A surprising percentage of small businesses with less than 100 employees are partnering with professional employer organizations (PEOs) to provide their human resources and benefits needs.
So says a new study from the National Association of Professional Employer Organizations, which found that between 14 percent and 16 percent of those small businesses are reaching out to PEOs that provide payroll, benefits, regulatory compliance assistance and other HR services, rather than dealing with HR and benefits issues themselves.
The study, the fourth in a series on PEOs, also said 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. It cited last year’s report figures indicating that PEOs generated between $136 and $156 billion in gross revenues, provided services to between 2.7 and 3.4 million workers, and offered HR, benefits and compliance assistance to between 156,000 and 180,000 small- to mid-size businesses.
Saying that the market for PEO services spanned approximately 1.1 million businesses in the United States that have between 10 and 99 employees, the study authors wrote that the PEO industry itself is being shaped by, among other things, the Affordable Care Act, state-level HR mandates and the Small Business Efficiency Act (SBEA). In addition, increasing complexity at the state level within the HR environment is likely to continue, with more changes on the way.
Looking at the geographic distribution of the small companies constituting PEOs’ target market, the study found that 46 out of 50 states had a percentage of small businesses that ranged from 17 percent to 22 percent; however, many of the higher percentages are located in the midwest and in the south, while western states tended to have smaller percentages. In addition, in most states, more than half of companies with less than 100 employees are clustered in certain industries.
One of the study’s conclusions is that small business PEO clients are able to offer access to a broader array of HR services than other small businesses have, but at a lower administrative cost. It also highlighted several trends that it said should lead to additional growth within the PEO industry, such as the implementation of the IRS’s new voluntary PEO certification program and an increasingly complex HR regulatory environment at local, state and federal levels.