PEOs operate on transparent revenue models:
- Service fees – Most charge either a percentage of total payroll (typically 2-12%) or a flat per-employee-per-month fee ranging from $40-$200+ based on the services you need.
- Benefits administration – While PEOs negotiate better group insurance rates due to their larger employee pools, there’s typically a markup when those costs are passed to clients.
- Workers’ compensation premiums – PEOs secure volume discounts with insurance carriers and may include a margin in what you pay.
- Operational efficiency – By serving multiple clients through shared technology and standardized processes, PEOs achieve economies of scale that make their fee structure sustainable.
- Interest on float – Brief holds on payroll funds between funding and distribution can generate modest interest income.