Does your PEO charge a Percentage of Payroll for your Administration Fee?

Being in a Professional Employer Organization (PEO) is a smart choice for small-medium size companies. You gain access to streamlined operations for payroll, benefits, workers’ compensation and expert HR service and support. The items listed above are great for your business, your employees and makes the lives easier of everyone involved.

Every PEO charges an Administration Fee per employee for their services. It includes all of the services that the PEO does for you and your employees. PEOs either charge a Flat Fee or a Percentage of Payroll. While you should always work to get the best price for your administration fee, you should ALWAYS pay a Flat Fee per Employee.

PEOs that charge a Percentage of Payroll make a significant amount of money because as you grow and hire employees, your payroll rises and so does your Administration Fee. It’s a variable percentage and in our experience is always expensive.  Insperity and ADP TotalSource typically charge a Percentage of Payroll and combine the administration fees with State and Federal taxes and Workers’ Compensation cost.

This makes it extremely difficult to know exactly what you are paying and in my experience it’s much, much more than you should be paying. The other day I reviewed a PEO quote for a Referral Partner of ours and when we broke out the numbers, the PEO in question was charging $22,000 in Administration Fees for 15 employees and only saving the group $860 a year assuming a 20% renewal for the group’s health benefits.

PEO makes a lot of sense and we’ve helped numerous companies find the right one, but paying a Percentage of Payroll as your Administration Fee is always a bad idea. So if you are in a PEO that charges a Percentage of Payroll, it’s in your best interest to find out what you’re paying exactly and to have it fixed.

To learn more about PEOs - request your copy of our Intro to PEO.