Quick look: With timely data from two unique sources now available, NAPEO analyzed PEO client distribution and penetration rates for the first time. As company leaders seek cost-effective HR solutions to stay on a solid growth trajectory, it’s no surprise to see SMBs leading the numbers, which puts PEO brokers in a favorable position.
The National Association of Professional Employer Organizations (NAPEO) regularly researches PEOs and their relationships with clients. Topics usually include growth rates, employee turnover, and high-level industry trends. However, using public data from the U.S. Small Business Administration and U.S. Department of Labor Form 5500s, its recently published whitepaper evaluates the basic characteristics of PEO clients.
For the analysis, NAPEO identified two key areas: PEO client distribution rate and PEO industry penetration rate. The first metric breaks down PEO clients by size, industry, and state. Whereas, the penetration rate looks at the “percentage of PEO clients in a specific category.” When combined, the research illustrates the extent of PEO client representation in the U.S.
NAPEO concluded the PEO industry penetration rate is highest (16%) among small- and medium-sized businesses (SMBs) compared to companies with 50+ employees. It affirms approximately one of every six businesses with 20-49 employees is a PEO client. Overall, the data presents an idea of areas where business leaders are benefiting most. And it makes sense for SMBs to be in the top percentage represented.
In the earlier stages of growth mode, delegating certain operational responsibilities, like HR, to experts in the field help leaders scale and advance toward their goals. This opportunity has become a strategic asset for brokers. By serving as the bridge between PEOs and SMBs, they strengthen their portfolio offerings and business relationships, to the benefit of all.
Here’s a closer look at what else the NAPEO numbers reveal and the advantages a PEO partnership provides.
Nearly two-thirds of PEO clients are SMBs
In terms of distribution, 37% of all PEO clients fall into the SMB category (20-49 employees). Small businesses (10-19 employees) follow with 28%. Tackling HR responsibilities is a full-time effort, which doesn’t often leave time for business leaders to expand as quickly or efficiently as they would like. PEOs can serve as part of a development strategy for SMBs in their earlier stages of growth.
However, not every SMB has the exact same needs, and not every PEO offers the same level of service. As a PEO broker, it’s beneficial to recommend a people-first HR solution tailored to each SMB client versus a big-box HR service company without a dedicated support model.
Close to half of all PEO clients are in one of three industries
The research also reflects PEOs are popularly distributed among three main industries. These are: Professional, Scientific, and Technical Services (PST) (22%), Manufacturing (13%), and Construction (12%). However, percentages change slightly when looking at the penetration rate of client industries.
PST, as well as Manufacturing, still rate high (with more than 20% among firms with 10-99 employees). Though, for this metric, the Real Estate and Rental/Leasing industry leads the top three with an estimated penetration rate of 31%.
Florida represents the highest number of PEO clients nationwide
Nearly half of PEO clients in the U.S. are found in Florida, Texas, and California. Florida makes up one-quarter, which is nearly twice as many as any other single state. The next highest state percentages are 13% and 11% for Texas and California, respectively. New York is the only other state with double-digit percentages, with numbers tapering off at Georgia with 5% of PEO clients.
Differences in distribution among industries
The numbers also reveal significant distribution differences in client size within the varying sectors. In the PST industry, 33% of all PEO clients were in the 10-19 and 20-49 employee ranges, while 54% of Manufacturing clients were in the 20-49 employee range compared to only 22% for those with 10-19 employees.
Empowering SMB clients with a PEO solution
As a PEO broker, broadening the scope of services through a PEO helps to deliver greater value. With a PEO solution like ExtensisHR, SMB clients receive expert guidance and administration in all areas of HR, including payroll, benefits, recruiting, and compliance services. They are given flexible, tailored strategies to simplify the complex world of HR. Additionally, there’s built-in support to stay ahead of employment issues and trends while providing employees the most competitive benefits.
HR services and recruiting
ExtensisHR works with PEO brokers and their clients to build an HR roadmap and manage everyday HR tasks, such as payroll and tax administration, talent management and full-cycle recruiting, and training and development. With real-time interaction and exceptional customer service, it gives SMB leaders a personalized level of attention.
Offering modern benefits is key in any retention and recruiting strategy. Part of the significance of working with a PEO is it extends premium-level benefits to your SMB clients in a way customized to fit their specific budget and workforce needs. This includes employee and supplemental benefits as well as Affordable Care Act (ACA) compliance to navigate the complexities of changing laws, minimize the risks, and optimize offerings.
Risk management and compliance
Staying up-to-date with regulations is crucial when it comes to HR compliance. Services like risk management, and workplace safety and insurance protections help companies manage potential employment-related issues with HR experts guiding them along the way.
Today’s fast-moving workforce requires an ability to manage HR from anywhere, at any time. Through ExtensisHR’s proprietary Work Anywhere® platform, PEO brokers can offer clients the assurance of securely managed data, monitoring, and activity on all critical HR tasks wherever they are.
The NAPEO research has shown SMBs will continue to benefit in great numbers from working with PEOs. It’s a comprehensive solution which simplifies complex HR responsibilities. Want to learn more about how a PEO solution can strengthen your client relationships? Our team of HR professionals is here to help.