The decision nobody explains
These are two different products at very different prices, and the largest vendors sell both. A business that rings up asking about payroll is routinely quoted the PEO, because that is where the margin is. Nobody on that call has any reason to draw you this distinction.
You calculate withholding, make tax deposits on schedule, and file the quarterly and annual returns.
You still own: Everything.
Right when
Wrong when
Software that runs payroll, withholds and deposits payroll taxes, files your returns, and issues W-2s. You remain the sole employer.
You still own: HR, hiring, firing, handbooks, benefits selection, workers' compensation, and compliance decisions.
Right when
Wrong when
A co-employment arrangement. The PEO becomes the employer of record for tax and benefits purposes while you direct the work. It bundles payroll, HR support, workers' compensation and group benefits.
You still own: Day-to-day management and the actual employment decisions. You are still liable for how you treat people.
Right when
Wrong when
In order. The answers compound.
This is precisely why people end up on the expensive product without ever deciding to. Name the product you want quoted.
| Vendor | Payroll product | PEO product |
|---|---|---|
| ADP | ADP Run | ADP TotalSource |
| Paychex | Paychex Flex | Paychex PEO |
| Justworks | Payroll-only tier | PEO |
| TriNet | — | PEO |
| Gusto | Payroll plus HR add-ons | — |
ADP: Calling ADP about payroll can easily become a TotalSource conversation. They are different products at very different prices.
Paychex: Same pattern. Be explicit about which product you are asking to be quoted.
Justworks: PEO-first company. Pricing is unusually transparent by industry standards, which is worth something.
TriNet: PEO only. No cheaper tier to be moved up from, which at least makes the comparison honest.
Gusto: Payroll-first. Often the straightforward answer for a small single-state employer.
We have no relationship with any company named here and receive nothing from any of them.
If you take one thing from this page, take these.
Why it matters: This is the only number that lets you compare providers. Bundled quotes are designed to prevent exactly that comparison. If they will not separate it, that is your answer.
Why it matters: Most PEO deals are brokered, and the commission is usually recurring and calculated on your total payroll spend — so it grows as you grow. Legal and normal, and almost never volunteered.
Why it matters: CPEO status affects who the IRS holds responsible if payroll taxes go unpaid. With a non-certified PEO, you can remain on the hook for taxes you already paid them to remit.
Why it matters: You are leaving the PEO's master plan, so your staff get new plans, new deductibles and possibly new doctors — often mid-year. This is the single most underestimated exit cost.
Why it matters: The first-year quote is the cheapest it will be. Ask for actual historical renewal increases, not a promise.
Why it matters: In a PEO the master policy is theirs, not yours. That means no claims history of your own to shop with later, which makes leaving harder than arriving.
A payroll provider runs payroll, withholds and deposits payroll taxes and files returns, while you remain the sole employer. A PEO is a co-employment arrangement: it becomes the employer of record for tax and benefits purposes, bundling payroll with HR support, workers' compensation and group health benefits. A PEO typically costs $100 to $200 per employee per month; payroll software is commonly a base fee plus $6 to $15 per employee per month.
Commonly $100 to $200 per employee per month, or a percentage of total payroll. The critical thing is to get the administrative fee quoted separately from the insurance premium — bundled quotes make it impossible to compare providers, which is often the point.
Usually not below about 50 employees, unless you have no HR capacity at all or cannot get acceptable health insurance rates on your own. Benefits access is a PEO's strongest genuine argument. If you mainly wanted payroll handled, a payroll provider plus a benefits broker is typically far cheaper.
A CPEO is certified by the IRS, which affects who is liable if payroll taxes go unremitted. With a non-certified PEO you can remain responsible for payroll taxes you already paid the PEO to remit on your behalf. Always ask whether a PEO is IRS-certified.
Your employees leave the PEO's master health plan, so they get new plans with new deductibles and possibly new doctors, often mid-year. This is the most underestimated cost of exiting. You also have no claims history of your own to shop with, because the master policy belonged to the PEO.
Often somewhere past roughly 100 employees. PEO pricing scales with headcount while a fully loaded in-house HR hire does not, so the maths frequently reverses. Model the PEO admin fee per employee per year against an HR salary plus standalone payroll and a benefits broker.
An SBDC adviser will talk this through with you at no charge, and has no product to sell you. Worth doing before a sales call, not after.
Cost ranges are typical market figures, not quotes, and vary considerably by state, industry and census. General information only, not legal, tax or financial advice.