How much does a PEO cost?
PEOs price their services one of two ways: a percentage of your total payroll or a flat fee per employee per month. Per ADP's pricing guide (updated July 2026), administrative fees typically run 2% to 12% of total payroll, or roughly $40 to $160 per employee per month. That admin fee is only part of the bill; the cost of health benefits, workers' compensation, and any add-on services comes on top and varies more by provider than the fee itself.
Last reviewed August 17, 2026 · Published August 17, 2026 · Mere Benefits Data Desk
The number a PEO quotes you and the number you actually pay can be far apart, because the administrative fee is only one layer of the invoice. The full cost stacks the admin fee on top of gross wages, payroll taxes, health premiums, workers’ compensation, and any state unemployment costs that flow through the arrangement. Two PEOs with identical admin fees can produce very different total bills once benefits and workers’ comp pricing are included.
The two pricing models
| Pricing model | Typical range (ADP, July 2026) | How it behaves |
|---|---|---|
| Percentage of payroll | 2% to 12% of total payroll | Your fee rises automatically with raises, bonuses, and overtime |
| Per employee per month (PEPM) | About $40 to $160 per employee per month | Predictable per head; adding staff raises the bill, raises do not |
Most owners with stable headcount and rising wages tend to prefer PEPM pricing, because a percentage model quietly charges you more every time you give a raise. A percentage model may look attractive for lower-wage workforces. Either way, ask the PEO to show the fee both ways so you can compare honestly.
A worked example
Take a 20-person company with average pay of $50,000, so $1,000,000 in annual payroll. At a 4% admin fee, the PEO’s administrative charge is about $40,000 per year. Priced instead at $100 per employee per month, the same company pays about $24,000 per year. Same company, very different bills, which is why you should never accept a single quote format. These figures are illustrations using ADP’s published 2026 ranges, not quotes.
What the admin fee does not include
The admin fee generally covers payroll processing, tax filing, HR support, and benefits administration. It does not include the health insurance premiums themselves, workers’ compensation premiums, or your share of payroll taxes. ADP’s guidance (July 2026) makes the point that those pass-through costs vary more between providers than the admin fees do, so the cheapest admin fee may not be the cheapest PEO. NAPEO’s industry research (November 2025) argues PEO clients come out ahead through lower turnover and survival rates, but that is the trade association’s own analysis, so weigh it accordingly.
Here’s what I tell clients comparing proposals: demand a fully loaded, line-item quote showing wages, taxes, benefits, workers’ comp, and the fee as separate lines, then compare totals, not fees. A PEO that resists itemizing is answering your question for you.
Sources
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