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What’s Driving PEO Growth?

September 14, 2016 by Tammie McKenzie

What's Driving PEO Broker> | by Tammie McKenzie

The 3 recent developments driving PEO growth

The Professional Employer Organization (PEO) sector is a bonafide growth industry. Since the PEO concept first came into existence 30 years ago, the industry has added approximately 100,000 worksite employees and 6,000 net new clients. In other words, every five years the PEO industry has added the same number of workers as the entire utility industry in the United States. That’s a lot of people and a lot of jobs. Better yet, the industry is still projected to grow in coming years due to a variety of factors.

What’s driving growth now?

In the long term, the growth of the PEO industry roughly mirrors job growth in the country overall. When the economy is good, PEOs do good business. However, three significant developments have supercharged the industry’s future growth potential: increasing regulatory complexity, the maturation of the Affordable Care Act (ACA) or Obamacare, and the implementation of the Small Business Efficiency Act (SBEA).

1. Increasing regulatory complexity

State-level HR mandates continue to expand in both scope and complexity. 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 and reel in the red tape.

2. The Affordable Care Act

ACA compliance continues to be a concern for many businesses. Despite a slew of lawsuits and clarifications that have helped identify a more straightforward path towards compliance, PEOs continue to play a critical role in guiding businesses through the regulatory tangle.

3. The Small Business Efficiency Act (SBEA)

Thanks to the codification of PEOs in the Internal Revenue Code (IRC) the visibility of PEOs in the marketplace has drastically improved. The elimination of potential double taxation, recognition under federal tax law, and a voluntary certification process all help strengthen the PEO industry and make PEOs more appealing to potential clients.

Around 16 percent of small businesses (those with 10 to 99 employees) employ PEOs. This indicates ample room for continued growth. Abundant growth opportunity coupled with recent developments in the regulatory space cements the PEO sector as an industry to watch in coming years.

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