PEO Consultants Blog

Why PEOs are on the Rise: A Healthy Outlook

Over the last 10 years, Professional Employer Organizations (PEOs) have grown in popularity as ‘virtual’ HR assistants for small- to medium-size businesses (SMBs) across the U.S. In fact, the National Association of Professional Employer Organizations (NAPEO) announced that the industry is vibrant and growth statistics continue to climb. Recent findings include:

  • More than 900 PEOs in the U.S. alone.
  • From 2008 to 2017, the number of work-site employees (WSEs) employed by PEOs grew at a compounded annual rate of 8.3%, which is approximately 14% higher than the compounded annual growth rate of U.S. employment during the same period.
  • PEOs provide services to more than 175,000 SMBs, employing about 3.7 million people (end of 2017 figures).
  • In the last 3 decades, the industry has added roughly 100,000 WSEs and 6,000 net new clients.

Let’s take a closer look at PEO employment growth and what it really means. The figure is staggering when you look at the sheer number of people employed with PEOs. The number of employees in this industry alone is about the same as the number of Amazon, Apple, AT&T, FedEx, Google, IBM, Starbucks, Walmart (U.S. only), and Wells Fargo employees combined!

This industry’s growth rate is nothing short of remarkable. But, what does it mean for you and why should you care?

If Time is the Question, What is the Answer?

As a business owner, your goal is to grow the business. And part of this equation is to ensure that you’re taking advantage of every possible efficiency. However, if you’re like many of your counterparts, a great deal of your time is spent handling HR issues. From payroll and health insurance to workers’ comp and HR regulations compliance, you’re probably spending countless hours each day buried under piles of paperwork. One has to wonder, is this the most efficient use of your time? And even more pressing, how can you recoup the time you need to focus on your business?

As HR activities become increasingly challenging, many SMBs have found the answer to these questions by partnering with a PEO.

PEOs: The Value Prop

PEOs drive value to their clients by delivering economies of scale, sharing liability, and providing industry-specific expertise. When you partner with a PEO, they will streamline your operations, providing efficiencies, operational structure, and accountability.

PEOs work under a hybrid model that combines outsourcing and consultancy to provide SMBs with numerous HR services, including:

Payroll Processing

Not just about cutting paychecks, the best PEOs provide more than a typical payroll services company. For example, some PEOs may offer services like comprehensive cost structures for employee benefits and workers’ comp.

Human Resources

Whether you have HR employees or not, PEOs can eliminate the burden and save you money. For instance, the multiple vendors needed for medical and dental plans, retirement plans, workers’ comp, etc., are handled by the PEO. Since they have a pool of employees from multiple companies, they can obtain these benefits at a lower cost. A savings that is ultimately passed on to you.

Regulatory Compliance

In a constantly changing area, PEOs are on top of new regulations and changes to existing ones, ensuring that your business is always compliant. Having experts in your corner gives you peace of mind, and should a mistake happen, they share the liability.

Some PEOs go beyond traditional services and offer safety and risk management services, consulting employee recruiting and retention services, and HR technology such as human resources information systems (HRIS). State-of-the-art systems allow for a single source of all your information for easier and more accurate reporting. In addition, some systems include an employee side, which gives employees access to their information.

In essence, the services PEOs enable businesses to work more efficiently and improve productivity. And when PEOs take on HR administrative tasks, business owners can focus on the company, which ultimately can lead to improved profitability. NAPEO reported that about 70% of PEO clients see an increase in revenue.

Reducing costs, growing revenue, and building better employee relationships make excellent business sense, don’t they? If you consider hiring a PEO, learn everything you need to know about the pros and cons to determine if it’s the right choice for your organization.



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