NAPEO estimates the PEO industry grew to $92 billion in gross revenues in 2012. (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.
Approximately 700-900 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 — around 30 years old — PEOs have vast room to grow and there is ample evidence of an industry on the move. The PEO revenue growth rate has been steadily on the rise, up to just over 10% in 2012, compared to under 5% in 2010.*
The average client of NAPEO members is a small business with an average of 20 employees.* Increasingly, larger businesses are signing up, too. Clients range from accounting firms to high-tech companies to manufacturers to medical offices, restaurants, and retail businesses.
Higher Growth for PEO Clients
Since 2010, employment growth among PEO clients has been 9% higher than other small businesses, and 4% higher than employment growth in the U.S. economy overall.**
Through a PEO, the employees of small businesses gain access to big-business benefits such as retirement plans; health, dental, life, and other insurance; dependent care; and other benefits they might not typically receive as employees of a small company. In fact, forty percent of businesses that use PEOs upgrade their benefit packages as a result. And, while only 27% of small businesses offer employee retirement plans (according to the NFIB), approximately 98% of NAPEO's members offer retirement benefits to their small business worksite employees.
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.* A PEO arrangement also improves the work environment and increases safety, and provides worksite employees protections under federal laws they would not otherwise receive.
PEO Long-Term Retention
PEOs and clients develop long-term relationships. PEOs that are members of NAPEO retain 89 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.
* Source: NAPEO's 2012 Financial Ratio and Operating Statistics Survey. A copy of the full survey report is available for purchase through NAPEO's Bookstore.
** Source: "Professional Employer Organizations: Fueling Small Business Growth," by Laurie Bassi & Dan McMurrer, McBassi & Company, September 2013.