Trends in the PEO industry:
Overall industrial outsourcing trends combined with the specific cost-savings and risk-savings of HR outsourcing are driving increasing growth in this industry. In spite of the soft economic climate, for the most recent quarter, public reporting payroll processors grew an average of 5% from the previous year, and PEOs grew an average of 10%. Dataquest projects a tripling of this market in the five years from 2000 to 2005. IDC research reported a 65% increase in overall HR outsourcing between 2003 and 2004, while business relating to outsourcing individual processes (payroll, benefits, administration) grew only 10% during the same period.
Increasing regulations will continue to drive clients to use comprehensive HR services on an outsourced basis. The opportunity to offload the price and loss risk of health and employment insurance will continue to drive more companies to the full PEO end of the service spectrum. In the past, provider firms have competed by adding more comprehensive services to their clients. Now the competition is moving into the area of more sophisticated management systems. The most aggressive competitors are offering web-based 24/7 service to their clients’ employees for a competitive advantage.
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