Professional Employer Organizations Industry Profile

The US human resources (HR) services industry includes about 4,000 companies that operate as professional employer organizations (PEOs) with combined annual revenue of about $90 billion. Major companies include Automatic Data Processing (ADP), Ceridian, Insperity, Paychex, and TriNet Group. The industry is concentrated: the 50 largest companies generate 55 percent of industry revenue.

Unlike other providers of outsourced human resources services, PEOs serve as co-employers of their clients' employees. Personnel staffing agencies, which include temporary help and executive search services as well as PEOs, are covered in a separate industry profile.

COMPETITIVE LANDSCAPE

Job growth drives demand for PEOs. The profitability of individual companies depends on good marketing and efficient use of information technology. Large companies enjoy economies of scale in marketing and back-office operations. Small companies can compete successfully by specializing in an industry or a job function.

PEOs of all sizes face competition from abroad. India is quickly emerging as a prime destination for HR outsourcing companies, due to the abundance of low cost, English-speaking labor there.

PRODUCTS, OPERATIONS & TECHNOLOGY

PEOs provide human resources management services to business clients, sharing responsibility as a co-employer. Specific services include payroll services, benefits administration, workers' compensation services, unemployment claims management, insurance sourcing, and risk management.

Payroll services involve collecting employee information such as wages, hours worked, deductions, and other compensation-related data, and processing it to generate employee paychecks and tax filings on behalf of employers. In addition to legal ...