Professional Employer Organizations (PEO) have the ability to serve numerous types of businesses with various functions. Traditionally PEOs have provided comprehensive HR solutions for small and medium-sized businesses including payroll, employee benefits, workers compensation, and risk management. Like many of the industries PEOs serve, change and growth are inevitable. For example, there were 907 PEOs in 2017 and this number is expected to increase at a rapid pace for the next few years. So how has the PEO footprint changed throughout 2018? Let’s take a look.
Client segmentation
One may assume that PEOs work with almost every type of business — from your local mechanic to a tech startup. However, most organizations that utilize a PEO fall into a niche category. Roughly two-thirds of the PEO industry has a white-collar focus when taking on new clients. This trend has grown out of the obvious shift in the United States economy. The U.S. has moved away from focusing on a manufacturing and production system and moved toward a service-driven future. But this change could create an opportunity for smaller PEOs in the future. With large organizations focusing on white-collar clients, non-major players could fill the gap and create a blue-collar initiative.
New business functions
As mentioned above, PEOs traditionally cover HR centric business functions such as employee benefits and workers compensation. In 2018 the industry shifted and opened its doors to new verticals and functions. For example, PEOs have welcomed the advancements in HR technology with open arms. While many worried that new technology would put PEOs in danger of extinction, the reality is that PEOs are better at leveraging technology than small businesses due to their expansive HR expertise. PEOs also have more time to manage the new technology and train employees, relieving pressure for small business owners.
Steady industry growth
Since 2008 the PEO industry has grown at a compounded annual rate of 8.3 percent, and this doesn’t seem to be slowing down. Due to the win-win situation that PEOs create for employers and employees, it’s no surprise that the demand for their services continues to increase. In fact, the 907 PEOs in the U.S. employ a total of 3.7 million worksite employees who are paid a total of $176 billion. Handling this many employees and businesses requires a professional knowledge and expertise of various business functions making it obvious why many choose to outsource to PEOs.
The PEO industry has experienced rapid growth in recent years and this trend isn’t slowing down. During 2018 alone PEOs found a niche client segment, expanded to cover new business functions including HR tech, and posted impressive industry statistics. With results like this, it’s no surprise why so many businesses outsource their HR functions to a PEO.
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