The PEO (Professional Employer Organization) industry has been growing rapidly, with the global market predicted to increase at a CAGR of 11.10% from 2017 to 2030.1 And if you follow PEO companies, you’ve probably noticed significant consolidation trends over the past couple of years. We’ve put together an analysis of these trends and their implications for the industry.
Growth of Co-Employment Agreements
One of the emerging trends in the PEO industry is the greater use of co-employment agreements.2 Under these agreements, a PEO becomes the co-employer of a business’s employees, allowing the PEO to take on certain responsibilities and liabilities related to the employees. This includes payroll, taxes, and benefits.2 Some PEOs have expertise in controlling employer-related risks.
Increasing Demand for PEO Services
The demand for PEO services has grown, particularly from small and medium-sized businesses (SMBs). These SMBs form 95% of the existing organizations around the globe and generate 60-70% of job opportunities contributing to overall economic growth.1 Many entrepreneurs are outsourcing their HR and payroll functions to PEO companies to put more focus on building their business.1
Technological Advancements
The PEO industry is also witnessing a growing interest in automated technological systems to monitor the process of payroll administration.1 High turnover rates among employees create significant cost for an organization — automated systems can help manage payroll more efficiently.1
Implications of PEO Consolidation Trends
The consolidation trends we’re seeing indicate a shift in the way businesses are managing their HR and payroll functions. More companies are choosing to outsource these functions to PEOs, freeing up resources to focus on their core operations.1
Also, the growth of co-employment agreements suggests a change in the employer-employee relationship. Businesses are increasingly sharing the responsibilities and liabilities of employment with PEOs.2
Finally, the increasing use of technology in the PEO industry points to the growing importance of efficiency and automation in business operations.1
Conclusion
Consolidation trends in the PEO industry over the past two years highlight the dynamic nature of this industry. As businesses continue seeking ways to improve efficiency and reduce costs, the demand for PEO services seems poised for growth. Furthermore, the increasing use of co-employment agreements and technology in the PEO industry suggests that these trends will continue well into the future.
For more current insights, read The Transforming PEO Landscape: Insights into 2023 Transactions.
References
- Professional Employer Organization Market to Reach USD – GlobeNewswire
- 2023 Market Size, Forecast, & Professional Employer Organizations (PEO) – AnythingResearch
