The PEO Industry And Market Penetration

PEO Industry Size, History, and Facts

The PEO industry has been around for over 30 years and has consistently shown strong growth year after year as a result of increasingly favorable market conditions and an influx of outside capital. Market conditions such as rapidly increasing employment laws and regulations, rising medical premiums, and as of recently, a recessive economy, have forced many businesses to consider the PEO option as a way to mitigate business risk, create efficiencies, and cut costs. Professional Employer Organizations range in size from regional providers to publicly-traded companies. Private equity investors, insurance companies, and business services giants have especially taken a liking to the PEO business model and have increased their interest, and capital allocations in the industry. An example of publicly-traded PEO is Insperity, an example of a strong regional PEO is The Alcott Group. Companies that use PEOs are usually small to mid-sized, with the industry’s sweet-spot ranging from 10-100 employees, and a few cases of multi-thousand employee companies calling on the PEO for help. Several associations have been created in order to accredit strong performers, promote the industry’s growth, and organize the industry for lobbying purposes. These associations include NAPEO, ESAC, and various state-run associations. States have recently been on the bandwagon of amending regulations and laws to clear the way for more PEO activity as they provide the government with more professional tax preparation and reporting, acceleration of tax collection, decreased litigation, and increased employee enrollment in medical insurance and 401(k) programs. Although the PEO value proposition is strong for small businesses, industry penetration on a national level is estimated to still be less than 2%. Most can agree that a large factor in this is the complexity of the PEO’s offering, and the steep learning curve associated with understanding what it is all about. PEO Spectrum’s mission is to provide a medium that eases the learning curve, improves transparency, and increases information flow to the companies looking to Compare PEOs. The future of the PEO industry is bright as businesses are increasingly looking for ways to run leaner, retain talent, and stay focused on core business. PEO Revenues: NAPEO estimates the PEO industry grew by approximately $5 billion in 2008, to a total of $68 billion in gross revenues. There are about 700 PEOs operating in 50 states, 100 of which PEO Spectrum can recommend to our clients as full service PEOs. PEO Clients: PEO clients have a great range in industrial classification including manufacturing, venture-backed tech firms, accounting and legal practices, even government agencies. The average size PEO client is estimated to be around 20 employees. On average, a PEO client will stay with their PEO for over 5 years. About 90% of companies that leave a PEO will go on to work with another PEO immediately after.