When a small business owner hears about how a PEO works, their first questions always center around what a PEO pricing model looks like. How are they able to offer so much for less than what they are pay now for a small group health plan? Even the least skeptical amongst them still hesitates over the assumption that there has to be a catch. Is there?
Small businesses face many financial challenges as they grow. The added expense of having to purchase a small group health plan to satisfy current ACA requirements puts extra strain on the small business’s finances. While many have taken the steps needed to provide small business health insurance, the lackluster coverage most of them offer have left many business owners scratching their heads over what exactly they are paying for and why.
What A PEO Pricing Model Looks Like
There are two different fee structures that most of the top 100 PEOs follow when they bill you. What you think is the best way to cover administration fees is really up to you. Either way, there is a cost associated with managing all of your payroll, the burden of paying your payroll taxes, and covering you with EPLI insurance against harrassments suits. PEOs, just like you, are also in the business of making money so you are paying for that too.
Most small business owners like the predictability of a flat, monthly fee. In this scenario, the PEO charges you a set rate per employee on top of what you are obligated to pay for employee benefits. In this kind of PEO pricing model there is charge for each employee. The more employees you have, the more the fees are. Small business owners typically like knowing what they have to pay out month-to-month as is helps them determine what their cash flow will look like on a regular basis.
The next PEO pricing model is the percentage based pricing model. How a given PEO who uses this kind of fee structure comes up with their percentages varies by company. In any case, the PEO charges XX% of the business’s payroll for that month. The more you have in payroll to process, the more you are charged for their fees. In some cases, if your payroll grows by a certain variable in one month, there are extra percentages incurred.
How The PEO Pricing Model Differs From Billing Structure
One thing to consider above the PEO pricing model is how your monthly billing is broken down. The main reason is for some PEOs, your monthly bill will be not broken down. You are billed in one lump sum. Meaning, what percentage you are paying out of your bill is going to payroll taxes, employee benefits and administration fees will remain a mystery. For some small business owners, this kind of billing structure is unsettling.
In many cases, this kind of billing practice something they want to stay away from. We can see why these small business owners (and their accountants) would like more detail in their billing structure. Whether you are okay with this or not, unfortunately you won’t get to this part of the conversation with any PEO sales representative until you get to the contract negotiation stage with them. There is little more frustrating than going down the long road of making a big business decision like going with a PEO only to find out the way they do business isn’t going to work for you.
PEO Brokers Help You With The PEO Pricing Model Mystery
If any of this sounds confusing to you or you have questions about which of the PEOs out there following what PEO pricing model, a PEO broker like PEO Spectrum can easily tell which PEO pricing model will work for you and your business. There is no need to wonder, a PEO broker knows the intricate details of each of the top 100 PEOs so you don’t have to guess or try to drag it out of a sales representative.
The right information at the right time with experts that know the PEO industry. With that kind of knowledge behind you, you can’t fail at choosing the right PEO pricing model for your business.