December 28, 2023

Why the PEPM Payroll Services Model is Better for your Business

What is PEPM Pricing?

PEPM pricing, also known as “Per Employee Per Month” pricing, is a payment model that payroll service providers use to charge their clients. Instead of charging a fixed rate per payroll run or per employee, PEPM pricing involves a fixed monthly fee for each employee on the company’s payroll. This model has gained popularity among businesses due to its simplicity and cost-effectiveness.

What Does PEPM Stand for?

PEPM stands for “Per Employee Per Month.” It refers to the pricing model used by payroll service providers, where businesses pay a fixed monthly fee for each employee on their payroll. This pricing structure allows businesses to have better control over their payroll expenses and enables them to budget more accurately.

Advantages of PEPM Payroll Services Model

Simplified Pricing Structure:

One of the main benefits of the PEPM payroll services model is its simplicity. With a fixed monthly fee per employee, there are no complex calculations or additional charges based on pay periods, frequencies, or any other variables that may typically complicate traditional pricing models. This makes it easier for businesses to understand and budget their payroll expenses.

Cost Predictability:

The PEPM model offers businesses greater cost predictability and stability. Since the pricing is fixed on a per-employee basis, businesses can accurately forecast and plan their payroll expenses from month to month without worrying about unexpected fluctuations. This provides more financial security and helps maintain a steady cash flow.

Scalability:

Another advantage of PEPM pricing is its scalability. As your business grows and hires more employees, the per-employee cost remains consistent under the PEPM model. This ensures that your payroll costs grow in proportion to your workforce, making it easier to budget for expansion.

Flexibility:

The PEPM model also offers flexibility, as businesses can easily add or remove employees from their payroll without affecting the overall pricing structure. This makes it convenient for businesses with fluctuating workforce requirements, seasonal employees, or if they need to quickly adapt to market changes.

All-Inclusive Services:

Many payroll service providers that offer the PEPM model bundle additional HR services with their payroll services. These services may include employee onboarding, time and attendance management, benefits administration, and tax filing. By opting for a PEPM package that includes these services, businesses can streamline their HR processes and save time and effort in managing multiple vendors.

Alternative to PEPM: Cost per Transaction model

The cost per transaction model is a payroll service model where businesses are charged a fee for each individual transaction processed. In this model, the number of transactions, such as each pay slip printed, direct deposit made, or tax filing processed, determines the overall cost. When compared to PEPM there are clear disadvantages to the Cost per Transaction model, including:

1. Unpredictable Expenses:

With the cost per transaction model, it can be challenging to accurately predict and budget for payroll expenses. Since the fees are based on the number of transactions, costs can vary from month to month, making financial planning more complex. Unexpected spikes in transaction volumes, such as during peak hiring seasons or workforce expansions, can result in significantly higher costs.

2. Limited Scalability:

The cost per transaction model may not be as suitable for businesses experiencing growth or fluctuations in their workforce. As your employee count increases, so does the number of transactions that need to be processed. This can lead to escalating costs, as every additional transaction incurs an additional fee. The lack of scalability in this model can make it less cost-effective and challenging to manage payroll as your business expands.

3. Administrative Burden:

Since costs are tied to each transaction, businesses utilizing the cost per transaction model may feel pressure to minimize expenses by reducing the number of transactions. This can result in an increased administrative burden for your HR or payroll team. For example, you may need to manually consolidate transactions or limit services like direct deposits to reduce fees. These additional administrative tasks can consume valuable time and resources that could be better spent on strategic HR initiatives.

4. Hidden Charges and Inefficiencies:

The cost per transaction model can sometimes lead to hidden charges and inefficiencies in payroll processing. Some service providers may add extra fees for specific services, such as generating reports, updating employee information, or providing customer support. These additional charges can quickly add up and lead to higher overall costs than initially anticipated. Additionally, businesses may select less efficient payroll workflows or technologies to minimize the number of transactions, compromising process efficiency and potentially causing errors.

While the cost per transaction model may work well for some businesses with consistent transaction volumes, it can pose challenges for those with fluctuating workforce sizes or those seeking predictable and streamlined payroll processes.

Considerations When Choosing a PEPM Payroll Service Provider

While the PEPM payroll services model offers several advantages, it’s essential to consider a few factors when selecting a payroll service provider:

1. Reliability and Reputation:

Ensure that the payroll service provider has a track record of reliability and excellent customer service. Research online reviews, ask for recommendations, and assess the provider’s experience in the industry.

2. Compliance and Security:

Payroll involves sensitive employee data, so it’s crucial to choose a provider that prioritizes data security and compliance with all relevant regulations. Ask about their security measures and certifications to ensure the protection of your data.

3. Integration Capabilities:

If you already use other HR or accounting software, make sure the payroll service provider can integrate seamlessly with your existing systems. This integration will enable smoother data flow and reduce manual tasks.

4. Support and Resources:

Look for a provider that offers ongoing support and resources to help you navigate any payroll or HR-related challenges. This could include access to a knowledgeable customer support team or educational materials.

The PEPM payroll services model offers several advantages for businesses looking to streamline their payroll processes while achieving cost savings and scalability. By simplifying your payroll system, you can focus on your core business and leave the complexities of payroll processing to a trusted service provider. By partnering with Tesseon you can enhance security, provide access to expertise and support, and ensure predictability in payroll expenses. Contact Tesseon today to learn more, request a demo, and receive expert advice on how our payroll services can significantly improve your business operations.

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Disclaimer: The information provided on this blog page is for general informational purposes only and should not be considered as legal advice. It is advisable to seek professional legal counsel before taking any action based on the content of this page. We do not guarantee the accuracy or completeness of the information provided, and we will not be liable for any losses or damages arising from its use. Any reliance on the information provided is solely at your own risk. Consult a qualified attorney for personalized legal advice.

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