An Economic Analysis: The PEO Industry Footprint (NAPEO White Paper Series September 2015)
An Economic Analysis: The PEO Industry Footprint
BREAKING NEWS: The National Association of Professional Employer Organizations (NAPEO) has released its latest white paper,
An Economic Analysis: The PEO Industry Footprint
, in partnership with McBassi & Company, an independent analytics and research firm. The article below will cover the highlights of the white paper,
click an image or link below to download the white paper.
Highlights
An Economic Analysis: The PEO Industry Footprint
Professional employer organizations (PEOs) provide an array of HR services and employee benefits to client organizations, typically small- to mid-sized businesses. This frees those clients to focus their primary efforts on the core business itself, including operations, strategy, and innovation. Our previous research on a variety of measures has found that this arrangement yields significant benefits to PEO clients, as they grow more quickly than comparable other businesses, doing so with lower rates of employee turnover and higher rates of year-to-year business survival. Anecdotally, evidence points to a growing PEO industry driven by a rebounding small business sector, an increase in the use of outsourcing by small businesses, and the rise of complicated employment regulations such as the Affordable Care Act (ACA). Precisely calculating the size of the industry, however, has proved to be tricky due to the fact that traditional sources such as the U.S. Bureau of Labor Statistics (BLS) and Hoovers do not accurately define PEOs and often include non-PEOs in the category. This white paper therefore examines that question from multiple perspectives using a variety of data sources.We calculate the current size of the PEO industry to be between $136 and $156 billion, as measured in gross revenues (which includes clients’ payrolls as well as the fees charged to clients). PEOs provide services to between 2.7 and 3.4 million worksite employees for 156,000 to 180,000 clients, and employ between 21,000 and 27,000 internal employees. We estimate there are between 780 and 980 PEOs currently operating in the United States. Table 1, below, summarizes the key statistics that emerged from this industry analysis.These numbers indicate the PEO industry has grown significantly since the PEO concept first began to take hold three decades ago. In each of the last 30 years, the industry has added, on average, roughly 100,000 worksite employees and 6,000 net new clients. For perspective, that means that every five years, the PEO industry has added the employment equivalent of the entire utilities industry in the United States.
How large is the PEO industry?
Detailed Description of Analysis and Findings
We estimate a range for PEO industry size. Our first calculations apply conservative assumptions wherever applicable, and thus represent lower-bound estimates (essentially, the “floor” for each value). Based on the conservative set of assumptions, we calculate the PEO industry in the United States to be at least $136 billion, as measured in gross revenues (which includes clients’ payrolls as well as the fees charged to clients). Conservative estimates indicate there are at least 780 PEOs that combine to provide services to at least 2.7 million worksite employees in at least 156,000 client organizations, while employing approximately 21,000 internal employees of their own. A second, less conservative, set of estimates and calculations points to an industry about 15 to 30 percent larger than the more conservative estimates: gross revenues of up to $156 billion, 3.4 million worksite employees in 180,000 client organizations, and 27,000 internal employees distributed across almost 1,000 PEOs.
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The PEO Compass is a friendly convergence of professionals and friends in the PEO industry sharing insights, ideas and intelligence to make us all better. All writers specialize in Professional Employer Organization (PEO) business services such as Workers Compensation, Mergers & Acquisitions, Data Management, Employment Practices Liability (EPLI), Cyber Liability Insurance, Health Insurance, Occupational Accident Insurance, Business Insurance, Client Company, Casualty Insurance, Disability Insurance and more.
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