North America Professional Employer Organization (PEO) Market

Market Overview

The North America professional employer organization (PEO) market share witnessed significant growth in the past and is expected to grow at a CAGR of 12.07% during the forecast period (2022-2030).

A professional employer organization (PEO), or human resource outsourcing, is a service provider specializing in providing small and medium-sized businesses (SMEs) with cost-effective HR management solutions. By leasing employees, PEOs share responsibility and control over various employee-related tasks and liabilities with the employer. These organizations provide businesses with vital administrative and management services, including payroll processing, finance, and tax support, employee recruitment, personnel management, and risk mitigation.

In North America, adopting Professional Employer Organizations (PEOs) by small and medium-sized businesses is one of the primary growth drivers. PEOs enable business proprietors to maximize their professional benefits by streamlining HR services for healthcare businesses or managing numerous aspects of human resources for other companies. Large and minor healthcare providers select PEO services as a cost-effective alternative to business-to-business services. The escalating demand for PEOs in the healthcare industry is anticipated to generate enormous opportunities in the North American market.

Market Dynamics

North America PEO Market Drivers

Escalating Challenges Related to Employee Attrition

The expansion of the North American PEO market is primarily driven by the growing demand from businesses to comply with increasingly stringent labor laws. In recent years, labor laws have become more stringent, posing challenges for large organizations regarding high employee turnover rates and the costs associated with training new hires.

Professional employer organizations (PEOs) provide a range of services to their clients, including payroll administration and employee benefits management. By utilizing the services of a PEO, employers can effectively reduce the costs related to managing employee benefits while empowering employees with increased control over their benefits. As a result, employee retention rates have improved, leading to lower turnover rates.

North America PEO Market Restraints

Surrendered Authority over Critical Processes

Adopting a flexible staffing model by businesses presents challenges in retaining control over vital processes such as payroll administration, tax processing, and human resource management. This often leads to increased dependence on external vendors to fulfill these critical functions, potentially causing delays in time-sensitive operations, specifically payroll processing. Control plays a crucial role in decision-making, particularly in the employer-employee relationship. When a company collaborates with a professional employer, it willingly surrenders complete control over its workforce in exchange for a valued service.

North America PEO Market Opportunities

Rising Need for Technology-driven Human Resource Management Solutions

Effective data monitoring, measurement, and evaluation are essential for ensuring efficient operations in today's business environment. The competitive landscape, technological advancements, and the integration of automation and robotics have created a growing demand for advanced and automated human resource management technology solutions.

A prominent trend observed in the PEO industry is the increasing need for technology systems that automate payroll administration. Businesses seek Professional Employer Organizations (PEOs) that offer sophisticated, integrated platforms capable of efficiently managing human capital and maximizing overall business value. The market for these advanced automation solutions is expanding rapidly due to the growing demand for streamlining employee benefits, payroll processing, and recruitment processes.

Regional Analysis

North America Dominates the Global Market

North America is the most significant revenue contributor globally and is expected to grow at a CAGR of 12.07% during the forecast period. The North American market is segmented into the U.S. and Canada, with the U.S. being the dominant region. Paychex, Inc. specializes in human resource management, payroll, benefits, and insurance. The business strategy of Paychex, Inc. is concentrated on providing industry-leading, integrated technology, increasing client satisfaction, expanding the HR leadership, expanding their client base, and engaging in strategic acquisitions.

Insperity provides human resources and business solutions to small and medium-sized enterprises. The company's objective is to provide its specialized human resources service offering to the leading small and medium-sized businesses in the United States while leveraging our purchasing power and experience to provide additional valued services to clients—their marketing and sales strategy for new products and services within standard PEO HR Outsourcing solutions and beyond. Following this plan, they routinely make long-term strategic decisions to invest in or acquire new companies, business divisions, or assets.

Segmental Analysis

The professional employer organization market is segmented based on type and end-use.

Based on type, the Professional Employer Organization (PEO) market is segmented into Full-Service PEO and ASO.

The Full-Service PEO segment dominates the market and is expected to register a CAGR of 11.8% over the forecast period. Due to its widespread use by SMEs, ASO is predicted to capture a sizable portion of the market. Time savings in HR management are a driving factor behind this trend. This type of ASO is useful because small and medium-sized firms are the primary sources of employment.

Based on end-user, the Professional Employer Organization (PEO) market is segmented into Small, Medium, and Large Businesses.

The large businesses segment dominates the market and is anticipated to grow at a CAGR of 11.2% over the forecast period. Due to the increasing demand for cost optimization in the administrative services of large businesses, the large businesses held the majority. Large organizations have largely adopted professional employer organizations, resulting in benefits such as a reduction in time spent on HR Services and more time spent focusing on a company's primary functions.

Recent Developments

• January 2022- A US-based human resource service provider, Paychex Inc., announced that it partnered with HireRight to provide COVID-19 rapid test kits, allowing instant testing for employees of several businesses.
• February 2021- A US-based administrative services provider to small and medium-sized businesses, Insperity Inc. announced a strategic collaboration with a cloud-based software giant, Salesforce. The strategy aimed to enhance their services for better customer retention, robust marketing campaigns, and maximizing businesses' productivity.