PEO Administration Fees
Professional Employer Organizations help small business save exponentially on the Four Core Services of any company, Payroll & Tax Administration, Health & Wellness Benefits, Human Resource Service & Support and Workers’ Compensation & Risk Mitigation. These services are essential to any business and without them there is no business.
All PEOs charge a fee for their service it’s called an Administration Fee. One critical point to consider how they charge the Administrative Fee and what it exactly includes. Some PEOs charge a flat fee per month per employee (PEPM) and others charge a percentage of payroll (POP). It’s important to know which is which, but more important is to know the difference.
PEOs that charge a flat fee per employee per month per employee (PEPM) charge a flat fee per month that is fixed and does not fluctuate. PEOs that charge a percentage of payroll (POP) charge their administrative fee based on the company’s payroll. A (PEPM) is most beneficial to companies because the administrative fee is fixed and not directly tied to the payroll. A (POP) is variable and increases with the companies payroll, so the higher your payroll goes so does your Administrative fees.
Many companies never consider this and enter into a PEO without ever actually knowing what they are paying for the PEOs administrative fees. If you are considering a PEO for your company, this is imperative to know because it is a cost to you every month. PEOs that charge a percentage of payroll (POP) disguise the administrative fee with confusing percentages and half-truth explanations.
As with any business decision, it is imperative to know the actual costs associated with the service. Many of the big box PEOs charge exorbitant administrative fees and use the overage to buy down the medical rates. If you are considering a PEO for your organization and the vendor can’t disclose the administration fee or break out the actual costs, it’s best you consider a different supplier.
A company’s administration fee with a PEO is influenced by your entire headcount of employees both full and part time. The general theory is that the fewer employees you have, the higher the administration fee and vice versa. The administration fee should cover the majority of services that the PEO offers, so it’s imperative to get a clear understanding of what services are included the cost structures.