PEO vs payroll service: what you get and what it costs

The short answer

Payroll service

$50 + $8 per employeeJustworks Payroll, per month, checked Oct 16, 2026

PEO

$79 to $124 per employeeJustworks PEO Basic and Plus, per month

Break-even

About $98 to $107per employee per month the PEO must save you (math below)

Who is the employer

You alone vs sharedA PEO is a co-employer; a payroll service is not

Pick a payroll service if you already have decent health insurance through a broker (or offer none), you have one or two states to manage, and someone on your team can handle HR questions. You keep full control, your own tax accounts and your own benefit plans, and you can leave on a month's notice with most providers.

Pick a PEO if you cannot get competitive small-group health quotes, you need workers' comp and HR compliance handled, or you hire in several states and do not want to register and manage each one yourself. You pay for that in a per-employee fee that is 4.4 to 13.4 times what Justworks charges for payroll alone at 5 to 40 employees (table below).

Cost at 5, 15 and 40 employees

These are service fees only, from published prices. They exclude health premiums, workers' comp premiums and payroll taxes, which you pay under either model (covered in the next section). Justworks is used for both routes because it is the one provider that publishes a payroll plan and a PEO plan side by side. Deel and Remote publish US PEO prices too. TriNet, Insperity, ADP TotalSource, Paychex PEO and Rippling PEO are quote only.

The break-even number

Compare like with like: Justworks PEO Plus (which administers medical, dental and vision) against Justworks Payroll with its health insurance add-on.

• 5 employees: $7,440 minus $1,560 = $5,880 a year, or $5,880 / 5 / 12 = $98.00 per employee per month.
• 15 employees: $22,320 minus $3,480 = $18,840 a year, or $104.67 per employee per month.
• 40 employees: $59,520 minus $8,280 = $51,240 a year, or $106.75 per employee per month.

That is what the PEO has to earn back per person, through lower premiums, a cheaper workers' comp policy, or HR work you would otherwise pay for. Quote-only PEOs can be above or below Justworks; third-party estimates for Paychex PEO run $100 to $250 per employee per month (Eightx, June 2026; HR.software, May 2026), which would push the break-even higher. See what a PEO costs per employee, all in for the full fee breakdown.

Annual service fees for 15 employees. Source: vendor pricing pages, checked October 16, 2026.

What both routes still cost you

A PEO does not make payroll taxes or insurance go away. It collects them from you and pays them on your behalf. These lines show up under either model:

• Employer payroll taxes. Social Security 6.2% up to the 2026 wage base of $184,500, Medicare 1.45% with no cap, and FUTA at a net 0.6% on the first $7,000 per employee (IRS Pub 15 and Topic 759). On a $60,000 salary that is $4,590 of FICA and $42 of FUTA either way.
• State unemployment (SUTA). Your state rate times its wage base. Texas, for example, charges new employers 2.70% on the first $9,000 (Texas Workforce Commission), or $243 per employee. Under a PEO, the rate used may be the PEO's or yours depending on the state and how the PEO reports. Ask which. Rates for every state are in our 2026 SUTA rate table.
• Health premiums. Justworks' pricing page does not include premiums in the PEO fee, and TriNet says medical, dental and vision premiums are separate from its per-employee fee. With payroll software you pay the carrier directly through your own plan.
• Workers' comp. Justworks lists workers' comp as "Required for PEO" without showing a rate. ADP says TotalSource includes workers' comp in its service fee. With payroll software you buy your own policy; see pay-as-you-go workers' comp.

Model a full employee cost with the employee cost calculator.

Co-employment, explained

The legal difference is who the employer is. With a payroll service, you are the only employer. The software company is a vendor that files on your behalf, and your federal tax liability stays with you.

With a PEO, you and the PEO share employer duties under a written agreement. Federal law describes a certified PEO contract as one where the PEO pays wages and employment taxes, shares responsibility for recruiting, hiring and firing with you, and keeps employee records (26 USC 7705(e)(2)). In practice you still direct the daily work, set pay and decide who to hire and fire. The PEO runs payroll under its own tax account, sponsors the benefit plans and holds the workers' comp policy.

