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People teams are often overwhelmed by admin duties. Managing payroll, benefits, and compliance requires effort, and each moment takes time away from strategy and staff support. They might consider partnering with a professional employer organization (PEO) if they can justify the expense—the key is understanding PEO costs and if the savings are worth the spending.
PEO fees vary based on company size, industry, and the level of support included, so having a clear picture means you can compare providers on equal footing. Here’s a guide to how much it costs to use a PEO.
How does PEO pricing work?
PEOs build their pricing model around the way your business operates, so costs aren’t fixed across the board. Instead, most providers follow one of a few common structures:
- Flat fee per employee: Your company pays the same amount for each team member the PEO covers. This model makes budgeting straightforward and works well if your headcount doesn’t change much.
- Percentage of payroll: Some providers base their fees on your total payroll. That means your cost adjusts if wages go up or down, which can suit businesses with seasonal workers or fluctuating payroll.
- Hybrid or customized models: A growing number of PEOs use blended or tailored approaches. They may combine flat fees with payroll percentages or design a package that reflects the exact mix of services you need.
No matter which PEO pricing model you choose, the structure typically reflects the level of support included. A company that only wants payroll outsourcing will pay differently than one seeking full people ops coverage from compliance to benefits administration. That's why a PEO cost comparison should focus on what's inside the package—not just the label of the PEO pricing model.
What is the average cost of a PEO?
Research shows that the average cost of using a PEO is $1,395 per employee per year. But generally, the cost of PEO services varies.
Businesses may pay thousands per employee per year, depending on headcount, industry, and the scope of the work. Rates often drop as headcount grows, and industries with higher workers' comp risk, like construction, usually see higher quotes than lower-risk sectors such as software development.
Fees associated with PEO services
The cost of PEO services goes beyond the per-employee rate or payroll percentage. Plan for additional expenses tied to scope and ongoing support.
Here are some of the most common PEO fees:
- Implementation or setup fees: These one-time charges get your company onboarded, including employee orientation and system configuration.
- Administration fees: Administration are recurring costs for day-to-day HR functions like benefits package management, compliance monitoring, and employee recordkeeping.
- Payroll administration fees: Payroll runs and direct deposits usually come with their own line items.
- Workers’ compensation and risk management fees: PEOs often bundle workers’ compensation insurance coverage and claims support into their services, passing along insurance and admin costs.
- Optional service fees: Recruiting, training, and policy development may be add-ons, charged separately depending on the level of involvement you want.
- Ongoing support fees: Many providers include customer support in their packages, but some charge extra for enhanced technical or compliance assistance.
When you add these together, the costs associated with using a PEO vary even more. A company outsourcing only payroll will see a very different bill than one relying on a PEO for full-spectrum HR. That’s also where comparisons like PEO versus employer of record (EOR) or other payroll outsourcing companies become relevant—the fee structure reflects not just the cost, but how much of your HR operations you want off your plate.
Do PEOs save you money?
For many companies, partnering with a PEO does lead to savings, but the scale of those savings depends on your situation. By pooling employees from multiple businesses, PEOs can negotiate more competitive health insurance rates and employee benefits packages than most small business owners could secure on their own. This increased buying power lets you offer more comprehensive coverage while potentially reducing per-employee costs.
According to the National Association of Professional Employer Organizations (NAPEO), businesses that use PEOs see an average ROI of 27% in cost savings alone. That means every $1,000 spent returns about $1,270 in value. And the benefits don’t stop at cost savings. The same research shows that PEO clients grow twice as fast, experience 12% lower employee turnover, and are half as likely to go out of business compared to peers that don’t use a PEO.
But savings aren’t guaranteed. A business with a large in-house HR team may only break even or pay a small premium when shifting to a PEO. In those cases, the trade-off is time. Outsourcing routine HR functions buys back capacity so your business can focus on growth, strategy, and employee experience.
If you’re weighing PEOs against retaining full, in-house control of HR and payroll, it’s worth asking what matters more for your company right now—lowering direct costs, gaining access to expertise, or reducing liability. Sometimes the biggest value isn't what you save, but what you avoid spending later.
Simplify HR costs with Oyster
A PEO can be a smart way to manage HR, payroll, and compliance. But if you’re hiring across borders, you need a more flexible option. That's where an EOR service comes in.
An EOR takes away the complexity of employing team members in different countries. You can focus on building your team instead of navigating legal frameworks in each market.
Oyster gives you both. With a PEO service to support your U.S. workforce and an EOR platform built for distributed teams, you can streamline people ops—no matter where your employees are based. Whether you’re growing within one U.S. state or scaling into dozens of countries, Oyster makes it easier to expand without unnecessary costs or compliance headaches.
Ready to take the next step? Explore Oyster's US PEO service and EOR solution to simplify HR and scale with confidence.
FAQ
Do PEOs save you money compared to in-house HR?
Using a PEO often saves money, especially for smaller teams without a full HR function. PEOs spread benefits across a larger pool, which can lower premiums and cut administrative workload. Your actual outcome depends on many factors, including headcount, needs, and which services you want to outsource.
How does co-employment affect pricing?
Co-employment means the PEO shares employer responsibilities for specific HR functions like payroll tax, benefits administration, and compliance. Pricing reflects that expanded scope—packages typically bundle ongoing administration and support tied to those duties. Expect the structure (per employee or % of payroll) to map to the level of service and risk the PEO assumes.
What hidden fees should companies watch for?
With signing on with a PEO, watch for add-ons that you have to pay outside the base rate. These could include:
- Implementation and setup
- Ongoing administration
- Payroll processing
- Workers’ compensation and risk management
- Optional services
How can I evaluate if a PEO is cost-effective for my business?
Run your PEO cost estimate like a total cost-of-ownership check. List the HR tasks you'd outsource, price them across a few PEO packages, then compare that to your in-house costs. Factor in qualitative gains—fewer admin hours, more substantial benefits, and lower risks—and weigh them against the control you want to keep.
If saving looks marginal, you might still choose a PEO for time and expertise. But if your in-house team runs lean and compliant already, you may want to keep HR internal or consider a narrower outsourcing path.
About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
