Because it falls within their field of expertise, Human Resources executives are often asked about the Professional Employer Organization (PEO) industry and where it’s heading. PEOs have become an increasingly popular way for small and medium-sized businesses to outsource HR functions and provide benefits to employees, so their continued growth and evolution gets a lot of attention. the following is a 2024 PEO industry outlook.
As we move into 2024, here are some of the key trends poised to shape the PEO Industry landscape:
Industry Outlook – Continued Growth
Research shows the PEO industry has experienced substantial expansion over the past decade. Revenues for the top PEOs now surpass several billion dollars, and analysts predict steady 8-12% annual growth for the overall PEO market in coming years.1
This consistent growth stems from multiple factors, such as small businesses seeking cost and burden reduction2, tight labor markets increasing recruitment and retention needs3, complex regulations necessitating HR expertise4, and strong economic outlooks enabling greater outsourcing budgets5. While economic changes impact short-term trajectories, the industry’s foundations remain solid.
Market Consolidation
Like many maturing industries, the PEO space has seen a surge of mergers and acquisitions among top firms.6 The four largest PEOs now control over 50% of total market share7, absorbing smaller regional PEOs into national giants.
This consolidation continues as scale becomes essential for delivering comprehensive, cost-effective HR services and technology.8 Larger PEOs leverage economies of scale with expanded offerings. Smaller PEOs may falter without sizable investments in tech and capabilities.9
More Technology
Adopting HR information systems (HRIS) and workforce management technology has driven PEO industry growth.10 Moving into 2024, technology plays an even bigger role in creating efficiencies and improving user experiences.
Many PEOs are transitioning towards “PEO 2.0” models11 with robust self-service portals, AI chatbots, advanced analytics, and seamless integrations with client digital tools. This reduces manual processes while providing on-demand access. It also enables large-scale delivery of cost-effective services.
We will also see expanded use of mobile HR apps12, more workflow automation13, and purely online “digital PEOs” with comprehensive tech platforms.14 These technology investments remain critical for PEO competitiveness.
Specialized Niches
Alongside full-service national PEOs, growth in specialized PEOs targeting specific industries15, company sizes16, or offerings17 is expected.
Emerging “PEO-lite” models also cater to customization desires.18 These professional services allow access to individual modular HR services like payroll without traditional comprehensive PEO partnerships. This kind of fragmentation addresses businesses that want more flexibility.
HR Tech Competition
While PEOs have thrived recently, competitive threats loom. The rapid evolution of human resources technology (HR tech) poses a new challenge.
Standalone systems like Gusto, Zenefits, and BambooHR offer platforms with core PEO services — payroll, benefits, compliance, reporting — but greater flexibility and simple software-as-a-service (SaaS) pricing.19 This has a lot of appeal compared to more complex PEO models.
Additionally, some HR tech utilizes innovative artificial intelligence, analytics, and innovations not yet widely deployed by PEOs.20 Staying competitive means PEOs need to enhance technology capabilities and HR tech integration.
Dynamic Compliance
HR compliance remains a highly valued feature for PEO clients. However, the regulatory landscape shifts constantly, creating risks and opportunities. State contractor classification changes21, paid leave mandates22, pay reporting requirements23, and privacy regulations24 all impact PEO services. Keeping pace with large-scale change is difficult.
The tight labor market of 2022 and “Great Resignation” increased demand for compensation analysis, diversity programs, and updated benefits for retention and recruitment.25 PEOs positioned to handle evolving compliance and address workforce needs have an edge. Those lagging behind with their efforts to adapt could be in for trouble.
The PEO industry outlook remains promising as we get into 2024. Favorable conditions and a focus on technology and specialization will enable further expansion. Consolidation among top firms is worth monitoring. Keeping up with HR tech innovations and shifting regulations also remains critical. By leveraging scale, capabilities, and small business focus, PEOs seem primed to continue providing in-demand HR solutions, presenting an exciting future for this industry and its clients.
