You are paying for HR whether you realize it or not. Every hour the owner spends on payroll, every small-group insurance quote that comes back higher than expected, every $300-per-hour employment attorney call. It adds up. The question is whether a PEO (Professional Employer Organization) can do it cheaper.
For most small businesses, the answer is yes. PEO cost savings average $1,775 per employee per year, according to NAPEO’s most widely cited study (NAPEO/McBassi, 2019). That number comes from five specific categories: health insurance, workers’ compensation (the insurance that covers employees hurt on the job), HR staff costs, payroll and tax filing, and outside HR services. This article breaks down each one so you can see where the savings come from and whether they apply to your business.
If you are new to PEOs, start with our guide to Professional Employer Organizations.
Where PEO Cost Savings Come From
PEO savings fall into two groups: hard-dollar savings on insurance and services, and time savings from not handling HR yourself. Both are real, but they show up in different places on your budget.
The NAPEO study (conducted by McBassi and Company) measured the hard-dollar side. Here is what they found:
- Health insurance. PEOs pool thousands of employees to negotiate lower group rates.
- Workers’ compensation. PEOs use master policies that reduce premiums.
- HR staff costs. The PEO replaces the need for a full-time HR hire.
- Payroll and compliance. Included in the admin fee instead of paid separately.
- Outside HR services. Brokers, attorneys, and consultants are no longer needed.
The total savings across these five categories averaged $1,775 per employee per year. After subtracting the average PEO admin fee of $1,395 per employee per year, the net benefit was $380 per employee per year (NAPEO/McBassi, 2019). Use our PEO savings calculator to estimate your numbers.
Health Insurance: The Biggest Savings Category
Small businesses pay more for health insurance than large companies. Insurance carriers charge higher rates to smaller groups because the risk is harder to predict. A 15-person company has less bargaining power than a company with 5,000 employees.
A PEO changes that equation. When you join a PEO, your employees become part of a pool that can include tens of thousands of workers from hundreds of companies. This gives your team access to the same rates and plan options that much larger companies get.
The numbers back this up. The average annual premium for single health coverage is $9,325 (KFF, 2025). Small businesses using a PEO typically see 5% to 15% lower premiums on comparable plan designs. For a company with 20 enrolled employees, even a 10% reduction saves $18,650 per year.
Beyond the premiums, PEOs handle benefits administration (all the behind-the-scenes work of managing health plans, enrolling employees, and answering their questions). Those are hours the owner or office manager no longer spends.
Workers’ Compensation: Bigger Savings for Higher‑Risk Businesses
Workers’ compensation insurance is priced based on your industry, claims history, and something called an experience modification rate. Your mod rate is a multiplier that adjusts your premium. A mod of 1.0 means you pay the average for your industry. Above 1.0 means you pay more. Below 1.0 means you pay less.
PEOs use a master workers’ comp policy that pools all their clients together. The master policy usually carries a lower mod rate than what a small company earns on its own. For higher-risk industries like construction, manufacturing, and landscaping, savings of 20% to 30% on premiums are common (PeoPayGo, 2026).
A landscaping company with 15 employees paying $33,750 per year for workers’ comp might see that drop to $23,625 under a PEO’s master policy. That is a $10,125 annual savings from a single line item. Low-risk office businesses see smaller savings here, typically 5% to 10%.
HR Staff Costs: The Savings You Might Not See
Many small businesses do not have a dedicated HR person. The owner, office manager, or bookkeeper handles payroll, benefits questions, hiring paperwork, and compliance. This works until it doesn’t.
The real cost is the owner’s time. If the owner spends 10 hours per week on HR tasks and their time is worth $75 per hour, that is $39,000 per year in opportunity cost. A PEO takes over most of that work. Our time savings calculator estimates the hours you could reclaim.
For businesses that already have an HR person, the math is different. The median HR manager salary is $140,030 per year (BLS, 2024). A PEO does not always replace that role entirely, but it can reduce it to a part-time position or eliminate it for smaller teams.
The PEO admin fee for a 15-employee company at $130 per employee per month is $23,400 per year. Compare that to even a part-time HR hire at $25,000 to $35,000, and the PEO often comes out ahead while providing more comprehensive services. Understanding the services a PEO provides helps you see where the overlap is.
