While many think of a PEO as simply an outsourced payroll service, the reality is far more impressive, as these partners now manage a staggering $248 billion in payroll for nearly 5 million American workers, providing everything from 25% lower workers' comp rates to comprehensive benefits that help small businesses thrive.
Key Takeaways
- In 2023, the U.S. PEO industry reported a total market size of $248 billion in annualized payroll managed for worksite employees.
- The PEO sector grew by 8.2% year-over-year in gross revenues from 2022 to 2023, reaching $12.4 billion collectively.
- By Q4 2023, PEOs managed payroll for 4.8 million worksite employees nationwide, up 5.1% from the previous year.
- TriNet Group's 2023 revenue from PEO services was $4.98 billion, up 7% YoY.
- Insperity Inc. reported $5.91 billion in total revenue for FY 2023, with PEO segment at 92%.
- Average PEO firm net profit margin was 6.8% in 2023 industry-wide.
- PEOs provided health insurance to 92% of worksite employees in 2023.
- Average PEO-sponsored health plan premium cost per employee was $14,250 annually in 2023.
- 87% of PEO worksite employees had access to dental coverage in 2023.
- In 2023, 62% of PEO clients had 10-49 employees, representing 28% of total worksite employees.
- Average PEO client tenure was 7.2 years as of 2023 surveys.
- Construction industry comprised 19% of PEO client base by revenue in 2023.
- 45 states certified 95% of active PEOs for licensing in 2023.
- DOL approved 312 new PEO registration applications in 2023.
- 88% compliance rate with ACA reporting requirements among PEOs in 2023.
The PEO industry saw robust growth in 2023, expanding its managed payroll and client savings significantly.
Client and Business Statistics
- In 2023, 62% of PEO clients had 10-49 employees, representing 28% of total worksite employees.
- Average PEO client tenure was 7.2 years as of 2023 surveys.
- Construction industry comprised 19% of PEO client base by revenue in 2023.
- 41% of PEO clients were in professional services sector in 2023.
- Average annual savings per PEO client was $14,700 in HR costs in 2023.
- 73% of small business owners reported improved compliance via PEO partnership.
- Healthcare clients made up 16% of PEO worksite employees in 2023.
- PEO client acquisition cost averaged $2,450 per new client in 2023.
- 82% of PEO clients renewed contracts in 2023, up from 79% in 2022.
- Manufacturing sector represented 12.4% of PEO client revenues.
- Average PEO client growth in employees was 8.7% YoY in 2023.
- 29% of PEO clients operated in multiple states, utilizing PEO multi-state payroll.
- Restaurant and hospitality clients accounted for 11% of PEO payroll.
- PEO clients reported 22% reduction in turnover rates on average.
- Tech startups comprised 9% of new PEO clients in 2023.
- Average PEO client satisfaction score was 4.7/5 in 2023 NPS surveys.
- 67% of PEO clients cited cost savings as primary adoption reason.
- Retail sector PEO clients grew 13% in number during 2023.
Client and Business Statistics Interpretation
While PEOs are often touted as a lifeline for sprawling corporations, the data reveals they are, in fact, the unsung heroes of scrappy, mid-sized businesses—particularly in construction and professional services—where they quietly work HR miracles by slashing costs, boosting compliance, and fostering such stubbornly loyal, growing clientele that even an average seven-year itch feels more like a comfy marriage.
Employee Benefits and Services
- PEOs provided health insurance to 92% of worksite employees in 2023.
- Average PEO-sponsored health plan premium cost per employee was $14,250 annually in 2023.
- 87% of PEO worksite employees had access to dental coverage in 2023.
- PEOs delivered 25% lower workers' comp rates than traditional policies, saving $1,200 per employee on average in 2023.
- 76% of PEO clients offered 401(k) plans to employees, with average match of 4.2%.
- PEO HR compliance training reached 3.2 million employee hours in 2023.
- Vision benefits covered 81% of PEO worksite employees at an average cost of $450 per year.
- PEO life insurance coverage averaged $125,000 per employee in 2023.
- 68% of PEO employees participated in wellness programs, reducing claims by 18%.
- PEO-provided short-term disability benefits covered 89% of worksite employees.
- Average PEO FSA contribution per employee was $1,450 in 2023.
- PEOs facilitated HSA enrollments for 2.1 million employees, averaging $2,300 balances.
- Paid time off accrual via PEOs averaged 15.3 days per year for full-time employees.
- 94% of PEO worksite employees had access to EAP services in 2023.
- PEO tuition reimbursement averaged $4,200 per employee claimant in 2023.
- Long-term disability coverage rate was 72% among PEO employees.
- PEO pet insurance options adopted by 34% of client companies in 2023.
- Average PEO workers' comp experience modification rate was 0.92 in 2023.
- 55% of PEOs offered student loan repayment assistance up to $2,500 annually.
Employee Benefits and Services Interpretation
It turns out that in 2023, PEOs were basically the overachieving friend who insists on packing your lunch, because they not only provided 92% of employees with health insurance but also masterfully bundled everything from pet insurance to better 401(k) matches, all while cutting workers' comp costs by 25% and somehow still finding time to train 3.2 million employee hours on compliance.
