A filled-in census for a 40-person, $2.4M payroll, multi-state company, with every line an employer should put on its own spreadsheet before comparing quotes.
Start with your own census, not the provider's example
Walk into every conversation with a filled-in census: real headcount, gross payroll, the states people actually work in, benefit elections, industry class codes, and claims history. Providers model on this, so the example you get back is only as good as the data you hand them.
This article works one scenario end to end: a professional-services company with 40 W-2 employees, $2.4 million in gross annual payroll, and people in three states. That is a $60,000 average gross wage per employee, which keeps the math legible. Run your own census through the same lines below.
The administrative fee is the only true PEO line
PEO administrative fees are quoted one of two ways: a flat per-employee-per-month (PEPM) fee, or a percentage of gross payroll. Market guides put PEPM fees at about $40 to $160 per employee per month, and 2 to 12 percent of payroll is the most-cited payroll percentage band. Both numbers are administrative fees only; benefits premiums, workers' compensation, and payroll taxes are billed on top either way.
On this census, model a $100 PEPM fee: 40 employees times $100 a month is $4,000 a month, or $48,000 a year. Label it an estimate, because real quotes land anywhere in the published band depending on census, states, industry, and service scope. Across the full PEPM range this company's annual administrative fee runs from about $19,200 to $76,800.
The pass-through lines are not PEO savings
A proposal shows more than the fee, and the other lines are the ones people misread as cost. Health benefits, workers' compensation, and payroll taxes exist with or without a PEO; a PEO administers them and may buy them on a larger group, but they are not savings the provider creates.
On this census, model the pass-throughs: employer health and benefits contribution of $36,000 a year (40 employees at about $75 a month employer share is a light placeholder; real employer benefits contributions run far higher), workers' compensation at about $20,000 a year on a professional-services class code plus claims history, and payroll taxes. The single biggest pass-through is employer FICA: 7.65 percent of gross wages (6.2 percent Social Security plus 1.45 percent Medicare on the IRS employer's side), which on $2.4 million is about $183,600 a year.
Total employer cost, both scenarios
Put the review on the section that matters: the administrative fee is the only new, optional line. Total employer cost under the PEO here is the $48,000 annual fee plus every pass-through (payroll taxes, benefits, workers' compensation) that you would pay regardless of provider.
The comparison that decides the decision is not PEO versus nothing. It is PEO versus what you spend to run the same administration yourself: payroll vendor fees, benefits administration time, compliance work, and the salary of whoever owns it.
- PEO administrative fee (modeled, $100 PEPM): about $48,000 per year
- Employer payroll taxes (IRS pass-through, 7.65% FICA on $2.4M): about $183,600
- Benefits and workers' compensation (pass-through): varies by plan and class code
- Total employer cost: the fee plus every pass-through above, not the fee alone
The honest break-even versus an in-house hire
The realistic alternative is not a cheaper PEO; it is what the work costs today. A 40-person multi-state company typically spends part of a full-time role on payroll, benefits, compliance, and employee questions. If that work is honestly 0.5 to 1.0 FTE of someone's time, the $48,000 annual PEO fee lines up against the $90,000 to $110,000 all-in cost of a fully loaded in-house hire plus a separate payroll vendor of roughly $10,000 to $15,000 a year. At that census the PEO fee usually wins on cash: roughly $48,000 against roughly $100,000 to $125,000 combined.
But be honest about the other direction. If the administration is a few hours a week spread across existing staff, an ASO or a good payroll platform may cost less than the $48,000 fee, and the PEO's co-employment may not be worth adding. The break-even is your census and your hours, not a universal answer. Our direct PEO versus ASO comparison and the leaving-a-PEO article cover the other side of that decision.
Strip the model to the questions that change the number
When a proposal arrives, ignore the headline and reprice it yourself: what is the administrative fee at your headcount and census, what does the provider actually include in it, what is pass-through, and what is billed back as optional. Compare total employer cost under both models and price in the time your team spends on this work today. Save the calculator-style model and apply it to every finalist so the quote differences are the only variable.
Frequently asked questions
How much does a PEO cost per employee per month?
Administrative fees typically run about $40 to $160 per employee per month, or roughly 2 to 12 percent of gross payroll, before benefits, workers' compensation, and payroll taxes, which are billed on top as pass-through costs. On a 40-person, $2.4M payroll census, a $100 PEPM fee is about $48,000 a year.
Does a PEO reduce my payroll taxes?
No. Employer payroll taxes are pass-through obligations that exist whether or not you use a PEO. The 7.65 percent employer FICA share is the same; the PEO administers the filing but does not make the tax cheaper.
Why does a PEO quote look like it will not save me anything?
Because most of a PEO invoice is pass-through costs you would pay anyway, plus benefit premiums purchased on a co-employed group. The only real comparison is how the administrative fee stacks against the in-house time and the payroll vendor cost it replaces.
At what headcount does a PEO become worth the fee?
There is no single headcount. The decision turns on how much of someone's week the work really consumes. When the administration is at least about half a full-time role, the $48,000 fee at 40 employees usually beats a fully loaded internal hire. Below that, an ASO or payroll platform is often the cheaper fit.