Payroll, Compliance, and Outside Services
Without a PEO, most businesses pay separately for:
- Payroll software: $1,200 to $6,000 per year
- Benefits broker: $2,000 to $5,000 per year
- Employment law attorney (on retainer or per call): $3,000 to $10,000 per year
- HR compliance consulting: $2,000 to $5,000 per year
A PEO bundles all of these into the admin fee. You do not pay extra for payroll processing, tax filing, compliance monitoring (making sure you follow federal, state, and local employment laws), or basic legal guidance. For a small business spending $8,000 to $26,000 per year on these services separately, the PEO eliminates those line items.
To see how PEO pricing works, our PEO cost calculator breaks down what you would pay based on your company size. For a deeper look at pricing structures, see our guide to PEO cost per employee.
Real Savings Example: 15‑Employee Landscaping Company
Here is what PEO cost savings look like for a 15-employee landscaping company with an average salary of $45,000 and total annual payroll of $675,000.
| Category | Without PEO (Annual) | With PEO (Annual) | Annual Savings |
|---|---|---|---|
| Health insurance (10 enrolled) | $93,250 ($9,325 x 10) | $83,925 (10% group discount) | $9,325 |
| Workers' comp (landscaping rate) | $33,750 ($5.00 per $100 payroll) | $23,625 (30% reduction via master policy) | $10,125 |
| Part-time bookkeeper + HR tasks | $25,000 | $0 (covered by PEO) | $25,000 |
| Payroll software + tax filing | $4,200 | $0 (included in PEO fee) | $4,200 |
| Employment attorney (retainer) | $5,000 | $0 (included in PEO fee) | $5,000 |
| PEO admin fees ($130 PEPM x 15) | $0 | $23,400 | ($23,400) |
| Net annual savings | -- | -- | $30,250 |
Illustrative scenario for a 15-employee landscaping company with $45,000 average salary. Workers' comp rate of $5.00 per $100 of payroll is typical for landscaping. Actual results vary by location, claims history, and PEO provider. Health insurance savings assume 10 enrolled employees at the 2025 KFF average single premium.
The net savings of $30,250 per year ($2,017 per employee) are higher than the NAPEO national average. That is because landscaping is a higher-risk industry where workers’ comp savings are larger. A low-risk professional services firm would see smaller workers’ comp savings but similar savings on health insurance and HR staff.
When Savings Are Largest (and When They Shrink)
PEO cost savings are strongest for businesses with:
- 5 to 75 employees. Enough HR complexity to matter, not enough to justify a full in-house HR team.
- High workers’ comp costs. Construction, manufacturing, healthcare, and transportation see the biggest insurance reductions.
- No dedicated HR staff. The owner is spending hours on payroll, compliance, and benefits questions.
- Expensive health insurance markets. Businesses in California, New York, New Jersey, and Massachusetts benefit most from pooled rates.
Savings shrink for businesses with:
- Over 150 employees. In-house HR becomes cost-competitive at this size.
- Already-low insurance rates and a clean claims history.
- An existing HR team and established vendor relationships.
The right comparison is not "PEO vs. nothing." It is "PEO vs. what you are already paying for HR, insurance, payroll, compliance, and outside services." When you add up all those costs, most businesses with 5 to 75 employees find the PEO saves money. You can see the full calculation with our PEO ROI calculator.
The Bottom Line
PEO cost savings average $1,775 per employee per year, driven by lower health insurance premiums, reduced workers’ comp costs, and the elimination of separate HR services. For a 15-employee company, that can mean $30,000 or more in net annual savings after the PEO’s admin fee.
Your specific savings depend on your industry, employee count, current insurance costs, and how much time you spend on HR today. The only way to get exact numbers is to compare proposals from actual providers.
Request a free consultation through our brokerage team. They will match you with PEO providers based on your company’s size, industry, and needs. The process takes several business days and costs you nothing. PEO providers compensate our brokerage team directly.
Sources
- NAPEO/McBassi & Company, “The ROI of Using a PEO,” White Paper #7 (2019). napeo.org
- Kaiser Family Foundation (KFF), 2025 Employer Health Benefits Survey. kff.org
- Bureau of Labor Statistics, Occupational Outlook Handbook: Human Resources Managers (May 2024). bls.gov
- PeoPayGo, “How PEO Workers Comp Insurance Cuts Costs by 30%” (2026). peopaygo.com
- BLS, Employer Costs for Employee Compensation (March 2026). bls.gov
