Think Amazon, think Walmart (US), Home Depot, Kroger, and the number of people they collectively employ.
The PEO industry represents the same tally of employees as these organizations combined, according to a study published by the National Association of Professional Employer Organization or NAPEO.
In fact, the PEO industry’s employment growth rate is approximately 16 times greater than the whole US economy since 2013.
A Dive into the PEO Industry
Before we begin with a review of the industry and its performance, let’s understand a little bit about Professional Employer Organizations.
A PEO teams up with small and medium-sized companies to render the whole array of human resource management services.
According to a NAPEO study, the PEO industry currently offers services to over 173,000 organizations in the US.
This study is one in a series of nine that covers data related to the industry’s present employment generation, footprint, scope, and size.
Economists Dan McMurrer and Laurie Bassi conducted these studies, which reveal:
- The PEO industry comprises nearly 487 enterprises, employing close to 4 million individuals.
- In 2020, the industry paid remuneration to the tune of $216 billion to those 4 million worksite employees, incurring $54000 per person.
- Employment in the PEO industry clocked 7.6% CAGR between 2008 and 2020, registering a 7% edge over the overall US economy.
What is the PEO Industry Doing Right?
The pandemic, in all its adversity, emerged as a significant growth catalyst for various sectors, such as pharmaceuticals, delivery services, and PEO.
When several businesses were going under or on the verge of it, companies turned to Professional Employer Organizations to keep their operations afloat during the pandemic.
Various small and mid-sized enterprises acknowledged the value proposition of PEOs, and the latter became an indispensable part of the SME fabric.
Companies understood the significance of outsourcing their payroll and other HR services, primarily to navigate the ins and outs of:
- Covid-19 legislation
- PPP loan process
- Return-to-office protocols
- Remote work
By outsourcing HR services, which comprise payroll management, regulatory compliance assistance, employee benefits, and worker’s comp, companies offloaded a significant share of paperwork.
Unloading such administrative tasks allowed companies to sow factors, which would revive their operations to full capacity.
Companies that collaborated with PEOs could ramp up their productivity, accelerate revenue growth, and ensure improved employee satisfaction amid the distressing pandemic.
Plus, they could more easily access funds extended by government initiatives, such as PPP loans, leading to holistic sustenance and growth.
A NAPEO report shows that businesses partnered with PEOs save up to 21% of their HR expenses, which is still a conservative estimate. However, on the ground, typical PEO clients save a lot more.
Besides that, other data revealed by Dan McMurrer and Laurie Bassi’s studies are as follows:
- Companies that utilize PEO services report 10 – 14% lower employee turnover.
- They also grow 7 – 9% faster than regular SMEs.
- These businesses also stand a better chance of survival.
Parting Thoughts
Unemployment ran rampant through the US in the wake of Covid-19, exacerbating the already dismal state of employment. However, companies that took to PEO services were spared the lash of the pandemic.
Professional Employer Organizations offered a strong administrative foundation on which companies could rebuild their operations more sustainably.
They had easy and faster access to the Paycheck Protection Program, could better keep up with regulatory compliances, and consolidate employee satisfaction through exclusive benefits such as top-shelf retirement plans, health insurance, and the likes.
In fact, subscription to employee-sponsored 401(k) plans was nearly 40% among PEO-supported businesses with less than 10 employees. Contrastingly, same-sized businesses without PEO services had a subscription of 13%. It stands at 52% vs 23% for companies with a workforce of 10 – 49 individuals.
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