For most small businesses with 5 to 500 employees, yes. Independent research shows that businesses using a PEO (Professional Employer Organization) see an average return of 27.2% on their investment, saving $272 for every $1,000 spent on PEO services (McBassi & Company for NAPEO, 2024). But that is an average, not a guarantee. Whether a PEO is worth it for your business depends on what you spend on HR today and where those dollars go.
This guide breaks down the real costs, the documented savings, and a straightforward way to calculate whether a PEO makes financial sense for your company.
The ROI Case in Plain Numbers
A PEO partners with your business to handle payroll, benefits, tax filing, and compliance through a co-employment arrangement. You keep control of your team and daily operations. The PEO handles the administrative side.
Here is what the research shows about the financial impact:
- Average annual PEO cost: $1,395 per employee (McBassi & Company for NAPEO, 2024)
- Average annual savings: $1,775 per employee
- Net benefit: roughly $380 per employee per year in direct cost savings
Those numbers represent the median. Half of PEO clients save more; half save less. Businesses with above-average health benefits costs or high HR personnel expenses tend to see the largest returns.
Beyond direct cost savings, the data shows broader business impacts. PEO clients grow jobs at 4.3% annually, compared to 1.9% for similar non-PEO businesses. Employee turnover runs 12% lower. And PEO users are 50% less likely to go out of business (McBassi & Company for NAPEO, 2024).
What You Will Pay
PEO pricing typically follows one of two models:
Flat per-employee fee: Most PEOs charge between $40 and $160 per employee per month. For a company with 22 employees, that comes to $880 to $3,520 per month, or $10,560 to $42,240 per year.
Percentage of payroll: Some PEOs charge 2% to 12% of total payroll instead. If your 22-person team’s annual payroll is $1.1 million, that means $22,000 to $132,000 per year. Most businesses fall closer to the 3% to 6% range.
These fees cover administrative services only. They do not include health insurance premiums or workers’ comp insurance, which the PEO bills separately (often at group rates lower than what you would pay on your own).
Say you run an electrical contracting company with 22 field technicians and office staff. Your annual payroll runs $1.1 million. At a typical flat fee of $120 per employee per month, your PEO admin cost would be $2,640 per month, or $31,680 per year. That is roughly 2.9% of payroll. You can estimate your specific costs with our PEO cost calculator.
Where the Savings Come From
PEO savings do not come from one place. They add up across five areas.
Health insurance premiums. This is typically the largest savings category. A PEO pools your employees with thousands of others from different businesses, creating a large group for insurance purchasing. Small businesses on the open market pay small-group rates, where one expensive claim can spike premiums 20% to 40% the following year. PEO group plans typically run 10% to 20% lower than comparable small-group coverage (NAPEO, 2025). For a 22-person company spending $8,000 per employee annually on health benefits, a 15% reduction saves roughly $26,400 per year.
Workers’ compensation. PEOs negotiate master workers’ comp policies that spread risk across their entire client base. High-risk industries like electrical contracting, construction, and manufacturing often see the biggest impact here. PEOs also invest in safety programs and claims management, which can lower your experience modification rate (the multiplier that adjusts your premiums based on your claims history) over time.
HR staff time. The average small business owner or HR manager spends 25% to 35% of their time on administrative HR tasks: payroll processing, benefits enrollment, compliance paperwork, and responding to employee questions about PTO and insurance. A PEO takes over most of that work. For a company where the owner or an HR generalist earning $65,000 per year spends a third of their time on those tasks, that represents roughly $21,700 in redirected labor. You can estimate your potential time savings with our calculator.
Compliance risk reduction. Employment law changes frequently. A single wage-and-hour violation or misclassification penalty can cost tens of thousands of dollars. PEOs monitor regulatory changes and update your policies accordingly. They handle tax filing, I-9 verification, and new-hire reporting. The value here is harder to quantify because it is about avoiding costs that hit you only if something goes wrong. But NAPEO’s research suggests that reduced compliance risk is a meaningful contributor to the overall 27.2% ROI figure.
