The biggest draw of a PEO is its ability to save businesses money by providing a variety of HR-related services at an affordable price. Professional Employer Organizations (PEOs) partner with client firms through a co-employment arrangement, where the PEO handles many critical administrative and human resources-related tasks. In return for these services, PEOs typically charge a percent fee, often referred to as an “administrative percentage.” Understanding this fee structure is crucial for businesses looking to maximize their investment in PEO services.
What Are PEO Fees?
PEO fees are typically charged as a percentage of payroll. This means that as your company grows and you hire more people, the fees increase proportionally. This fee structure is often justified because more employees mean more administrative work for the PEO. However, the components of these fees can be complex and vary between different PEOs.
Components of PEO Fees
PEO fees often include several elements, such as:
- State Unemployment Rate Assessment (SUTA, SUI) fees
- Workers’ Compensation
- Medical costs
- State and Federal taxes
These components are usually bundled together, making the pricing model opaque and sometimes confusing for businesses.
Benefits of Using a PEO
The main advantage of using a PEO is cost savings. By outsourcing HR tasks, businesses can focus on their core operations while benefiting from the PEO’s expertise in handling complex HR functions. Additionally, PEOs can provide access to better benefits packages, compliance support, and risk management.
Challenges in Understanding PEO Fees
Understanding what PEO fees entail and how they are calculated can be challenging. PEOs often bundle services, similar to how cable companies offer packages. While this can lead to savings, it can also make it difficult to understand the exact costs and benefits of each component.
How to Choose the Right PEO
1. Assess Your Needs
Identify your company’s specific HR needs and requirements. This will help you determine which PEO services are essential and which ones are optional.
2. Compare PEOs
Research and compare different PEOs. Look at their service offerings, fee structures, and reputation in the industry. NAPEO (National Association of Professional Employer Organizations) is a good resource for finding reputable PEOs.
3. Use a PEO Broker Specialist
Consider using a PEO broker specialist like PEO Broker. A PEO broker can help you navigate the complex pricing models and find a PEO that fits your needs and budget. They have the expertise to see through convoluted pricing schemes and help you shop comparatively and with confidence.
Conclusion
Shopping for a PEO can be intimidating, but understanding PEO fees and what they entail is the first step to making an informed decision. By assessing your needs, comparing PEOs, and using a PEO broker specialist, you can ensure that you find the best PEO services for your business.
Make the wise decision to have the right advocate in your corner, someone like PEO Broker, to take the tedium and uncertainty out of the PEO search.
FAQ
What is a PEO?
A Professional Employer Organization (PEO) is a firm that provides comprehensive HR solutions for small and mid-sized businesses through a co-employment arrangement.
How do PEO fees work?
PEO fees are usually charged as a percentage of payroll and can include costs such as State Unemployment Rate Assessment, Workers’ Compensation, medical costs, and taxes.
Why should I use a PEO broker specialist?
A PEO broker specialist can help you navigate the complex PEO market, understand fee structures, and find the best PEO for your business needs.