PEO ROI Calculator: Is Outsourcing HR Worth the Investment?

The average PEO ROI is 27.2%. That means for every $1,000 a business spends on PEO services, it saves $1,272 in HR-related costs (NAPEO/McBassi, 2019). For a company with 30 employees, that adds up to more than $50,000 in net savings per year.

But averages only tell part of the story. Your actual PEO ROI depends on your company size, industry, current HR setup, and what you are paying for health insurance and workers’ compensation today. This guide breaks down the five cost categories where PEOs save money, walks through a real calculation, and helps you figure out whether outsourcing HR makes financial sense for your business.

If you are still learning what a PEO is and how it works, start with our guide to Professional Employer Organizations.

What PEO ROI Actually Means

ROI stands for return on investment. In the PEO context, it measures one thing: do the cost savings from using a PEO exceed the fees you pay for the service?

The math is straightforward. Add up everything you save by using a PEO (lower health insurance premiums, reduced workers’ comp costs, fewer HR staff hours, lower unemployment insurance rates, and less spending on outside HR services). Then subtract what the PEO charges you. If the savings exceed the cost, your ROI is positive.

NAPEO (the National Association of Professional Employer Organizations) commissioned the most widely cited PEO ROI study, conducted by McBassi and Company. Here are the headline numbers:

• Average cost savings: $1,775 per employee per year
• Average PEO admin cost: $1,395 per employee per year
• Net benefit: $380 per employee per year
• ROI: 27.2%

That 27.2% is a pure cost-savings figure. It does not include harder-to-measure benefits like faster company growth, lower employee turnover, or reduced risk of business failure, all of which NAPEO’s research also found (NAPEO/McBassi, 2024).

You can run the numbers for your own company with our PEO ROI calculator.

The Five Categories Where PEOs Save Money

The NAPEO ROI study broke savings into five categories. Understanding each one helps you estimate which savings apply to your business.

1. HR personnel costs. This is typically the largest savings category. A PEO handles payroll processing, benefits enrollment, compliance tracking, and employee questions. Without a PEO, you either hire an HR person or the owner spends their own time on these tasks. The median salary for an HR manager is $140,030 per year (BLS, 2024). For a 30-employee company paying $120 per employee per month for a PEO, the annual cost is $43,200, less than a third of a full-time HR manager’s salary.

2. Health benefits costs. PEOs pool employees from hundreds or thousands of client companies into a single group plan. This gives a 20-person company the same buying power as a company with thousands of employees. Small businesses commonly see 5% to 15% lower premiums on comparable plan designs (US Chamber of Commerce, 2024). With average single coverage at $9,325 per year (KFF, 2025), even a 10% reduction saves $932 per covered employee annually.

3. Workers’ compensation costs. PEOs use master policies that pool risk across all their client companies. Their experience modification rate (the multiplier that affects your premium) is typically lower than what a small company gets on its own. Savings vary widely by industry, but reductions of 20% to 30% are common, especially for higher-risk businesses (PeoPayGo, 2026).

4. Unemployment insurance costs. SUTA (state unemployment tax) rates depend on your claims history. PEOs that manage claims carefully and contest unjustified claims can help keep your rate lower over time. The savings here are smaller per employee but add up across your team.

5. External HR expenditures. Without a PEO, many businesses pay separately for payroll software, benefits brokers, employment law attorneys, and compliance consulting. A PEO bundles these into the admin fee. The cost of these services individually can run $15,000 to $30,000 per year for a small business.

How to Calculate Your PEO ROI

You can estimate your PEO ROI in four steps. You do not need exact numbers; reasonable estimates get you close enough to make a decision.

Step 1: Add up your current HR costs. Include what you pay (or what someone’s time is worth) for payroll processing, benefits administration, compliance tasks, recruiting support, and any HR software or outside consultants. If the owner handles HR, estimate the hours spent per week and multiply by what that time is worth to the business.

Step 2: Estimate your insurance savings. Get your current health insurance and workers’ comp premiums. PEOs typically reduce health premiums by 5% to 15% and workers’ comp by 15% to 30%, depending on your industry and current rates. If you do not have group health insurance today, the PEO may make it affordable for the first time.

Step 3: Get PEO pricing. Request proposals from two or three providers. Most charge $40 to $160 per employee per month in admin fees, or 2% to 6% of gross payroll. Our PEO cost calculator gives a quick estimate. For actual quotes tailored to your business, request a free consultation through our brokerage team.

Step 4: Do the math. Your ROI = (Total savings from Steps 1 and 2 minus the PEO cost from Step 3) divided by the PEO cost, times 100.

If the result is positive, the PEO saves you money. If it is negative, the PEO costs more than it saves, and you may want to explore other options.

Our PEO ROI calculator runs this math for you with conservative, typical, and optimistic scenarios.

What the Research Shows Beyond Cost Savings

NAPEO’s 2024 study found benefits that go beyond direct cost savings. These are harder to put a dollar figure on, but they affect your bottom line.

