PEOs make money through fee structures based on the services they provide to their client companies. Here are common ways PEOs generate revenue:
Administrative fees: PEOs typically charge a service fee, often calculated per employee or as a percentage of total payroll. This fee covers the cost of managing HR tasks such as payroll processing, benefits administration, and HR compliance.
Insurance commissions: PEOs may earn commissions or receive a portion of the premiums from insurance products they offer, such as health insurance, workers' compensation, and retirement plans. They often negotiate better rates by pooling employees from multiple client companies.
Markup on services: PEOs might charge a markup or earn revenue by providing certain services, such as HR consulting, training programs, or additional HR-related tools and technologies.
Interest income: PEOs may earn interest by temporarily holding funds before distributing payroll or taxes to appropriate entities. However, regulations often limit the duration and use of these funds.
Ancillary service charges: PEOs can generate revenue through additional services not included in the standard package, such as employee training, background checks, or specialized HR consulting.