A PEO fee is a separate cost paid to a third party for co-employment services, on top of the underlying payroll itself.
How it works
Multiplying annual payroll by the PEO’s fee rate gives the annual cost; dividing that by employee count gives an approximate cost per employee per year.
What this does not include
This does not include flat per-employee-per-month pricing, which some PEOs use instead of a percentage-of-payroll model — the two pricing structures can favor different company sizes and wage levels differently.
How to use this calculator
- Enter annual payroll, the PEO fee rate, and employee count.
Frequently asked questions
What does a PEO actually provide for this fee?
Typically payroll processing, HR administration, access to benefits at group rates, and often workers’ compensation coverage, all bundled under a co-employment arrangement.
Is a PEO fee tax deductible as a business expense?
Yes — PEO fees are generally deductible as an ordinary business expense, the same as payroll processing or HR costs would be if handled in-house.
Why do smaller companies often pay a higher percentage rate?
PEOs frequently price based partly on economies of scale — a small headcount means fixed administrative costs are spread across fewer employees, raising the effective percentage rate.