Faster growth. PEO client businesses grew at 4.3% per year, more than double the 1.9% growth rate of comparable non-PEO businesses (NAPEO/McBassi, 2024). The researchers controlled for industry and company size.

Lower turnover. PEO clients had 12% lower employee turnover than non-PEO businesses. Replacing an employee costs roughly 50% to 200% of their annual salary depending on the role. For a 30-employee company with 15% turnover, reducing that by even a few percentage points saves thousands in recruiting and training.

Better survival rates. Businesses using a PEO are 50% less likely to go out of business on an annual basis (NAPEO/McBassi, 2024). The researchers attribute this partly to better access to benefits (which helps attract and keep employees) and partly to compliance support (which reduces the risk of costly legal mistakes).

Retirement plan access. Among businesses with 10 to 49 employees, 52% of PEO client employees have access to a retirement plan, compared to just 23% at non-PEO companies of the same size (NAPEO/McBassi). Offering retirement benefits improves recruiting and retention without requiring the employer to set up and administer a plan independently.

These factors do not show up directly in an ROI calculation, but they explain why PEO users consistently report higher satisfaction than the raw numbers alone would suggest.

When PEO ROI Is Strongest

Not every business gets the same return from a PEO. Here is where the ROI tends to be highest.

5 to 75 employees. This is the sweet spot. You have enough employees that HR complexity is real, but not enough to justify a full in-house HR team. The PEO gives you access to enterprise-level benefits and compliance support at a fraction of the cost of building it yourself.

No dedicated HR staff. If the owner, office manager, or bookkeeper currently handles HR tasks, a PEO frees up their time for revenue-generating work. The value of that reclaimed time often exceeds the PEO cost on its own. Our time savings calculator helps you estimate those hours.

High-cost health insurance states. Businesses in states like California, New York, New Jersey, and Massachusetts pay some of the highest health insurance premiums in the country. The PEO’s group purchasing power makes the biggest difference in these markets.

Higher-risk industries. Construction, manufacturing, healthcare, and transportation companies pay elevated workers’ comp rates. A PEO’s master policy can significantly reduce those premiums.

Rapid hiring. If you are adding employees quickly, the compliance and onboarding burden grows with each hire. A PEO scales with you without requiring you to hire additional HR staff.

When PEO ROI May Not Work

A PEO is not the right fit for every company. Be honest about whether the math works for your situation.

Over 150 employees. At this size, in-house HR usually becomes more cost-effective. You can hire a full HR team, negotiate directly with insurance carriers, and build internal systems. The PEO’s group purchasing advantage diminishes as your own group gets larger.

Very low-risk, single-state businesses. If you operate in one state with a clean claims history and your industry has low workers’ comp rates, the insurance savings from a PEO may be modest. The ROI still works if HR time savings are significant, but the cost advantage narrows.

Already have strong HR infrastructure. If you already employ an HR manager, use established payroll software, and have competitive benefits through a good broker, the incremental savings from a PEO may not justify switching costs. Understanding how the services a PEO provides compare to what you already have helps you decide.

Short contract commitment concerns. Some PEOs require 12 to 36-month contracts. If your business situation is uncertain or you might need to change course quickly, factor in potential early termination fees. We covered these in detail in our guide to hidden PEO fees.

The Bottom Line

The average PEO delivers a 27.2% return on investment based on cost savings alone. The five savings categories (HR personnel, health benefits, workers’ comp, unemployment insurance, and external HR services) add up to $1,775 per employee per year against an average cost of $1,395 per employee per year (NAPEO/McBassi, 2019). Beyond direct savings, PEO clients grow faster, keep employees longer, and are less likely to close (NAPEO/McBassi, 2024).

Your results depend on your specific situation. The ROI is strongest for businesses with 5 to 75 employees, no dedicated HR staff, and high insurance costs. It weakens for larger companies that already have strong internal HR capabilities.

To see the numbers for your business, try our PEO savings calculator or PEO ROI calculator. If you want actual proposals from providers, request a free consultation through our brokerage team. The process takes several business days and is completely free. PEO providers compensate our brokerage team directly, so there is no cost on your end.

Sources

1. NAPEO/McBassi & Company, “The ROI of Using a PEO,” White Paper #7 (2019). napeo.org
2. NAPEO/McBassi & Company, “PEO Clients: Faster Growing, More Resilient Businesses” (2024). napeo.org
3. Kaiser Family Foundation (KFF), 2025 Employer Health Benefits Survey. kff.org
4. Bureau of Labor Statistics, Occupational Outlook Handbook: Human Resources Managers (May 2024). bls.gov
5. PeoPayGo, “How PEO Workers Comp Insurance Cuts Costs by 30%” (2026). peopaygo.com
6. US Chamber of Commerce, “How PEO Health Plans Help Small Businesses” (2024). uschamber.com [URL returned 404 at time of draft; verify before publishing]
7. SBA, “How Much Does an Employee Cost You?” sba.gov
8. BLS, Employer Costs for Employee Compensation (March 2026). bls.gov