By Bradley Buttermore
Senior Vice President and Principal

Every year I get involved in a survey of Professional Employer Organizations (PEO), those firms that provide human resource services to mostly small to medium size companies. We try to quantify the financial and operating characteristics of the PEO industry, its growth path and we take a sneak peek at what the numbers might be saying about the future. The early returns for this year’s survey show an industry that’s keeping pace with the economy in general, steadily growing in size and profitability.

Since PEOs are typically needed more when companies are growing, we should expect the industry to grow as business in general picks up. In fact, we can see a faint glimmer at the end of the long tunnel. Since the nadir of the downturn in 2009, PEOs have grown in size by about 10 percent. At the same time, the efficiency and profitability of PEOs have climbed as well. Profitability dipped a bit in 2012, but with several challenges to small companies on the horizon like the federal government’s Patient Protection and Affordable Care Act (PPPACA) and others, business is again looking up for PEOs. In fact, the survey shows that the client retention rate – or how long a company retains the services of a PEO – has been steadily increasing. Considering the regulatory and paperwork challenges ahead of us, I’d say that PEOs will continue to become even more essential to many companies over the short term.

By the way, the survey is an annual project of the National Association for Professional Employer Organizations (NAPEO), a group made up of U.S. and Canadian PEOs. We at Capital Alliance have been involved at a leadership level with this group for many years. The complete survey results are available to participating companies or the final report can be purchased directly from the NAPEO. Here’s their website.

It would be interesting in future surveys if we could determine which created greater demand for the human resources services provided by PEOs, governmental regulations and their related paperwork or economic growth that might be enhanced by outsourcing non-core operations. What do you think?