PEO vs Payroll Service: Cost, Control, and When Each Makes Sense
A PEO costs 5 to 20x more than a standard payroll service. The question is whether benefits access and HR outsourcing justify the premium.
What is a PEO?
Payroll Service
- ✓ You remain the employer of record
- ✓ Handles payroll processing and tax filing
- ✓ You manage HR, benefits, and compliance separately
- ✓ $40 to $150/month base + $5 to $8/employee
- ✓ Full control over all employment decisions
PEO (Professional Employer Organization)
- ✓ Co-employment model: PEO becomes employer of record
- ✓ Handles payroll, benefits, HR, workers' comp, compliance
- ✓ Access to Fortune 500-level group benefits rates
- ✓ 2 to 12% of total payroll or $59 to $200/employee/month
- ✓ PEO shares some employment liability and decisions
Cost Comparison Calculator
Adjust your employee count and average salary to compare costs.
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Standard Payroll Service
Monthly cost range$164 - $254
Annual cost range$1,968 - $3,048
Per employee per month$7 - $10
Based on Paychex ($39+$5/emp) to ADP ($79+$7/emp) pricing
PEO
% of payroll model (3-10%)$3,437 - $11,458/mo
PEPM model ($59-$150/emp)$1,475 - $3,750/mo
Potential benefits savings-$625/mo
Benefits savings estimated at $300/employee/year through group rates
PEO costs 9x to 15x more than a standard payroll service. The gap narrows when you factor in benefits savings and eliminated need for separate HR tools.
Annual Cost Comparison by Size
| Employees | Payroll Service | PEO (PEPM) | PEO (% model) | Benefits Savings |
|---|---|---|---|---|
| 10 | $1,308 | $9,600 | $27,500 | -$3,000 |
| 25 | $2,388 | $24,000 | $68,750 | -$7,500 |
| 50 | $4,188 | $48,000 | $137,500 | -$15,000 |
| 100 | $7,788 | $96,000 | $275,000 | -$30,000 |
PEPM estimated at $80/emp/month. % model at 5% of payroll. Benefits savings at $300/emp/year through group health rates.
When PEO Makes Sense
✓ 25 to 150 employees and growing
✓ You want Fortune 500-level health insurance rates
✓ Operating in compliance-heavy industries (construction, healthcare)
✓ You do not want to build an internal HR department yet
✓ Multi-state operations with complex compliance requirements
✓ High workers' compensation premiums that PEO group rates could reduce
When PEO is Overkill
✕ Fewer than 15 employees (many PEOs have minimums)
✕ Simple payroll needs with all salaried employees in one state
✕ You already have good benefits through a broker or association
✕ You want full control over all HR decisions and policies
✕ You are price-sensitive and payroll cost is the primary concern
✕ Your industry does not have complex compliance requirements
Top PEO Providers and Pricing
| PEO | Pricing Model | Estimated Cost | Min Employees | Notes |
|---|---|---|---|---|
| Justworks | PEPM | $59 - $99/emp/mo | 2 | Transparent pricing, modern platform, best for tech startups |
| ADP TotalSource | % of payroll | 4% - 10% of payroll | 5 | Largest PEO, enterprise-grade compliance, custom pricing |
| Paychex PEO | % of payroll | 3% - 8% of payroll | 5 | Strong in regulated industries, dedicated HR specialist |
| TriNet | PEPM | $80 - $200/emp/mo | 5 | Industry-specific plans, comprehensive benefits packages |
| Insperity | PEPM | $70 - $150/emp/mo | 5 | Focus on companies with 5-5,000 employees, strong HR consulting |
Not Ready for a PEO?
Compare standard payroll service pricing for your team size.