PEO Industry Footprint

Impact of PEO on American Business

The following industry data is provided by the National Association of Professional Employer Organizations over the course of three white papers done by the firm McBassi and Company, over the period of time 2015 – 2021.

The Professional Employer Organization Industry Footprint

Year 2015 2018 2021      
# of Professional Employer Organizations (“PEO”) 880 (1) 907 (2) 487 (3)      
# of PEO Clients 168,000 175,000 173,000      
# of PEO Worksite Employees 3,050,000 3,700,000 4,000,000      
Annual PEO Gross Worksite Employee Wages  $      147,000,000,000  $ 176,000,000,000  $ 216,000,000,000      
% of Private, Civilian Population – Overall Business   2.4% 2.7%      
% of Private, Civilian Population – with 10-99 Employees   12.1% 15.3%      
Average PEO Annual Growth Rate (4)   8.3% 7.6%      
….excluding COVID-19     8.3%      
(1)  Multiple Data Sources Used:            
  NAPEO Membership Data        
  BLS Data          
  NAPEO’s 2014 Financial Ratio and Operating Statistics (FROS) Survey      
  Hoovers/Dun and Bradstreet on all companies classified as PEO’s by Hoovers    
  Detailed Administrative Data from five selected states      
(2)  Changes in Data Sources Used in 2018 v 2015:            
  Based on comparison of PEO WSE’s with US Bureau of Labor Statistics data on an employment level by firm size for 2017
  For the purpose of these calculations, firms with 10-99 employees were used.    
  Based on comparison of PEO WSE’s with total employed civilian labor force from the US Bureau of Statistics Current Population
  Based on comparison of PEO clients with total number of firms with 10-99 employees from US Bureau of Labor Statistics.        
for verifying # PEOs Employer Services Assurance Corporation (“ESAC”) members      
  PRISM HR Client List          
  Slavik 401k Client List          
  McBassi PEO Benchmarking Survey        
  Reduced list by 67 due to reasons deeming the business unlikely to be a PEO    
(3)  Changes in Data Sources Used in 2021 v 2018:            
  What companies counted as a PEO further refined as defined      
  Company registration as a PEO not an automatic qualifier that a PEO is operational.  Change made after it was found that a significant
  amount of payroll and HR companies that are registered, do not offer PEO services    
  Expanded industry partner lists for new data to Stonehenge and McHenry      
  Corrected duplicates and “doing business as” entities that were redundant      
  Purchased two third-party vendor data lists (Data Axle and to cross-reference PEO through NAICS and SIC classification codes
  Website verification of “PEO and/or “co-employment” services offered      
  Combined initial list was +2,000, cut by 75%        
4)  Growth Rate Change Methodology            
  This estimate is based on calculating annually “same-store” PEO growth (i.e. growth for those PEOs for which we had data for
  both the current year being calculated and the previous year).  As a result, the study excludes any specific growth effects of
  PEOs that were involved in mergers and acquisitions as well as the impact of the formation of new PEOs and the departure of
  PEOs that went out of business.        

PEO Growth Trends
A relatively youthful industry — under 50 years old — PEOs have vast room to grow. The PEO industry has still barely scratched the surface of the potential market with <5% of all private employers, but over 12% of employers between 10-99 employees.  We are seeing increasing amounts of money enter into the PEO industry from outside investors, as well as other business models (payroll companies, insurance brokers, insurance carriers, banks) attempt at different levels of success to enter the marketplace.  There are also jurisdictions with more PEO penetration than others, with Hawaii, Florida and Texas being more saturated and New England states and the pacific northwest/mountain states (with the exception of Colorado) being less.

PEO Clients
The average client of a PEO can range from 1 employee to thousands.  Generally speaking, the average PEO client company is between 20-50 employees.  While some PEO’s specialize in specific industries or jurisdictions, there are more generalists than specialists in the PEO space probably caused by all employers of all industry sectors needing what a PEO can offer in regard to non-operational employer services.

PEO as Business Advocate during the Pandemic

Better Workplaces
PEOs also improve the work environment and make it safer. They focus on workplace risk management, safety programs and good human resources practices. PEOs arrange workers’ compensation coverage with major insurance carriers and manage the claims. They also offer human resources services delivered by certified professionals. Nine out of 10 PEOs provide services such as customized employee handbooks, recruitment, pre-employment screening, wage and compensation planning, and assistance with job descriptions.*

PEO Long-Term Retention
PEOs and clients develop long-term relationships. PEOs that are members of NAPEO retain 86 percent of clients for a year or more.* They allow clients to “reduce costs and free up time to devote to revenue generating activities, improvements that can be instrumental to gaining competitive advantage,” according to research by the Society of Human Resource Management Foundation.

Personal Observations 

  • It seems like employee count per client company continues to grow and health insurance a greater part of the co-employment decision
  • Workers’ compensation rates will continue to decline in 2022 under current environment
  • Unscientifically, I would estimate that there was some sort of transaction impacting one of every four PEO’s between 2018 and 2021
  • There is a huge increase in start-up PEO and convergence with existing benefits and payroll providers
  • There is still not one State that I know of (would love to be corrected) where statute, insurance regulations and actuarial rules integrate which helps fuel the confusion of what is and is not a PEO
  • Have I mentioned I hate the term employee leasing
  • No barrier of entry to staffing and major confusion between it and co-employment
  • Competition continues to try and legislate the industry into a weakened position; be vigilant

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