Most business owners think hiring an HR person costs one salary. It does not.
When you add benefits, payroll taxes, software, a benefits broker, and legal consulting, a single HR generalist runs $100,000 to $145,000 per year. A PEO (Professional Employer Organization) covers the same responsibilities for roughly a third of that cost. To understand the basics, see our guide to what a PEO is.
But this decision is not only about price. It is about what each option can actually do. This guide breaks down the real costs, compares the capabilities, and gives you a framework for choosing based on your company size.
What In‑House HR Really Costs
The salary is just the start. A human resources generalist earns a median of $72,910 per year according to the Bureau of Labor Statistics (BLS, 2024). An HR manager earns $140,030. Small businesses typically hire at the lower end of these ranges. But the paycheck is only part of the total.
What in-house HR actually costs for a typical small business:
- Salary: $65,000 to $75,000 for a generalist
- Benefits and payroll taxes: Add 30% on top of salary ($19,500 to $22,500)
- HR software: $5,000 to $15,000 per year for platforms like Gusto or BambooHR. For a comparison of PEO services versus standalone HR tools, see PEO vs HR software.
- Benefits broker: $3,000 to $5,000 per year
- Legal and compliance consulting: $5,000 to $10,000 per year
- Recruiting and training tools: $2,000 to $5,000 per year
Total for one generalist: roughly $100,000 to $145,000 per year.
And that person still cannot negotiate large-group insurance rates, sponsor a workers’ compensation master policy, or monitor compliance across multiple states on their own. SHRM’s 2025 benchmarking data shows HR expenses now account for 2.4% of operating costs across industries (SHRM, 2025).
What a PEO Costs
A PEO charges an administrative fee that covers HR, payroll, benefits access, workers’ compensation, and compliance support. You keep paying your employees’ wages. The PEO fee covers the infrastructure around those wages.
Typical PEO pricing falls into two models:
- Flat fee: $40 to $160 per employee per month
- Percentage of payroll: 2% to 12% of gross payroll
NAPEO’s cost study found the average PEO administrative cost was $1,395 per employee per year, or about $116 per month (NAPEO/McBassi, 2019). Use our PEO cost calculator to estimate your numbers.
That fee includes payroll processing, tax filing, health insurance access through pooled group plans, workers’ comp coverage, retirement plan access, compliance monitoring, and HR support. For details, see what a PEO does.
The Side‑by‑Side Math
How the cost comparison shifts at two common company sizes:
30 employees:
- In-house HR (one generalist plus tools, broker, legal): roughly $100,000 to $133,000 per year
- PEO ($100 to $150 per employee per month): roughly $36,000 to $54,000 per year
- You also save on health insurance through the PEO’s pooled rates, which are not available to a 30-person company buying on its own
75 employees:
- In-house HR (manager plus generalist, fully loaded): roughly $275,000 to $340,000 per year
- PEO ($100 to $150 per employee per month): roughly $90,000 to $135,000 per year
- The PEO still costs less, but the gap narrows as your company grows
Businesses using a PEO see an average ROI of 27.2%, largely from lower benefits and workers’ comp rates (NAPEO/McBassi, 2019). Use our PEO savings calculator to model your numbers. You can also see how many administrative hours you could reclaim with our time savings calculator.
PEO vs In‑House HR: What Each One Covers
| Capability | In-House HR | PEO |
|---|---|---|
| Recruiting and hiring | Yes, hands-on | Not included (you still hire) |
| Company culture and employee relations | Direct, daily involvement | Limited; you retain day-to-day management |
| Payroll processing and tax filing | Requires software and expertise | Included, handled by PEO |
| Health insurance access | Small-group rates only | Large-group pooled rates |
| Workers’ compensation | Must buy your own policy | Covered under PEO master policy |
| 401(k) and retirement plans | Must set up and sponsor your own | Access through PEO multi-employer plan |
| Multi-state compliance | Requires legal counsel per state | Monitored and managed by PEO |
| Strategic HR planning | Yes, with the right hire | Limited; PEO handles admin, not strategy |
Capabilities vary by PEO provider. Some offer recruiting add-ons or strategic HR consulting at additional cost.
In-house HR shines at building relationships, shaping culture, and making strategic talent decisions. A PEO’s strength is infrastructure: benefits buying power, compliance coverage, and administrative scale that a single hire or small team cannot match. For a closer look at how responsibilities split, see PEO responsibilities vs employer.
The Benefits Access Gap
For businesses under 100 employees, the difference in benefits access is one of the biggest factors.
Health insurance: Only 59% of small firms (under 200 employees) offer health coverage, compared to 97% of larger companies (KFF, 2025). Small firms that do offer coverage face higher per-person costs and fewer plan options. PEOs pool thousands of employees across their client companies to access rates and plan designs typically reserved for large employers.
Retirement plans: Among businesses with 10 to 49 employees, 52% of PEO clients offer a retirement plan, compared to just 23% of non-PEO businesses (NAPEO). The PEO handles plan administration, fiduciary responsibilities, and compliance.
Workers’ compensation: PEOs provide coverage through master policies. Companies with elevated experience modification rates often see immediate savings because the PEO’s master policy rate applies instead of the company’s individual rate.
These are not add-ons. They come with the PEO administrative fee. To understand the full PEO model, see our guide to how a PEO works.
When to Choose a PEO, In‑House HR, or Both
The right choice depends on your company size and what kind of help you need most.
Under 50 employees: A PEO covers HR, benefits, payroll, and compliance for less than what one HR hire would cost. Most businesses this size do not have the volume to justify a dedicated HR role.
50 to 150 employees: This is the hybrid zone. Many companies hire an HR leader to handle strategy, culture, and employee relations while keeping the PEO for benefits, payroll, compliance, and administrative scale.
Over 150 employees: A full in-house HR team becomes cost-competitive on a per-employee basis. Some companies at this size transition to an ASO (Administrative Services Organization), which provides HR support without co-employment. For a comparison, see PEO vs ASO.
Small business owners spend an average of 10 hours per week managing people-related issues (GMS, 2024). A PEO or an HR hire can reclaim that time, but the approach should match where you are today and where you are headed.
The Bottom Line
A PEO gives small businesses access to HR infrastructure, pooled benefits, and compliance support at a lower cost than building an in-house HR department. As your company grows past 75 to 100 employees, the hybrid model often makes the most sense: an in-house HR leader for strategy and culture, with a PEO handling the back office.
Browse providers in our PEO directory to see which ones serve businesses like yours.
Request a free consultation through our brokerage team to compare proposals. The process takes several business days and costs you nothing. PEO providers compensate our brokerage team directly.
Sources
- Bureau of Labor Statistics, “Occupational Outlook Handbook: Human Resources Managers” (May 2024)
- Bureau of Labor Statistics, “Occupational Outlook Handbook: Human Resources Specialists” (May 2024)
- SHRM, “2025 CHRO Benchmarking Data Brief” (2025)
- NAPEO/McBassi & Company, “The ROI of Using a PEO,” White Paper #7 (2019)
- NAPEO, “Industry Overview” (2025)
- KFF, “2025 Employer Health Benefits Survey” (2025)
- GMS, “The Overwhelming Amount of Time Small Businesses Spend on HR” (2024)
