Report by NAPEO Uncovers SMB Awareness of PEO Solutions

Jun 11, 2018
| Michael Altiero
NAPEO Small Businesses Report

There has been a rise in the awareness and usage of HR outsourcing solutions in recent years. As administrative tasks and compliance have become more difficult for small business owners to successfully manager, outsourcing HR has grown.

This is especially true for professional employer organizations (PEO), who offer a unique HR solution to small and medium-sized businesses (SMBs).

But given this surge in PEO solutions, just how well does the market understand this service model, why aren’t more businesses using PEOs for their HR needs, and how can PEOs best engage potential clients who aren’t completely sold on this solution?

These were just a few questions a recent study by the National Association of Professional Employer Organizations (NAPEO) sought to find out.

Brief Background on the NAPEO Market Research Report

The NAPEO Market Research Report, which was conducted earlier this year, looked to uncover key information about how clients and potential clients view PEOs.

To do this, the report had 3 core objectives:
  • Why do PEOs have the customers they have?
  • Why aren’t more businesses using PEOs?
  • What is the best way to engage potential clients

We won’t go into all the data the was revealed in the report, and instead focus on some of the key findings.

Why Do PEOs Have the Customers They Have?

The first finding from the report was that 45% of those surveyed said they were aware of PEOs. Another 22% were aware of the description of PEOs, but not the name itself.

Additionally, of those surveyed, 78% had never used a PEO for their business.

When business owners were asked how they learned about PEOs, these were the top 4 responses:
  • Friend or colleague told them – 36%
  • Read about PEOs in an article – 35%
  • Discovered PEOs online – 24%
  • Had a sales call from a PEO representative – 21%

The report also found that after becoming familiar with PEOs, almost all clients conducted internet research to learn more about various PEOs.

Ultimately, the decision to work with a PEO wasn’t made until a sense of trust was established between the business owner and the PEO. This was done in two common ways:
  • Direct communication with a PEO representative
  • Peer/colleague recommendations and referrals

Additionally, the survey found that while cost-savings was mentioned by a few clients for why they continue to use a PEO, almost all said that time savings and peace-of-mind are the main reasons why they continue the relationship.

Why Aren’t More Businesses Using PEOs?

The first part of this section of the report showed business owner preference to outsourcing their HR business functions.

When asked to assume that it would cost the same to outsource as it would to handle in-house:
  • 39% said they’d prefer to outsource
  • 48% said they’d prefer to handle in-house
  • 13% said they were unsure or it depends

However, when asked if they found out that outsourcing HR was more cost effective than handling in-house, the same group responded:
  • 50% said they’d prefer to outsource
  • 28% said they’d prefer to handle in-house
  • 22% said they were unsure or it depends

Next, the participants were given a definition and description of what a PEO is and does. They were then asked, “after reading this definition, how well do you understand what a PEO is and does?” Here were their responses:
  • Very clear – 62%
  • Somewhat clear – 35%
  • Not very clear – 3%
  • Not clear at all – 0%

They then asked how familiar they were with companies that offer PEO services:
  • Very familiar – 20%
  • Somewhat familiar – 41%
  • Not very familiar – 28%
  • Not familiar at all – 12%

Next the survey asked participants about their interest in using a PEO after reading the description. 67% said they were either very interested or somewhat interested, while 31% said they not very interested or not at all interested.

This part of the survey also uncovered some common barriers and concerns business owners had with moving to a PEO model. These included:
  • The transition for employees
  • Employee control
  • Cost/cost structure
  • Cultural impact of bringing in an outside firm
  • Quality of services
  • Perception of increased risk
  • Current employment changes

What is the Best Way to Engage Potential Clients?

Next, the report revealed the top business concerns that owners have today.

Financial and growth concerns were by far the most common responses, being mentioned by almost all participants.

But many other concerns that were related to the wellbeing of employees were among the most commonly mentioned, such as:
  • Recruiting and retention
  • Guaranteeing health insurance for employees
  • Proper training for employees
  • Employee safety

To dive deeper into this area, the survey asked both current PEO users and non-users about the things they worry about the most when it comes to running a business.

Results were pretty much the same for financial and growth concerns, but when it came to “employee concerns” there was a drastic difference. 

21% of non-PEO users ranked this as their number 1 concern. Meanwhile, only 13% of PEO users said this was their number one concern.

Also, 7% of non-PEO users said that they had no concerns with running their business. Meanwhile, 14% of PEO clients responded that they had no business concerns. This is another impressive finding.

Despite Rapid Industry Growth, Significant Opportunities Still Exist for PEO Solutions

Much like past reports from NAPEO and other HR-industry surveys, it’s clear that PEOs have a lot of room for further growth in the coming years.

Many SMB owners still aren’t completely aware of PEOs and the services they provide. As PEOs, benefits brokers, and organizations such as NAPEO continue to increase the awareness of PEOs, the market should only expand further.

What’s the difference between co-employment and employee leasing? Check out our eBook, Co-Employment vs. Employee Leasing: The Differences Brokers (and Clients) Should Know, to learn more about how different they really are!

Co-Employment vs. Employee Leasing