Over the past few months we have been reviewing HR and benefit solutions arising from the implementation of Professional Employer Organizations, otherwise known as PEOs. Over our careers, we have seen many clients implement and unwind PEO relationships. Our view at Valhalla is that we should be positioned to assist clients with solutions that include initiating, and eventually unwinding, PEO structures based upon the client priorities and fact-patterns at any moment in time.

What is a peo?

According to NAPEO, “[a] professional employer organization (PEO) provides comprehensive HR solutions for small and mid-size businesses. Payroll, benefits, HR, tax administration, and regulatory compliance assistance are some of the many services PEOs provide to growing businesses across the country.” While there are numerous reasons for considering a PEO, perhaps the notion recently shared with Jens by one fractional-CFO of “de-risking” regulatory aspects of a small business’ operation is the biggest motivation.

PEO solutions do not necessarily provide a “free lunch,” however, as this article from Forbes advises.

PEOs “co-employ” your employees by becoming the “employer of record for tax purposes.” This means that the PEO is the company that will file the W2s for your employees. But, you would still retain control and oversight over your employees as before.

Cameron Keng: Danger of Using a Professional Employer Organization, Forbes, 9/12/16

Examples of large PEO organizations with whom clients may be familiar include:

• ADP Total Source
• Paychex
• TriNet
• Insperity

Of course, there is quite a bit of potential variation across providers of PEO solutions in terms of what they do, how costs are structured, and how the business interacts with the PEO!

This 2018 article does a nice job providing some context about PEO industry structure and how attributes and operations evolve over a lifecycle. According to PEO Spectrum, “Companies that use PEOs are usually small to mid-sized, with the industry’s sweet-spot ranging from 10-100 employees, and a few cases of multi-thousand employee companies calling on the PEO for help.” This organization suggests that, “[a]lthough the PEO value proposition is strong for small businesses, industry penetration on a national level is estimated to still be less than 2%.”

how many peo solutions are available?

The number of PEOs operating in the United States is not entirely clear. While some partners of Valhalla suggest the number is 800-1,000, we have identified and, through a proprietary model, scraped 3,616 records. In any event, there are certainly hundreds of PEO operations in the US. Valhalla’s market research by state, including details of three selected attributes, is summarized below.

State	PEO operations	Audit confirmed to NAPEO	Accredited by ESAC	IRS Certified
AK	33	23	10	11
AL	78	55	23	26
AR	66	48	22	26
AZ	77	55	23	31
CA	102	63	28	34
CO	91	64	26	31
CT	69	44	20	24
DC	51	37	21	23
DE	40	26	13	17
FL	133	85	30	35
GA	100	68	26	34
HI	37	24	12	14
IA	54	42	19	26
ID	50	35	17	19
IL	96	65	25	32
IN	89	63	28	31
INT	10	0	0	0
KS	69	51	23	25
KY	76	53	22	28
LA	79	57	25	27
MA	63	45	22	23
MD	66	49	23	29
ME	58	40	19	21
MI	81	55	21	27
MN	67	46	20	24
MO	83	62	26	30
MS	54	41	19	26
MT	51	34	13	18
NC	88	66	27	30
ND	41	30	13	15
NE	54	38	17	20
NH	52	37	18	21
NJ	95	65	27	28
NM	64	49	22	25
NV	74	54	23	25
NY	98	65	27	33
OH	89	65	26	32
OK	67	48	23	25
OR	80	56	23	24
PA	79	56	24	29
RI	45	29	15	18
SC	75	57	24	28
SD	39	29	12	16
TN	93	67	26	31
TX	124	89	33	37
UT	70	49	22	24
VA	85	60	25	28
VT	42	29	14	19
WA	65	45	22	24
WI	75	55	22	27
WV	59	40	18	19
WY	40	31	17	17

Valhalla business advisors solutions

Your team at Valhalla Business Advisors maintains partnerships through which numerous PEO solutions can be requested and analyzed. In some instances, costs may be “all inclusive” or “a la carte;” Comparing the nuance of employee benefit implications is important, including administration, plan design, costs, and process for (if necessary) a future “unwind.”

PEO solutions can present benefits to growing employers. While the benefits may in many instances outweigh the costs, there are also nuances across vendors. Rather than review these in isolation, consider reaching out to Valhalla Business Advisors to help you review options as an aspect of a long-term relationship! If you would like to look more closely at PEO solutions, please reach out to either Stuart or Jens!