PEO growth is soaring

If there’s one segment of the economy that’s experiencing explosive growth, it’s professional employer organizations. In fact, according to the National Association of Professional Employer Organizations, such companies—which provide payroll, benefits and other HR services to client companies—are seeing employment growth that is 14 times higher than the growth rate in the U.S. economy overall.

The report highlights a new study by economists Laurie Bassi and Dan McMurrer of McBassi and Associates, which finds that there are 907 PEOs in the U.S. Those PEOS employ 3.7 million worksite employees (WSEs). Annual wages in the PEO industry total $176 billion, and 175,000 businesses partner with a PEO.

Related: The benefits of a broker-only PEO model

Between 2008 and 2017, the report says, the number of WSEs in the PEO industry grew at a compounded annual rate of 8.3 percent, based on applying “same-store” sales estimates. The actual number of PEOs themselves, however, has been relatively stable over the past few years, it adds, since newly formed PEOs have more or less been offset by the number of PEOs that have merged, been acquired, and/or gone out of business.

PEOs provide payroll, employee benefits, HR, workers’ compensation, and risk management services to small and mid-sized businesses that might otherwise not offer certain benefits to their employees. Since PEOs can negotiate more cost-effective offerings for clients, employees thus might have access to a wider range of benefits and services than the employer might be able to manage alone.

Previous studies by the same authors, the report says, indicate that companies using a PEO experience higher revenue growth, increased profitability and higher employee satisfaction. They also show that businesses in PEO arrangements grow faster, have lower employee turnover and have a significantly higher rate of business survival than businesses that don’t use PEOs.