Payroll Service Pricing: Per Process vs Per Employee Per Month (PEPM)

Running a small business means keeping an eye on every dollar. As owners, we juggle roles in HR, marketing, operations—you name it—always looking for ways to streamline and optimize, especially on costs. 

Payroll, in particular, can be one of the biggest expenses, so it’s important to find a pricing model that works with you, not against you.

That’s why today, we’re talking about payroll service pricing. You’ve probably come across two main pricing structures when shopping for payroll services: Per Employee Per Month (PEPM) and Per Process.

You may have even scratched your head wondering if one is better than the other, or at least how they compare. So, let’s decode these structures and see which might be the better fit! 

What is the Per Process Payroll Model?

In the per-process payroll model, your business is billed based on the number of employees paid each time payroll is processed. Invoices are typically generated automatically when payroll is run, meaning fees are applied only when employees receive checks. 

Benefits of Per Process Payroll Pricing

There are a couple of benefits to a pricing model like this: 

• Pay As You Go: You’re only charged for what you use. For example, if an employee is on leave and skips a paycheck, you won’t be charged for that employee during that period.
• Flexibility: For businesses with fluctuating staff, like seasonal operations, this model can be very beneficial. You won’t be stuck paying fees for employees who aren’t actively working.

Downsides of Per Process Payroll Pricing

However, while the per-process model has been a long-standing method for many payroll providers, the rise of technology in HR services has led to a shift in how billing is done. There are also some potential downsides to consider:

• Incomplete Billing: Many payroll providers now offer services beyond issuing payroll checks, such as HR services, ACA compliance, and leave management. While it makes sense to pay per employee for payroll processing, it’s less clear if this pricing structure works well for other services that aren’t directly tied to payroll cycles.
• Inflated Flat Fees: Many providers that bill in this model also have flat fees incurred each time payroll is processed, making it easier to hide actual processing costs. It’s not as simple as saying, “I’m going to be billed $3 for every employee I pay.” 

What is the Per Employee Per Month (PEPM) Payroll Model?

With the increasing use of technology in payroll services, many providers have moved to a Per-Employee-Per-Month (PEPM) model. 

In this structure, you’re billed a fixed amount per employee, regardless of how many times payroll is processed in a month. The PEPM model allows for providers to bill similarly to a technology or software provider that charges “per user” or “per license.” 

Benefits of PEPM 

This approach offers several advantages:

• Predictability: If you have a fairly consistent headcount, you can easily predict your payroll costs. Simply multiply your number of employees by the PEPM rate to get a true representation of anticipated costs.
• Simplicity: The PEPM model allows payroll providers to bundle various services in a more reasonable way. This allows small businesses to consolidate multiple systems and the fees that come with them into a single provider. 
• Cost Savings on Frequent Payrolls: For businesses that process payroll weekly or bi-weekly, the PEPM model can provide significant savings, as you’re not charged per payroll run.

Downsides of PEPM 

That said, the changeover to a PEPM billing model by some providers has shed some light on the drawbacks that come with this model that may prove to be disadvantageous for some businesses. 

• Unnecessary Add-Ons: Some providers offer PEPM packages that include services you might not need. It’s important to carefully review what’s included so you’re not paying for extras that don’t add value to your business.
• Less Flexibility: If your workforce shrinks temporarily or you don’t update your employee list in time, you might end up paying for employees who are no longer with your company.

The Numbers Behind Per Process and PEPM 

Okay, enough talk, let’s do the math! Let’s pretend you run a bakery with 15 employees who are paid every other week.

Per Process Fee Model:

If you pay each of your 15 employees every payroll cycle, your annual payroll costs might total around $2,200. Here’s how that adds up:

• $3 per check x 15 employees + $40 flat fee per payroll = $85 per payroll run
• $85 x 26 payrolls per year = $2,210 annually

Per Employee Per Month (PEPM) Model:

With a PEPM model, your costs would look a bit different. Assuming an industry-standard rate of $10 per employee per month:

• 15 employees x $10 PEPM = $150 per month
• $150 x 12 months = $1,800 annually

In this example, the PEPM model would save you around $400 annually. The savings become even greater if you run payroll weekly ($85 per payroll x 52 payrolls per year = $4,420 annually). 

As you can see, the PEPM model could save you money, especially if you process payroll frequently. 

What’s the Verdict?

So, which pricing model is better? As you can imagine, there is no one-size-fits-all answer. That would be too easy! Instead, consider this:

• Consistency: If your employee count stays steady and you process payroll regularly, the PEPM model might offer a simpler, cost-effective solution.
• Fluctuations: If your workforce changes often, or if employees frequently go on leave, the per-process model might provide more flexibility and cost savings.
• Payroll Frequency: As shown above, the more often you process payroll, the more beneficial the PEPM model can be.

In any case, think about what works for you and your business’s specific needs. Take a moment, do the math, get to an apples-to-apples comparison, and make the decision on what is best for your organization! 

Choosing a payroll provider is a decision you don’t want to regret. It’s a partnership that impacts your business and your people, so getting it right matters. That’s why we’ve put together a guide on How to Choose a Payroll Provider in 2025. From must-have features to red flags, it’ll help you make a confident choice you won’t have to rethink down the road.