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An Overview of the PEO Industry and Revenue Opportunities

Updated: Mar 25, 2023

PEO Industry Overview and Revenue Opportunities

Professional Employer Organizations (PEOs) are companies that offer HR outsourcing services to small and mid-sized businesses. These organizations help businesses to manage their HR tasks, including payroll processing, employee benefits administration, tax compliance, risk management, and regulatory compliance.

PEOs typically work by partnering with their client companies and assuming certain HR responsibilities, allowing the client company to focus on their core business operations. The PEO takes on the role of the employer of record for the client company's employees, which allows the PEO to provide access to benefits and services that the client company might not be able to offer on its own.

PEOs have become an increasingly popular option for businesses in recent years, as they provide a cost-effective way to manage HR tasks without the need for a dedicated HR department. In addition to cost savings, PEOs also offer access to a broader range of benefits and HR services, including health insurance, retirement plans, and training and development programs.

Growth of the PEO Industry

The PEO industry has experienced steady growth over the past few decades. According to the National Association of Professional Employer Organizations (NAPEO), the industry has grown from a handful of PEOs in the 1980s to over 900 PEO firms today.

The PEO industry has also grown in terms of the number of worksite employees it serves. In 2021, NAPEO reported that PEOs served between 4 and 6 million worksite employees in the United States.

The PEO industry's growth can be attributed to several factors, including the increasing complexity of HR regulations and the need for small and mid-sized businesses to remain competitive in the labor market. PEOs provide a cost-effective way for these businesses to outsource HR functions and gain access to benefits and HR services that might not otherwise be available to them.

The growth of the PEO industry is expected to continue in the coming years. According to a report by Zion Market Research, the global PEO market is expected to reach $3.3 billion by 2025, with a compound annual growth rate (CAGR) of 8.4% from 2019 to 2025.

Revenue Opportunities for PEO Firms

PEO firms generate revenue by charging fees for their HR outsourcing services. The following are some of the revenue opportunities available to PEO firms:

Administrative Fees

PEOs charge administrative fees to cover the costs associated with managing HR tasks for their client companies. These fees are typically based on a percentage of the client company's payroll and may vary depending on the specific services provided.

Benefit Administration Fees

PEOs can also generate revenue by providing employee benefits administration services to their client companies. This includes managing employee health insurance plans, retirement plans, and other benefits. PEOs charge a fee for these services, which can be a percentage of the cost of the benefits.

Risk Management Fees

PEOs can help manage risks associated with HR tasks, such as workers' compensation and unemployment insurance. PEOs charge a fee for these services, which can be based on the level of risk associated with the client company's industry and workforce.

Payroll Processing Fees

PEOs can also generate revenue by offering payroll processing services to their client companies. These services may include calculating and processing employee paychecks, managing tax withholdings and filings, and handling other payroll-related tasks.

Consulting Services

PEOs may also offer consulting services to their client companies, such as HR policy development, compliance management, and workforce planning. PEOs charge a fee for these services, which can be based on the complexity of the consulting engagement.

Recruitment Services

PEOs can also offer recruitment services to their client companies, helping to attract and hire new employees. PEOs charge a fee for these services, which can be based on the level of involvement in the recruitment process.

Employee Training

Growing global competition combined with more stringent regulatory requirements, the introduction of new, sophisticated technologies, and increasing complexity in the workplace have created a significant revenue opportunity for PEO firms in the area of employee training and development.

About LMS Portals

At LMS Portals, we provide our clients and partners with a SaaS-based, multi-tenant learning management system that allows you to launch a dedicated training environment (a portal) for each of your unique audiences.

The system includes an embedded course authoring tool that enables most anyone to build engaging courses quickly and easily.

We offer a complete library of ready-made corporate training courses. So you can build your own courses, utilize our off-the-shelf library, or some combination of the two.

If you choose to, you can create Learning Paths to deliver courses in a logical progression and add structure to your training program. The system also supports Virtual Instructor-Led Training (VILT) and provides tools for online coaching and social learning.

Together, these platform capabilities provide our PEO partners with a powerful solution for online employee training and development.

Contact us today to get started or visit our Partner Program pages

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