The global professional employer organization (PEO) market size was valued at USD 62.66 billion in 2022 and is expected to surpass USD 158.99 billion by 2031, expanding at a CAGR of 10.9% during the forecast period, 2023–2031. The growth of the market is attributed to the rising need for cost-optimizing administrative and management services as well as the increasing growth of numerous small & medium businesses.
Professional employer organization (PEO), also known as human resource outsourcing, is an outsourcing organization that offers cost-effective management and high-performance solutions for human resource (HR) services, especially to small & medium businesses. PEO provides a range of key administrative and management services to businesses including payroll, finance & taxation, employee recruitment, talent search management, and risk mitigation.
As per the report published by the National Association of Professional Employer Organizations (NAPEO), PEO services were available to nearly 173,000 small and mid-sized businesses, employing 4 million people that were worth USD 216 billion in 2020. The report further stated that the rate of PEO clients increased at a CAGR of more than 5.6% and its revenue gain was 13.5% from 2018 to 2019.
One key aspect of the wide adoption of PEO services by businesses is the rising expense of having permanent management teams, especially in small & medium enterprises (SMEs). As per global reports, SMEs constitute around 95% of the overall organizational structures worldwide and generate more than 60% of job opportunities for people.
The PEO service provides businesses with easy management for insurance taxes and legal input regarding better options for workers' compensation coverage. In general, the end-users or client companies normally enter into a contractual co-employment agreement with PEO service providers to ensure the continuity of the services. By using the service, clients are able to minimize the expense of management services, which may reduce the overall expenses of their business operations.
The COVID-19 pandemic had opened up several opportunities for market expansion due to the rising adoption of outsourcing administrative services by businesses across industries to save the overall operational cost. The pandemic shattered the global economy and heavily affected the financial positions of various companies due to the sudden shutdown of the manufacturing units and the delay in their production.
The rising financial crunch forced businesses to adopt several strategies for cost optimization of their various operations, and access to PEO services was considered to be the best option or at least a key strategy to fulfill their targeted purpose.
Market Trends, Drivers, Restraints, and Opportunities
- Wide adoption of PEO services among businesses for lesser workers’ compensation insurance coverage rate and easy risk management of operations is a key factor driving the market.
- Rising adoption of PEO services by small & medium businesses as well as the wide availability of cost-effective administrative services present another key driver of the market.
- Easy processes for regulation compliance and regular management of current taxation using PEO services regarding the overall business operations are expected to boost the market in the coming years.
- Security issues regarding the handling of confidential documents of companies as well as diminishing the role and value of internal HR departments act as major challenges to the market.
- Lack of authority and control of companies over service providers is another key restraining factor of the market.
- Availability of cost-effective PEO services and the rapid introduction of innovative outsourced administrative services by key players are projected to create lucrative opportunities for the market in the near future.
Professional Employer Organization (PEO) Market Scope
The report on the global professional employer organization (PEO) market includes an assessment of the market, trends, segments, and regional markets. Overview and dynamics have also been included in the report.
Professional Employer Organization (PEO) Market - Global Industry Analysis, Growth, Share, Size, Trends, and Forecast
Types (ASO and Full-Service PEO), Applications (Human Capital Management, Payroll Services, Regulatory Compliance, Risk Management, Withholding & Taxation, Insurance Services, and Others), and End-users (Small & Medium Businesses and Large Businesses)
Asia Pacific, North America, Latin America, Europe, and Middle East & Africa
Company Share, Market Analysis and Size, Competitive Landscape, Growth Factors, and Trends, and Revenue Forecast
Key Players Covered in the Report
ADP LLC; Paychex Inc.; Insperity Inc.; TriNet Group Inc.; TEL Staffing & HR; Global PEO Services; Infostride; Alcott HR; Co Advantage; Group Management Services; Total HR; FrankCrum; Oasis Outsourcing; and Ahead Human Resources
Professional Employer Organization (PEO) Market Segment Insights
Long-term service plan for businesses boosts the full-service PEO segment
Based on types, the global professional employer organization (PEO) market is bifurcated into ASO and full-service PEO. The full-service segment accounted for a major market share in 2021 and is expected to expand at a robust growth rate during the forecast period owing to rising companies’ preference for PEO service for long-term plans to ensure effective management and administrative activities.
On the other hand, the ASO segment is anticipated to register a CAGR of 13.2% during the forecast period owing to the wide availability of temporary or contractual services provided by ASO platforms. Accessing ASO service requires no co-employment agreement with the end-user organizations in providing administrative support to the businesses.
Human capital management segment to hold a key market share
In terms of applications, the market is segmented into human capital management, payroll services, regulatory compliance, risk management, withholding & taxation, insurance services, and others.
The human capital management market was worth USD 22.1 billion in 2021 and is expected to reach USD 40.2 billion by 2030, expanding at a CAGR of 7.5% during the forecast period. The segment growth is attributed to the increasing need for effective HR tasks in human capital management including employee recruitment, training, performance management, payroll, and compensation.
Large businesses segment to register a considerable CAGR
On the basis of end-users, the global professional employer organization (PEO) market is bifurcated into small & medium businesses and large businesses. The large businesses segment held a key market share in 2021 and is projected to register a considerable CAGR during the forecast period owing to rising needs for cost optimization in the administrative service of large enterprises.
On the other hand, the small & medium businesses segment is anticipated to expand at a CAGR of 12.9% during the forecast period owing to the rising use of outsourced management and administrative services for better operation management at an affordable cost. Moreover, the wide availability of PEO services for small & medium business organizations further boosts the segment.
North America to dominate the market
In terms of regions, the market is classified as Asia Pacific, North America, Latin America, Europe, and Middle East & Africa. North America held a dominant market share in 2021 and the trend is expected to continue during the projected period due to the wide acceptance of outsourced HR services and the rapid expansion of small-scale industries in the region.
The rising growth of several large business organizations and expensive HR services are key factors that companies adopt PEO services for cost-effective management of their administrative services. On the other hand, the market in Asia Pacific is anticipated to expand at a steady growth rate during the forecast period owing to the wide expanse of the PEO services base in the region due to the low cost of hiring an HR team, and the availability of a large pool of highly skilled professionals.
The global professional employer organization (PEO) market has been segmented on the basis of
- Human Capital Management
- Payroll Services
- Regulatory Compliance
- Risk Management
- Withholding & Taxation
- Insurance Services
- Small & Medium Businesses
- Large Businesses
- Asia Pacific
- North America
- Latin America
- Middle East & Africa
- ADP LLC
- Insperity Inc.
- Paychex Inc.
- TriNet Group Inc.
- TEL Staffing & HR
- Global PEO Services
- Alcott HR
- Co Advantage
- Group Management Services
- Total HR
- Oasis Outsourcing
- Ahead Human Resources
Key players competing in the global professional employer organization (PEO) market are ADP LLC; Paychex Inc.; Insperity Inc.; TriNet Group Inc.; TEL Staffing & HR; Global PEO Services; Infostride; Alcott HR; Co Advantage; Group Management Services; Total HR; FrankCrum; Oasis Outsourcing; and Ahead Human Resources.
Some of these players have adopted a series of business development strategies including merger and acquisition, entering into partnerships and collaboration, product launches, and developing cost-effective PEO services to expand their consumer base and enhance their market share globally.
- In January 2022, a US-based human resource service provider, Paychex Inc. announced that it entered into a partnership with HireRight to provide COVID-19 rapid test kits, allowing instant testing for employees of several businesses.
- In 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 was aimed at enhancing their services for better customer retention, robust marketing campaigns, and maximizing businesses’ productivity.