Industry Facts
| PEO Revenues |
NAPEO estimates the PEO industry will grow a very robust $10 billion in 2007, to $61 billion in gross revenues — a 20-percent rise. (The industry defines gross revenues as the total of its clients' payrolls and the fees PEOs charge them for taking on their human-resource activities.) Small- and medium-sized businesses outsource to PEOs everything from administering the payroll and paying employment related taxes, to risk management, recruiting, providing health benefits, and securing workers' compensation coverage.
About 700 PEOs are operating in 50 states. The industry's gross revenue has grown as PEOs attract more diverse, fast-growth clients and the typical salary of the worksite employees increases. PEOs' expanded human resources services and employee benefits provide a high value and efficient outsourcing option for businesses from many different industries. |
| PEO Growth Trends |
A relatively youthful industry — only about 20 years old — PEOs have vast room to grow. The PEO industry has barely scratched the surface of the potential market, but the current projected growth rate for PEOs, coupled with their high client retention rates, supply ample evidence of an industry on the move. |
| PEO Clients |
The average client of NAPEO members is a small business with an average of 19 employees. Increasingly, larger businesses are signing up, too. Clients range from accounting firms to high-tech companies to manufacturers to government agencies.
Between 1980 and 2000, the number of labor laws and regulations grew by almost two thirds, says the federal Small Business Administration, which estimated owners of small or mid-sized business spent up to a quarter of their time on employment-related paperwork. PEOs assume much of this burdensome responsibility and help companies comply with all these regulations. |
| PEO Worksite Employees |
PEOs provide enhanced access to employee benefits for 2-3 million working Americans. This number is growing at a phenomenal rate every year because of the savings and benefits that a PEO can provide to small businesses. PEO expertise improves the work environment and increases safety.
The average gross pay of a PEO worksite employee is about $31,000 annually. Because the average client of NAPEO's member PEOs has only 17 worksite employees, without the PEO relationship these workers would not have protections under Consolidated Omnibus Budget Reconciliation Act (COBRA), the Age Discrimination in Employment Act (ADA) or the federal Family and Medical Leave Act (FMLA). |
| Improved Benefits |
PEOs help tens of thousands of companies provide benefits such as health care plans, 401(k) tax-free savings accounts and other perks to working Americans. Forty percent of businesses that use PEOs upgrade their benefit packages as a result. PEO sponsored benefit programs can include major and supplemental health-care choices, including vision and dental care, employee assistance programs and even adoption assistance. Workers at small businesses with access to a 401(k) dropped from 28 percent to just 19 percent, the Small Business Administration estimates. However, an estimated 95 percent of workers in a PEO arrangement have access to a pension plan. |
| 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. Eight 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 88 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. |
The National Association of Professional Employer Organizations (NAPEO)
NAPEO, the National Association of Professional Employer Organizations, is the recognized "Voice of the PEO Industry.®" NAPEO has nearly 400 PEO members operating in all 50 states, representing approximately 90 percent of the revenues of the $61 billion industry. PEOs enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation. PEO clients focus on their core competencies to maintain and grow their bottom line. For more information about NAPEO or the PEO industry, visit the NAPEO Web site, www.napeo.org, or contact NAPEO headquarters at (703) 836-0466 in Alexandria, Virginia.
Professional employer organizations provide:
- Relief from the burden of employment administration. They assume a wide range of administrative functions, such as payroll processing and related tax filings, employee file maintenance, unemployment claims processing, workers' compensation claims management, and employee handbooks. PEOs also handle much of the employer-related paperwork associated with government compliance and benefits administration. Having the PEO responsible for the details of employment administration helps free business owners and other decision makers to focus on managing and growing their organizations.
- A wide range of personnel management solutions through a team of professionals. PEOs offer a diverse set of services that enable organizations to focus on their core competencies. PEOs deliver solutions to organizations through a staff of experienced human resources professionals. Through their team of skilled professionals, PEOs deliver results relating to human resources management, employee benefits, payroll and workers' compensation.
- Improved employment practices, compliance and risk management to reduce liabilities. They facilitate the development and documentation of workplace policies and procedures in accordance with all applicable state and federal employment laws. Many assist in developing an employee handbook and provide related guidance and training. PEOs manage required record-keeping and reporting and help focus an organization on workplace rules and employee conduct. They provide professional assistance in identifying risks to the health and security of employees, examine how to measure, manage and transfer risks, and provide management and guidance for workers' compensation claims. PEOs offer training programs to help clients decrease their exposure to liabilities from harassment, discrimination, wrongful termination and other employment law claims.
- Access to a comprehensive employee benefits package, allowing clients to be competitive in the labor market. Savvy executives realize that their success depends largely on maintaining a superior staff and that attracting and retaining high-quality employees is essential to a successful business strategy. PEOs can create comprehensive benefit programs, from major and supplemental health-care choices to 401(k) programs, which are essential to attracting and retaining employees. PEOs assume the burdens of finding and negotiating the benefit programs. They also handle the details of enrollment and administration. Greater access to a full suite of Fortune-500-style benefit programs allows PEO clients to become competitive in the labor market.
- Assistance to improve productivity and profitability. PEOs allow organizations to focus on their core competencies by outsourcing the non-revenue, time- consuming employment administration tasks. PEO services bring clarity, communication, and certainty to employees. This improves morale and increases productivity. PEOs work with organizations to develop, clarify and implement polices and procedures, detailed job descriptions, handbooks, compensation statements and other communication pieces. PEO professionals handle the questions and issues regarding benefit plans, regulations and employment practices, and getting employees paid, and they are well-versed in the latest trends and offerings. PEOs provide a professional HR resource for managers and owners. With a PEO, executives have access to a team of experienced professionals in human resources, benefits, payroll, regulatory compliance and risk management, who can help the organization take care of employees.
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