HR BPO and PEO Outsourcing Options for the Small Market: Industry Report

HR BPO and PEO Outsourcing Options for the Small Market

Product Type: Market Research Report
Published by: IDC
Published: January 2007
Product Code: R104-29147

Description

This IDC study discusses comprehensive HR outsourcing services for small businesses with a focus on the professional employer organization (PEO) market. The PEO model predates HR business process outsourcing (BPO) by many years and is likely a precursor to HR BPO in overall concept, even though the size of the client to which services are offered differs. This study includes the results of a comprehensive survey of the PEO industry. The research concludes with a current and historical sizing of the PEO market based on censuses taken in 2000, 2003, and October 2006 by PEO Network Inc.

There are an increasing number of options for comprehensive HR outsourcing services for the small market; the oldest of these is the professional employer organization (PEO) model, which actually is a precursor to and grandparent of HR BPO. This study discusses these options with an emphasis on the PEO market with results of a recent survey and census of United States-based PEOs. Key results of this study reveal:

The small market opportunity is strong in the United States, given its size and growth. Employment among small employers increased at a compound annual growth rate of 8.4% from 1999 to 2004 according to the U.S. Department of Labor's Bureau of Labor Statistics. Half of all workers in the U.S. private sector are employed by a small company. The estimated value of the total addressable market for comprehensive HR outsourcing to the small market is a staggering $44 billion per year in potential recurring revenue in the United States, based on 2004 employment figures. The number of PEOs in the United States declined in 2003 over 2000 but made a dramatic rebound in the 2006 census. This is due in part to an increase in the number of small businesses in the United States according to the U.S. Small Business Administration's 2006 study of the small business economy.

"As the U.S. economy goes, so goes the PEO market, with contraction and expansion that mirrors the ebbs and flows of the employment outlook," said Lisa Rowan, program manager for HR and talent management services for IDC. "The opportunity is strong for HR services to the small market in 2006. This analysis discusses the opportunities and challenges facing firms that are in the race to win new business."

Table of Contents

IDC Opinion: In This Study; Small Market Opportunity; History of the PEO Model; A Rose by Any Other Name: Distinguishing PEO, ASO, and BPO
Figure: Typical Target Range of PEOs, ASOs, and HR BPO by Number of Employees
Figure: Firm Classification: Target and Potential Size of PEO opportunity
Table: U.S. Small Business Employer Establishments and Employment by Firm Size, 1999 and 2004
Table: U.S. Payroll Channel/Method for Firms with Fewer than 50 Employees: Census and Survey Results; Survey Results
Figure: PEO Size by Number of Worksite Employees
Figure: Number of States/Territories in Which PEO Has WSEs
Table: Number of States/Territories in Which PEO Has WSEs by Number of WSEs in PEO (%)
Figure: Corporate Structure of the Organization
Figure: Most Populous States by WSEs as Reported by PEOs Versus States' Total Workforce
Figure: Standalone Services That Represent 10% or More of Gross Profit
Figure: Share of Profit from Non-Co-Employment Clients: PEO Census and Comparison of 2000, 2003, and 2006 Key Statistics
Table: PEO Statistics, 2000, 2003, and 2006
Figure: Blue-Collar and White-Collar Worksite Employee Mix: Challenges for the PEO Industry; Future outlook; Methodology; Learn More; Related Research; Synopsis

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