Benefits November 20, 2006

Largest PEOs Gain Favor over Smaller Counterparts

November 20, 2006 (PLANSPONSOR.com) - A new report from Staffing Industry Analysts (SIA) shows the largest professional employer organizations (PEOs) are gaining a competitive advantage over their counterparts in the human resources outsourcing industry.
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According to an SIA news release, the largest PEOs are gaining a competitive advantage because they are lowering costs due to increased economies of scale, are developing a diversified risk pool of employees who receive benefits, and are continuing to invest in technology. Additionally, some larger PEOs are enjoying a sales advantage over smaller companies because they can market PEO services to established customers that outsource their payroll, SIA said.

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SIA found that investment capital continues to flow to the strongest PEOs, and in the past four years, about 10 smaller PEOs were acquired by larger competitors – three of which were acquired with investments from private equity firms.

SIA estimates that gross PEO revenue will reach $8 billion in 2006 and net revenue for PEOs will grow an estimated 8% in 2007. For the first time, SIA said, the top 25 PEOs all had gross PEO revenue of more than $100 million.

Barry Asin, executive vice president and chief analyst of Staffing Industry Analysts, said in the news release, “There is still plenty of opportunity for PEOs both large and small who deliver quality services to the marketplace. PEOs continue to play a very important role in the US economy because they are an efficient, cost-effective way to deliver human resources services, particularly to small business.”

According to SIA rankings, the top five PEOs ranked by gross revenue remain unchanged from last year. The top five PEOs by 2005 Gross PEO revenue were:

  • ADP TotalSource of Miami, Florida. $6.97 billion. The company had 5,700 clients and 139,000 worksite employees. Gross PEO revenue grew 26.9% from 2004 to 2005.
  • Administaff Inc. of Kingwood, Texas. $6.63 billion. The company has 5,000 clients and 94,000 worksite employees. Gross PEO revenue grew 23.4% from 2004 to 2005.
  • Gevity HR Inc. of Bradenton, Florida. $4.77 billion. The company had 8,200 clients and 136,600 worksite employees. Gross PEO revenue grew 10.8% from 2004 to 2005.
  • Paychex Business Solutions of Rochester, New York. $2.48 billion. The company had 3,300 clients and 59,000 worksite employees. Gross PEO revenue grew 8.6% from 2004 to 2005.
  • TriNet Group Inc. of San Leandro, California. $1.67 billion. The company had 1,100 clients and 16,600 worksite employees. Gross PEO revenue grew 20.6% from 2004 to 2005.

More information is at www.staffingindustry.com .

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