An executive summary of industry trends supercharging growth in the PEO and HR Outsourcing sectors in 2016.
Ask anyone in the HR outsourcing business and they will all tell you one thing: the Professional Employer Organization (PEO) industry is primed for substantial growth. Many factors, ranging from the state of the general economic outlook of the nation to the increasing complexity of regulatory minutiae, all point towards overall growth topping 11 percent. Coupled with an ACA entering a more mature and stable phase, thanks to some high-profile lawsuits, PEO services across the board are, and will continue to see accelerating demand.
5 Reasons Why PEOs Are Now A “Growth Industry”
1. New Laws legitimizing PEOs coming into effect
Although signed into law as a part of the Tax Increase Prevention Act of 2014, the Small Business Efficiency Act (SBEA) formally took effect on January 1, 2016. The act made it far easier for companies to join or leave their PEOs and called for the creation of a PEO certification program to further promote transparency in the PEO industry. The IRS will begin accepting applications for certification from PEOs on July 1, 2016.
2. ACA maturation
A slew of lawsuits in recent years upholding key elements of the Affordable Care Act has made it clear to businesses that the ACA is here to stay. Subsequent clarifications have also helped outline clear paths to compliance. For their part, PEOs have been in the trenches from the very beginning helping businesses untangle ACA regulations, and these early investments are paying off.
3. Overall improving economy
Small and medium-sized business sector growth has always been a strong predictor of industry performance. With improving macroeconomic conditions in the United States, this trend is expected to accelerate.
4. Migration to cloud systems
Businesses continue to rely more and more on cloud-based automation software and other technology solutions for a variety of needs including payroll, accounting, and HR management. Payroll-processing giant ADP saw a 16 percent rise in revenue from their PEO division. More and more businesses will turn to technological solutions as they rapidly improve.
5. Increasing rules, regulations, and reporting requirements
As the regulatory environment becomes more and more burdensome and convoluted, businesses will continue to turn to HR Outsourcing, PEOs, and other outsourcing solutions to combat the complexity.
Over the next five years, the PEO industry is projected to grow in line with small and medium-sized businesses thanks to improving macroeconomic factors. While the sector is also likely to face increasing regulation as more and more companies opt to outsource their human resources capabilities, these regulations will help push the industry towards greater legitimization and credibility, thereby promoting further growth.