PEOs provide payroll, employeebenefits, HR, workers' compensation, and risk management servicesto small and mid-sized businesses that might otherwise not offercertain benefits to their employees. (Photo: Shutterstock)

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If there's one segment of the economy that's experiencingexplosive growth, it's professional employer organizations. In fact, according to theNational Association of Professional Employer Organizations, suchcompanies—which provide payroll, benefits and other HR services to client companies—are seeingemployment growth that is 14 times higher than the growth rate inthe U.S. economy overall.

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

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Related: The benefits of a broker-only PEOmodel

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

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PEOs provide payroll, employee benefits, HR, workers'compensation, and risk management services to small and mid-sizedbusinesses 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 andservices than the employer might be able to manage alone.

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

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.