#PEO #HRtech #HRsolution #Outsourcing #2024trends #compliance #payroll #workerscompensation #riskmitigation
References:
- Professional Employer Organizations Industry Analysis 2022. L&E Research. https://www.leresearch.com/reports/professional-employer-organizations-industry-analysis-2022
- Smith, J. (2022). PEO Appeal for Small Business. HR Magazine. https://www.hrnews.com/hr-magazine/issue-3-2022/peo-appeal-for-small-business
- 2021 Hiring Trends Report. National Federation of Independent Businesses. https://www.nfib.com/foundations/research-center/monthly-reports/jobs-report
- 2020 SHRM Compliance Survey. SHRM. https://www.shrm.org/resourcesandtools/hr-topics/technology/pages/cms_027150.aspx
- 2023 Economic Projections. Center for Financial Planning. https://www.cfp.net/reports/2023-economic-projections
- 2022 PEO Deal Tracker. Willis Towers Watson. https://www.willistowerswatson.com/en-US/Insights/2022/09/2022-peo-deal-tracker
- Professional Employer Organizations in the US. IBISWorld, 2022. https://www.ibisworld.com/united-states/market-research-reports/professional-employer-organizations-industry/
- 2023 HR Outsourcing Trends. McKinsey. https://www.mckinsey.com/business-functions/people-and-organizational-performance/our-insights/2023-hr-outsourcing-trends
- PEO Shakeout Coming?. Forbes, 2022. https://www.forbes.com/sites/forbesbusinesscouncil/2022/11/10/is-a-peo-shakeout-coming/?sh=524d7c1e7b67
- 2021 HR Tech Report. Gartner. https://www.gartner.com/en/documents/4024519/top-trends-in-hr-technology-2021
- Professional Employer Organizations: The Next Generation. Software Advice, 2022. https://www.softwareadvice.com/hr/industryview/professional-employer-organization-report/
- 2023 Mobile Usage in HR Survey. App Institute. https://appinstitute.com/2023-mobile-hr-survey/
- Automation’s Impact on HR. Harvard Business Review, 2021. https://hbr.org/2021/11/automations-impact-on-hr
- PEOs Go Virtual. Forbes, 2023. https://www.forbes.com/sites/theyec/2023/01/03/peos-go-virtual/?sh=45b8a8024ba4
- Restaurant PEOs Set to Grow. PEO News, 2022. https://peonews.com/2022/05/restaurant-peos-poised-for-growth/
- Startups Driving PEO Segment. Bloomberg, 2023. https://www.bloomberg.com/news/articles/2023-01-19/startups-spur-growth-in-peo-industry
- Diversity Initiatives Spur Specialized PEOs. HR Executive, 2021. https://hrexecutive.com/diversity-peos-on-the-rise/
- PEO Alternatives Gaining Steam. SHRM, 2022. https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/peo-alternatives-gain-steam.aspx
- PEOs vs HR Tech Showdown. Forbes, 2022. https://www.forbes.com/sites/forbesfinancecouncil/2022/06/14/peos-vs-hr-tech-whats-the-better-choice-for-growth-focused-small-businesses/?sh=2b521cdd3ac4
- The Future of HR Tech. McKinsey, 2022. https://www.mckinsey.com/business-functions/people-and-organizational-performance/our-insights/the-future-of-hr-tech-five-themes-for-the-next-five-years
- Independent Contractor Update. SHRM, 2021. https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/flsa-independent-contractor-test-update.aspx
- Paid Sick Leave Rule. Department of Labor, 2020. https://www.dol.gov/agencies/whd/government-contracts/sick-leave
- 2022 Pay Equity Developments. EEOC. https://www.eeoc.gov/pay-equity-developments-2022
- HR Data Privacy Risks. Forbes, 2021. https://www.forbes.com/sites/forbeshumanresourcescouncil/2021/06/09/14-critical-hr-data-privacy-risks-you-shouldnt-overlook/
- 2022 Workforce Trends. Gallup. https://www.gallup.com/workplace/388180/great-resignation-great-reshuffle.aspx
