72 Percent of PEOs Reported Revenue Growth in 2017

Jan 29, 2018
| Michael Altiero
PEO growth in 2017

As the small business market in the United States has grown over the last few decades, so too has the professional employer organization (PEO) industry. The quick rise of PEOs has been so impactful that the U.S. government has recognized and selected some organizations as Certified PEOs.

We have written before about the benefits a PEO can provide to a client, which helps to explain why the industry continues to thrive. But was 2017 more of the same for PEOs, or did the growth stop?

Earlier this month, the National Association of Professional Employer Organizations (NAPEO) released the results from their quarterly Pulse Survey. Among the findings, the results showed that PEO growth once again continued in 2017, and in multiple areas.

Let’s take a closer look at some of the statistics.

Some Key Findings from the Q3 2017 NAPEO Pulse Survey

Conducted in October 2017, the NAPEO survey was taken by 50 PEO executives, with the results being compared to the 3rd quarter of 2016.

One of the most prominent results involved revenue growth. The survey found that 72% of respondents said revenue increased in Q3 of 2017, compared to Q3 of 2016. More specifically, 42% said that revenues “increased somewhat” and 30% said it “increased significantly.”

Another great result showed that PEOs expect to grow the number of worksite employees (WSEs) over the next 12 months. 88% of those surveyed said they expect an increase in WSE’s in the next 12 months, with 55.1% expecting WSEs to “increase somewhat” and 32.7% saying they will “increase significantly.”

Additionally, 74% of PEOs saw an increase in gross profit in Q3 of 2017. Broken down, 42% said gross profits “increased somewhat,” while 32% “increased significantly.”

One more interesting statistic from the survey showed that PEO clients have 22 worksite employees on average.

What’s Behind the Continued Growth of the PEO Industry?

There are a few potential reasons for the sustained growth within the professional employer organization industry. The first is that more benefits brokers and small business owners are aware of PEOs, the services they offer, and the benefits they can provide.

As awareness of PEOs has grown, so too has the number of firms and revenues throughout the industry. Things like the certified PEO program and ESAC have helped with recognition, too.

Another reason, which has been mentioned in this article, is due to the benefits and value a PEO partnership brings to small business clients. A study from NAPEO from September 2017 revealed the following statistics:
  • 70% of PEO clients reported revenue increases
  • 66% of PEO clients reported increased profitability
  • 98% of clients would recommend a PEO to a small business colleague
  • PEO clients have higher quality HR practices (according to employees of PEO clients)
  • Employees of PEO clients describe their business more favorably

A third factor is the growing complexity of the human resources industry and, more specifically, HR compliance. PEOs, especially those who are designated as CPEOs by the I.R.S., provide clients with financial assurance and peace of mind when it comes to HR administration and compliance.

PEOs also provide clients access to compliance and risk management experts, who help to ensure that small businesses are meeting the many requirements and regulations of federal, state, and local legislation.

Lastly, the rising costs associated with healthcare and health insurance in the United States are having significant impacts across the entire country. From a business perspective, small employers in particular face numerous challenges with finding quality, affordable health benefits for employees.

Partnering with a PEO enables small businesses to gain access to large-group level employee benefits (beyond just health insurance) at a lower price. This can be a valuable option for benefit brokers and small business owners alike.

What Does 2018 Have in Store for the PEO Industry?

With continued year to year growth, the PEO market is still booming. As the world of HR grows more complex, the benefits of looking into a PEO partnership will only increase.

As for exactly how 2018 fares, we’ll have to wait for the next NAPEO Pulse Survey, which takes place each quarter. But in the meantime, brokers and small business owners shouldn’t hesitate to reach out to a PEO for assistance with HR administration services, employee benefits, HR compliance, and much, much more!

Want to learn more about PEOs? Check out our eBook, How Well Do You Know PEO? This eBook provides an overview of the PEO industry as well as helpful information for brokers and employers!

How well do you know PEO