PEOs Rebound with the Small Business Economy

Nearly 42 percent of small and mid-sized companies expect to expand their HR outsourcing, according to outsourcing advisers at Nelson Hall, reports BenefitNews.com.  PEOs can offer HR solutions tailored to small and midsized businesses in all industries. 

Small business employers are driven, in part, to outsource HR functions because of the increasing cost associated with benefits coverage, combined with a need to provide health care and related benefits comparable to those offered by larger organizations in order to attract and retain employees.

Professional employer organizations (PEOs) are making a strong comeback as the HR outsourcing service model of choice for some smaller organizations, buoyed by the improving small-business economy. In fact, IDC research shows that the estimated value of the total addressable market for comprehensive HR outsourcing to the small market is $44 billion per year in potential recurring revenue in the United States, based on 2004 employment figures.

As a co-employer, PEOs manage and assume responsibility for all facets of their clients’ HR function associated with their workforce. PEOs save time and money, allowing their clients to focus on their core business by providing Fortune 500 benefits, reducing employment liability and improving employee productivity.

The number of PEOs in the U.S. declined in 2003 by more than 2,000 but made a dramatic rebound in 2006. The increase is attributable to improved business conditions, lower unemployment and renewed vigor in the small-business market in the U.S., according to the U.S. Small Business Administration’s 2006 study of the small-business economy. This suggests that the opportunity is strong for PEOs and HR service providers to continue rebounding with the small market in 2007.