During the past 30-plus years in Florida, Professional Employer Organizations (PEOs), like most business segments, have had to adapt to a variety of challenges. The roller coaster ride on Wall Street, legislative changes, and new privacy regulations have all impacted the industry’s results.
Also, there has been a lingering reluctance by employers to embrace PEO services. Part of that reluctance stemmed from the fact that for many years the industry was known as “employee leasing,” and the images that term conjured up were not attractive to many business owners.
The cost of various insurance premiums to an employer, particularly workers’ compensation premiums, has been and remains a key reason why an employer would look at a PEO. “Workers’ compensation is part of what we offer,” said Perlberg. “Almost all of our clients choose our workers’ compensation offering, but we don’t mandate that they do so.”
Even though a PEO has buying power due to the large number of employees it brings to the table, that does not mean that getting a deal done with a carrier is automatic. Nor does it mean that the PEO can dictate rates and underwriting. A PEO has the same pressure as any large insured to maintain a good loss history. An entity making application to a PEO may not be accepted or may have to be removed from the PEO plan.
Like the insurance industry in Florida, competition in the PEO industry is intense, and the marketplace is not easy to navigate. Despite the challenges, PEOs in Florida continue to gain their fair share of the market.
For PEOs, the measurement regarding market share is based on a count of either worksite employees or payroll, or both. Based on statistics provided by the Florida Association of Professional Employer Organizations (FAPEO), there is a steady growth trend for the Florida PEO industry.
According to FAPEO Executive Director Robert Skrob, the current FAPEO membership is 44, with another 20 or so licensed PEOs operating in Florida (not included in that count are out-of-state PEOs with a portion of their employees in Florida). Based on a rough estimate from a survey taken by FAPEO in 2010, the average number of employees in a PEO is 4,800, with about 13 employees per employer.
The National Association of Professional Employer Organizations (NAPEO) notes that there are more than 700 PEO members nationally, and that 30 states require some form of licensing, Florida included.
“The goal of a PEO is to deal with HR support, training, administration, insurance, 401(K), group medical, and so forth, so the business customer can focus on its core disciplines,” said Perlberg.
According to Crum, in the area of a retirement vehicle, flexibility in choosing a plan and the likely cost savings make it very attractive for the employer.
Over time, the PEO industry has moved away from generalists toward specialization. “Every PEO has its niche,” said Crum. “Some PEOs may be focused on tougher classes like roofers, flat bed truckers or USL&H, while others may specialize in white collar businesses. It’s not one size fits all.”
In addition to more specialized entities, PEOs are unbundling products where it makes sense or is necessary for them to compete. “Ala carte options are available to an employer, depending on the PEO you work with,” said Perlberg. “Typically the larger the PEO, the more services are offered and the more options you have.”