being done. Many organizations prefer this pricing model because it offers a simple, easy way to calculate how costs will change as the organization grows.
- Average price: $40 – $160 per employee per month
- Price will reflect the specific services that are included
- A percentage of your payroll. This method of pricing is sometimes considered to more accurately reflect the level of complexity of the work being performed, and thus the value being offered. It can also make it cost-effective for your organization to grow if you will mainly be adding lower-wage workers—such as opening new retail locations.
- Average price: 2% – 12% of payroll
- Most organizations fall toward the middle of that range
Each pricing model has its own advantages. The one that works better for you will depend on the types of employees you have and how you expect to scale in the future.
#2 Cost Savings
Many businesses are uncertain about whether to choose employee leasing, because it can be hard to quantify the value the arrangement brings. But a good PEO will offer hard cost savings, both in the short-term and the long-term.
Immediate savings come from:
- The lower cost of a PEO vs. hiring full time HR staff
- Savings on employee benefits
Long-term savings tend to reflect:
- Decreased turnover
- Better employee performance (if the PEO offers recruiting & staff development services)
- Better handling of workers comp claims, unemployment claims and disputes
- Reduction in risk
- Improved government compliance
What to Look for in a PEO
Beyond savings, you should also consider a PEO’s reputation for service. NetPEO does more than just save our clients money—we provide comprehensive, no-hassle support and high-level strategic help. Let us give you a free consultation on your employee leasing needs. Fill out the form to your right or contact us and get your free consultation today.