Why certification matters here

• Certified PEO (CPEO): for wages the CPEO pays to your work site employees, the CPEO is treated as the employer, and no one else is, for federal employment taxes (26 USC 3511(a)). If the CPEO fails to deposit, the IRS looks to the CPEO.
• Non-certified PEO: section 3511 does not apply, so you can remain liable for your federal employment taxes even though the PEO files them. Ask who pays if a deposit is missed.
• Coverage rule: to get CPEO treatment, at least 85% of the people working at that work site must be covered by CPEO contracts (26 USC 7705(e)(3)).
• Credits stay with you: the research credit, work opportunity credit and small employer health insurance credit remain yours under a CPEO (26 USC 3511(d)).

Check any PEO against our IRS certified PEO list before you sign. The IRS warns that many CPEO names are similar, so match the exact legal name and EIN on your contract.

Health insurance: PEO plan or your own broker

This is where buyers split. Some examples from public reviews and threads:

• On Hacker News, one founder said TriNet plans were about 30% cheaper than Zenefits quotes for the same carrier, while another concluded after comparing, "I don't think PEOs are necessarily better" (HN, HN).
• An ADP TotalSource client found a better policy at about 75% of the cost by shopping on her own, and another said plans were limited to Aetna and rose every year (Capterra, 2024 to 2025).
• A TriNet reviewer in October 2026 called its benefits "a little higher than the other companies" (Capterra), while a TriNet employer on Trustpilot credited the PEO for being able to offer affordable benefits.

The PEO advantage is usually access: large-group plans, PPOs with out-of-network coverage, and one plan that works in several states. The broker advantage is choice and portability: your plan does not disappear if you leave. Get both quotes for the same metal level and deductible before you decide. Our guide to small business health insurance covers the broker route.

Setup and onboarding: what changes on day one

Moving to a PEO is closer to a migration than a software install:

1. You sign a client service agreement. Terms are not public at Justworks, TriNet, Insperity, ADP TotalSource or Paychex.
2. Your employees move onto the PEO's payroll account. Paychex says its PEO files payroll taxes under its own EIN.
3. Benefits move to the PEO's plans, usually at a plan year start. Check whether your current plan has a termination penalty or a renewal date you should wait for.
4. Workers' comp usually moves to the PEO's policy, and state unemployment reporting changes to however that PEO handles your state.
5. Your 401(k) may need to move into the PEO's plan; ask how the transfer works.

Setup is where many complaints start. A TriNet client's HR director wrote in October 2026 that they "were not set up correctly in many ways," which took most of a year to fix; a Justworks reviewer said an employee could not get paid for about 16 days (Capterra, Trustpilot). Run the first PEO payroll in parallel with your old system if you can.

Leaving: the exit costs nobody prices

Payroll software is usually month to month (Gusto states no long-term contract). PEO exits are harder:

When you leave mid-year, plan for three things. Health coverage ends with the PEO's plan, so line up a new plan for the same date. The 401(k) needs a plan-to-plan transfer. And check the wage bases: when you leave a CPEO, the CPEO is treated as the predecessor employer, so Social Security and FUTA wage bases carry over (26 USC 3511(b)).

Options between the two

• ASO (administrative services organization): the provider runs payroll, benefits administration and HR, but you stay the only employer and keep your tax liability. This is an industry term, not one defined in the tax code. See PEO vs ASO.
• Payroll software plus an HR add-on: Justworks sells time tracking as an $8 per employee add-on to its Payroll plan; Gusto Premium ($180 + $22 per person) adds HR and compliance tools. See our payroll software rankings.
• EOR for workers abroad: a PEO covers US employees only. For a hire in another country you need an employer of record (Justworks' EOR add-on is $599 per employee per month). See PEO vs EOR.

Common mistakes

• Comparing the PEO fee to the payroll fee only. The real comparison is PEO fee plus PEO premiums against payroll fee plus broker premiums plus your own workers' comp.
• Ignoring renewals. ADP TotalSource reviewers report increases of 8% in 2025 and 18% in a second year; TriNet's "continues to go up year after year" (Capterra). Ask for the last three years of renewal increases for your size group.
• Not asking about SUTA. In an August 2026 Hacker News discussion of missed wage reports after a provider switch, one commenter said their unemployment insurance rate "went from 0.8% to 12.75%" (HN, HN). Ask whether the PEO reports state unemployment under its account or yours, and who files the final quarterly reports when you leave.
• Assuming every PEO is certified. Rippling, Vensure and BBSI did not appear under those names on the IRS active CPEO list we checked (report date 8/7/2026). They may certify under another entity name, so ask.
• Signing a promo without reading the term. Deel's PEO promo and Paychex's payroll promo both claw back the free months if you leave early.