“How much do you charge”? is a question that we hear a lot at Simploy. We interact with thousands of prospects a year and they are always price conscious. This is no surprise. As humans whether we are buying a candy bar, a television or a home, price is incredibly important. Unfortunately, when it comes to “how much do you charge”?, there is no simple answer.

Every partnership between PEO and client is a unique arrangement that will have a unique cost. Therefore, this article cannot simply provide a list of prices like a restaurant menu. If only it were that simple! Instead, we will outline the different variables that make up a PEO’s cost structure and discuss how you can ensure your PEO relationship is as cost-effective as possible.

  What makes up a PEO’s price?

Every PEO quote is unique and the different factors that make up a PEO’s price structure can vary. However, there are several factors that every price calculation will include. Some of these components are purely pass-through charges which your business must pay, regardless of whether you use a PEO i.e. FICA, State Unemployment Tax (SUTA) and Federal Unemployment Tax (FUTA).

Within this portion of our guide we will address every factor that determines a PEOs pricing structure. After reading this, when you talk to a PEO, you will be better educated and able to make the best decision for your company.

Taxes: FICA (Social Security), FICA (Medicare), SUTA & FUTA

“Tis impossible to be sure of any thing but Death and Taxes” – Christopher Bullock (1716)

As Mr. Bullock expressed back in 1716, we cannot escape taxes. If your business aligns itself with a PEO, or attempts to operate without a PEO, the charges described in the table below must be paid regardless.

Nobody likes paying taxes, but, what’s wonderful about these four components of PEO pricing is: as the employer you already know what you are paying. Therefore as a business owner/employer, you can easily determine any tax-based savings that a PEO will provide.

SUTA Tax Savings

State Unemployment Tax (SUTA) varies from company to company. When a company is formed, it is assigned a SUTA rate depending on the state which it calls home. However, as time goes by, that rate can increase as employees leave the company and claim unemployment.

In some states, when a company partners with a PEO and harnesses co-employment, they are subject to the PEO’s SUTA rate rather than their own. This can result in tax savings.

When a PEO charges a service fee calculated as a percentage of gross payroll, the above percentages will always apply.

  Workers’ Compensation Insurance & Risk Mitigation

The provision of quality risk management solutions and Workers’ Compensation insurance is a principle of every PEO and the cost of workers’ compensation insurance is directly correlated to the level of danger involved in that role. For instance, a clerical office employee will pay approximately $0.25, per $100 of wages whereas workers’ compensation insurance for a roofer will be considerably more expensive.

Co-employment allows PEOs to aggregate their clients into a large buying group before sourcing WC coverage. This creates levels of economies of scale that are incredibly cost effective. Clients are then charged WC premiums on a pay-as-you-go basis to ensure accurate premiums are paid. Ultimately the cost of WC through a PEO should always be less than any other provider might offer.

For more information on Workers’ Compensation, visit our Workers’ Compensation Master page HERE

  Administrative Fee & Other Charges

Outside of taxes, workers compensation and the PEO’s margin, there are a huge array of potential charges that will make up a PEO’s price structure. These charges range from employment practices liability insurance, employee assistance programs, life insurance coverage, pre-employment drug testing, on-site employee training classes, job candidate sourcing, etc.

Not unlike purchasing a car, these extras can quickly see your PEO costs rise. To ensure you are not faced with a nasty surprise when you get your first invoice be mindful of whether the PEO charges extra for these services. And, if they do charge for them, be sure to have the PEO disclose the itemized cost.

The best method to overcome the risk of small fees piling up is: use a PEO that charges an annualized, all inclusive, service fee. By aligning yourself with a PEO that charges an all-inclusive service fee, you can be safe in the knowledge that you will not receive an expensive surprise in the mail. Additionally, when operating this way liaise with your team of PEO partners to ensure that you take full advantage of their service offering and truly harness their expertise.

Summary

Breaking down PEO pricing, like building a home from scratch, is very complex. Just like a bespoke home can be comprised of a unique array of rooms; every PEO calculates their price in their own unique way. However do not get discouraged, there are several core components that every PEOs pricing structure will be made up of. 

They are:

*Assuming the PEO does not offer an all-inclusive structure.

Therefore, it is possible to get an approximate feel for how much a PEO relationship will cost your business.

To truly conduct cost benefit analysis and calculate whether a PEO will be a good fit for your business, it is important to consider the benefits that PEOs provide to their clients. Whilst these benefits can be hard to quantify we have outlined those benefits in an additional article.

Interested in learning more about the PEO concept? – visit our PEO 101 Hub for additional insights.

On the other hand, if you have seen enough and want to get in touch with a member of the Simploy team, submit a contact request and a Simploy associate will reach out to you shortly.