The last decade has seen Professional Employer Organizations (PEOs) grow in popularity as a go-to HR outsourcing solution, especially for small and medium-sized employers.
This is because smaller employers can become overwhelmed with modern HR tasks and responsibilities, which have grown in complexity in recent years, especially with compliance. But by partnering with a PEO, small business owners can instead outsource HR and focus all their attention on other areas of the business.
To get a better idea of how PEOs help their clients and the growth seen within the industry, we pulled data from various studies released by the National Association of Professional Employer Organizations (NAPEO) from 2013 to September of 2018. Let’s take a closer look!
In 2013, NAPEO released their whitepaper Professional Employer Organizations: Fueling Small Business Growth. This whitepaper provided some key insights into the state of the PEO industry. A few highlights include:
· Employment growth for PEO clients is 9% higher than other small businesses (Also 4% higher than the U.S. economy)
· PEO clients enjoy a 21% savings on HR administration
· 98% of PEOs offer retirement benefits to their clients. Only 16% of companies with fewer than ten employees and 30% with 10 to 49 employees offer a retirement plan
September 2014 saw NAPEO release their Professional Employer Organizations: Keeping Turnover Low and Survival High report. This whitepaper focused on the benefits PEOs provide to small business clients:
· Employee turnover rate for PEO clients is 10% to 14% lower per year than non-PEO businesses
· Businesses that use a PEO are 50% less likely to permanently go out of business from one year to the next
· Clear advantages for PEO clients on two key business issues: employee retention and continued survival
The next NAPEO whitepaper was released one year later in September 2015. An Economic Analysis: The PEO Industry Footprint highlighted industry data and trends. Four main highlights from this report were:
· The size of the PEO industry is between $136 and $156 billion, measured in gross revenues
· PEOs provide services to between 2.7 and 3.4 million worksite employees (WSEs) and have 156,000 to 180,000 client companies
· There are between 780 and 980 PEOs operating in the United States that employ 21,000 to 27,000 people internally
· In each of the last 30 years, the industry has added roughly 100,000 worksite employees and 6,000 net new clients
Fall 2016 saw NAPEO release their next whitepaper The State of the PEO Industry 2016: Markets, Values, and Trends.
This report dug deeper into both how PEOs help their clients and explored a handful of industry statistics. Here are 3 key takeaways from the report:
· 14% to 16% of small businesses (10 to 99 employees) were PEO clients.
· PEO clients grow 7% to 9% faster
· PEOS provide access to a wide variety of HR services at a cost that is almost $450 lower per employee
PEOs: Good for Businesses and Their Employees was released by NAPEO in September 2017 and further explored the benefits clients see from a PEO partnership.
The key findings from this report once again show the value that can be gained from a PEO solution:
· 98% of business owners who are a PEO client would recommend a PEO to a small business colleague
· 70% of clients report revenue increases after partnering with a PEO
· Expected annual median revenue growth for PEO clients is 40% greater than that of comparable non-PEO firms
· Employees of PEO clients describe their employer more favorably and believe they have higher quality HR practices
The latest NAPEO report was released this past September and revealed some impressive growth statistics about the PEO industry. Here are the main findings:
· There are 907 PEOs operating in the United States today (could be more)
· 3.7 million worksite employees employed by PEOs at the end of 2017
· These 3.7 million WSEs earned a total of $176 billion
· There are 175,000 different PEO clients, which represents 15% of all employers with 10 to 99 employees
· From 2018 to 2017, the number of WSEs employed by PEOs grew at a compounded annual rate of 8.3%. This percentage growth in the PEO industry is 14 times higher than that of employment in the United States economy as a whole
THE PEO INDUSTRY CONTINUES TO FLOURISH
A common theme from all the NAPEO reports is that the PEO industry has been and continues to grow at an impressive pace.
With various areas of HR becoming even more challenging for small employers – recruiting, retention, healthcare, employee benefits, and HR compliance for example – we will see if the industry continues this upward trajectory over the next few years.
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