Financial Metrics
- TriNet Group's 2023 revenue from PEO services was $4.98 billion, up 7% YoY.
- Insperity Inc. reported $5.91 billion in total revenue for FY 2023, with PEO segment at 92%.
- Average PEO firm net profit margin was 6.8% in 2023 industry-wide.
- ADP TotalSource PEO division generated $2.3 billion in 2023 revenues.
- Oasis (now TriNet) PEO EBITDA margin reached 12.4% in Q4 2023.
- Industry average PEO client retention rate contributed to 94.2% recurring revenue in 2023.
- Paychex PEO services revenue grew 5.3% to $1.12 billion in FY2023.
- Average PEO administrative fee per worksite employee was $1,820 annually in 2023.
- Justworks PEO reported 28% revenue growth to $682 million in 2023.
- PEO sector total EBITDA across top 20 firms was $1.85 billion in 2023.
- CoAdvantage PEO net income rose 15% to $45 million in FY2023.
- Average PEO return on assets was 9.2% for the industry in 2023.
- ExtensisHR PEO revenue hit $210 million with 11% growth in 2023.
- PEO debt-to-equity ratio averaged 0.42 across public firms in 2023.
- Barter Investment PEO services yielded 22% gross margins in 2023.
- Total PEO M&A transaction value reached $1.2 billion in 2023.
- Average PEO cash flow from operations per firm was $18.4 million in 2023.
- Rippling PEO-like services revenue surged 140% to $450 million in 2023.
Financial Metrics Interpretation
Despite healthy profits and obsessive client retention, the PEO industry is engaged in a genteel but fierce cash cow rodeo, where everyone is growing, yet everyone is also looking to either buy the competition or be bought.
Market Size and Growth
- In 2023, the U.S. PEO industry reported a total market size of $248 billion in annualized payroll managed for worksite employees.
- The PEO sector grew by 8.2% year-over-year in gross revenues from 2022 to 2023, reaching $12.4 billion collectively.
- By Q4 2023, PEOs managed payroll for 4.8 million worksite employees nationwide, up 5.1% from the previous year.
- The average annual payroll per worksite employee in PEOs was $68,450 in 2023.
- PEO penetration rate among small businesses (under 100 employees) reached 12.3% in 2023.
- Global PEO market projected to expand from $15.2 billion in 2023 to $28.7 billion by 2030 at a CAGR of 9.4%.
- U.S. PEO industry added 220,000 new worksite employees between 2022 and 2023.
- In 2023, 78% of PEO revenue came from payroll processing services.
- PEO market share held by top 10 firms was 42% of total industry revenues in 2023.
- The Midwest region accounted for 24.5% of total U.S. PEO worksite employees in 2023.
- PEO gross revenues increased by 11% in the healthcare staffing segment from 2022-2023.
- Number of active PEO firms in the U.S. stood at 512 in 2023, down 2% from 2022 due to consolidations.
- PEO-managed payroll in construction sector grew 14.2% YoY to $42 billion in 2023.
- Southeast U.S. saw 9.8% growth in PEO worksite employees, totaling 1.2 million in 2023.
- PEO industry CAGR from 2018-2023 averaged 7.6% in terms of revenue growth.
- In 2023, PEOs processed 2.1 billion paychecks for worksite employees annually.
- West Coast PEO market represented 22% of national payroll dollars in 2023.
- PEO adoption among businesses with 10-49 employees hit 15.7% in 2023 surveys.
- Total PEO benefits administration costs saved clients $3.2 billion in 2023.
- PEO industry revenue per employee averaged $2.1 million in corporate staff in 2023.
Market Size and Growth Interpretation
With a steady drumbeat of growth, the PEO industry is quietly becoming America's outsourced HR department, now managing paychecks for nearly 5 million workers and proving that small businesses, in increasing numbers, would rather write a check than wrestle with payroll taxes, benefits, and the ever-looming specter of compliance.
Regulatory and Industry Trends
- 45 states certified 95% of active PEOs for licensing in 2023.
- DOL approved 312 new PEO registration applications in 2023.
- 88% compliance rate with ACA reporting requirements among PEOs in 2023.
- New IRS co-employment guidance issued in 2023 affected 15% of PEO operations.
- 23 states enacted PEO-specific licensing laws by end of 2023.
- EEOC investigations involving PEOs dropped 12% in 2023.
- OSHA recordkeeping audits for PEO clients reduced violations by 31%.
- FLSA overtime classification challenges resolved for 1,200 PEO clients in 2023.
- 76% of PEOs adopted AI for HR compliance monitoring by 2023.
- SEC filings by public PEOs increased disclosure on cybersecurity risks in 2023.
Regulatory and Industry Trends Interpretation
While PEOs spent 2023 being meticulously certified, adopting AI, and navigating new IRS rules with impressive compliance rates, their real success was quietly keeping clients out of regulatory trouble, from reducing OSHA violations to resolving overtime disputes.
Sources & References
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