Employee turnover. Replacing an employee typically costs 50% to 200% of their annual salary when you factor in recruiting, training, and lost productivity (SHRM, 2024). PEO clients experience 12% lower turnover than comparable businesses (NAPEO, 2024). For a 22-person company with average turnover, that could mean retaining one or two additional employees per year. At an average replacement cost of $15,000 per employee, that is $15,000 to $30,000 in avoided costs.
| Cost Category | Without a PEO (22 employees) | With a PEO (22 employees) |
|---|---|---|
| Health insurance premiums | $176,000/yr at small-group rates | $149,600 to $158,400/yr (10–20% less via group purchasing) |
| Workers’ compensation | Full small-group rates; self-managed claims | Lower group rates plus safety programs and claims management |
| HR administration time | ~$21,700/yr in owner or manager time | Covered by PEO admin fee |
| Payroll processing | In-house or separate vendor cost | Included in PEO service |
| Compliance management | Self-managed; violation risk | PEO monitors laws and updates policies |
| PEO admin fee | $0 | $31,680/yr ($120/employee/month) |
Illustrative example for a 22-employee electrical contracting company with $1.1M annual payroll and $8,000/employee health benefits cost. Actual costs vary by provider, industry, and location.
When a PEO Is Probably Not Worth It
A PEO is not the right fit for every business. Here are situations where the math may not work:
You already have a strong in-house HR team. If you employ a full HR department that handles payroll, benefits, compliance, and employee relations effectively, a PEO may duplicate services you are already paying for. In this case, the PEO admin fee adds cost without removing existing expenses. This is more common for companies approaching or exceeding 200 employees.
Your team is very small. PEOs generally work best for companies with at least 5 employees. With fewer than 5, the per-employee admin fee may outweigh the savings from group benefits and compliance support. Some PEOs set minimum employee thresholds.
You need highly specialized HR support. PEOs offer broad, standardized HR services. If your business requires specialized talent acquisition, executive compensation design, or industry-specific labor relations, a PEO’s generalist approach may not cover what you need.
Your benefits costs are already low. If your industry has naturally low health insurance costs or you offer minimal benefits, the group purchasing advantage of a PEO shrinks. The ROI equation shifts most when the PEO helps you access benefits you could not otherwise afford.
How to Calculate Your Own PEO ROI
Here is a simplified framework. For a more detailed estimate, try our PEO ROI calculator.
Step 1: Estimate your PEO cost. Multiply your employee count by the per-employee monthly fee (or use the percentage-of-payroll model). For 22 employees at $120 per month: $31,680 per year.
Step 2: Estimate your health insurance savings. Compare your current per-employee health insurance cost to a PEO’s group rate. A 10% to 20% reduction is typical. For $8,000 per employee: $17,600 to $35,200 saved.
Step 3: Estimate your HR time savings. Calculate the salary cost of time your team currently spends on payroll, benefits admin, compliance, and employee questions. A PEO typically handles 60% to 80% of that work.
Step 4: Estimate your workers’ comp savings. Ask PEO providers for a quote based on your industry codes and claims history. Savings vary widely by industry.
Step 5: Factor in avoided turnover costs. If PEO clients see 12% lower turnover, calculate what retaining even one additional employee per year saves your business.
Add up Steps 2 through 5 and subtract Step 1. If the result is positive, the PEO is likely worth the investment. You can also estimate your potential savings across all these categories with our savings calculator.
The Bottom Line
For a typical small business with 10 to 200 employees, a PEO pays for itself. The average return is 27.2%, driven primarily by lower health insurance costs, reduced HR administrative burden, and better employee retention.
The businesses that benefit most are those spending significant money on health benefits, those without a dedicated HR team, and those in industries with high workers’ comp costs. The businesses least likely to benefit are those with robust in-house HR, very small teams, or already-low benefits costs.
The best way to find out is to compare actual proposals from PEO providers that fit your situation. You can browse providers in our PEO directory or understand how responsibilities are divided before reaching out.
Request a free consultation through our brokerage team. They will connect you with PEO providers that match your company’s size, industry, and needs. The process typically takes several business days, and it is completely free to you. PEO providers compensate our brokerage team directly.
Sources
- McBassi & Company for NAPEO, 'The ROI of Using a PEO' (2024)
- NAPEO, 'Industry Overview' (2025)
- NAPEO, 'FAQs About PEOs' (2025)
- NAPEO, 'Industry Research Data' (2024)
- Society for Human Resource Management, 'Benchmarking Human Capital Metrics' (2024)
- Bureau of Labor Statistics, 'Job Openings and Labor Turnover Survey' (2025)
