PEPM (Per Employee Per Month)

How PEPM pricing works

The bill is headcount times the rate, so the price grows as the company grows. The details that change the real cost are in the contract, not the headline rate:

• Base fee. Many payroll products charge a flat monthly fee plus a PEPM rate. The base fee matters most for small companies.
• Who counts. Contracts differ on whether terminated employees still in the system, contractors, or seasonal workers count toward headcount.
• Minimums. A minimum of, say, 25 employees means a 12-person company pays for 25.
• Modules. Suites often quote a PEPM for each module (payroll, benefits, performance), so the total rate is the sum of the modules bought.
• Annual commitments. Some vendors bill PEPM on committed headcount for the year and true up later.

Related units: PEPY (per employee per year) is PEPM x 12. PMPM (per member per month) is used in health benefits and counts every covered person, including dependents, so a PMPM figure is higher per employee once families are counted. A PEO may instead charge a percentage of payroll, which rises with salaries as well as headcount; see the PEO pricing guide.

Example

Illustration with made-up prices, to show how the structure changes the answer. Option A charges $12 PEPM with no base fee. Option B charges a $150 monthly base fee plus $6 PEPM.

The break-even is where 12n = 150 + 6n, which gives n = 25 employees. Below 25, the flat rate is cheaper; above it, the base-fee plan wins. At 200 employees the gap is $1,050 a month, or $12,600 a year. If a company plans to grow from 15 to 60 people during a three-year contract, it should price both options at the expected headcount, not today's.

Related terms

• PEO: often priced PEPM or as a percentage of payroll.
• EOR: usually priced as a monthly fee per employee.
• Payroll run: the service most payroll PEPM fees pay for.
• Employer of record pricing: guide to EOR fee structures.
• Benefits administration software pricing guide: how benefits tools use PEPM.
• Payroll software: compare products and pricing models.

Common mistakes

• Comparing rates without the base fee. A $6 PEPM quote with a $150 base can cost more than a $12 PEPM quote for a small team.
• Not defining an employee. If former employees stay billable until archived, a high-turnover business pays for people who have left.
• Ignoring implementation fees. One-time setup fees are often quoted separately from the PEPM rate.
• Mixing PEPM and PMPM. Benefits costs quoted per member can't be compared with per-employee software fees without converting.
• Forgetting renewal increases. Check the cap on PEPM increases at renewal before signing a multi-year deal.