THREE GROWTH CHALLENGES AND SOLUTIONS FOR PEOS

Chris Chaney Chris Chaney on April 9, 2025

The PEO industry continues to experience rapid expansion, creating new opportunities and challenges for providers. As demand for outsourced HR services grows, PEOs must balance scalability with operational efficiency while also addressing workforce shortages and regulatory complexities. Staying ahead in this evolving landscape requires strategic planning and the adoption of innovative solutions that drive growth and enhance operational performance.

Beyond technology, PEOs should look for partners that provide comprehensive support services to help them scale successfully. Managed services, education programs, sales enablement, marketing support and high-touch customer service play a critical role in ensuring operational efficiency and long-term success. By leveraging these additional resources, PEOs can enhance their value proposition, strengthen client relationships and maintain a competitive edge.

HIRING TALENT

PEOs are seeing firsthand the impact of ongoing labor shortages, particularly in the professional and business sectors, which has the highest number of job openings according to the U.S. Chamber of Commerce. To help their clients attract and retain top talent, PEOs need to provide more than just applicant tracking systems (ATS) and automated hiring tools. Industry experts emphasize that expanding hiring strategies to include global and nearshore talent pools is becoming a top priority. By facilitating international hiring and compliance through partner companies, PEOs can offer their clients access to a broader, cost-effective workforce. Additionally, by leveraging artificial intelligence (AI) in recruitment PEOs can enhance efficiency by automating résumé sorting, job descriptions and candidate matching.

OPERATIONAL EFFICIENCY

Time is money and ensuring optimal operational efficiency will be key for PEOs looking to expand their business. To support growth while maintaining high service levels, PEOs must optimize their internal operations. According to insights from industry leaders, the focus is shifting toward integrating advanced workforce management platforms that not only streamline payroll and HR processes but also provide real-time data for better decision-making. Enhanced automation, self-service tools and AI-driven insights are helping PEOs improve efficiency, reduce costs and enhance the overall client experience. Additionally, as PEO client companies expand their hiring reach into global markets, integrating global workforce solutions (tech and services), such as EOR and global payroll, will automate processes and enhance competitiveness.

VENDOR MANAGEMENT

As PEOs grow, so often does the number of vendors they work with. Managing multiple vendors remains a challenge as PEOs scale their services. Feedback from sales and operation teams suggest that consolidation is a key strategy for driving efficiency. A PEO may work with separate providers for payroll, benefits and compliance, but relying on disparate systems can create inefficiencies for both the PEO and its clients. By moving to a single, integrated HR technology provider, PEOs can reduce administrative burdens and provide a seamless experience for their clients. Industry-leading HR software providers have spent decades refining solutions tailored to the PEO market, ensuring that growth does not come at the cost of operational complexity.

As the PEO industry continues to evolve, the need for proactive strategies to address workforce shortages, improve operational efficiency and streamline vendor management is more important than ever. By adopting forward-thinking solutions and optimizing key business processes, PEOs can strengthen their market position and better support their clients in an increasingly complex employment landscape.

EDUCATE, RETAIN, & EXPAND: 3 STEPS TO GUIDE YOUR PEO GROWTH JOURNEY

Chris Chaney Chris Chaney on April 9, 2025

The PEO business has been good. I’ve enjoyed my career in this field, and I am energized to help all parties reap the benefits that a PEO offers. But did you know that only 17% of US companies with 10-99 employees currently use a PEO? A tremendous potential for growth exists in the marketplace, and PEO professionals should prepare themselves now to leverage the opportunities for expansion.

Eighty-three percent of the PEO target market, over a million small businesses, are virtually untapped. That doesn’t even include tiny startup organizations.

These organizations may be unaware of how PEOs can save them money, offload troublesome administrative duties, and provide their employees with benefits that rival large firms. It is up to the PEO industry to educate and inform this large group of potential customers.

Increasing the number of companies using PEO services isn’t just good for PEO providers and others in the PEO supply chain. The act of engaging with a PEO has a positive effect on many organizations. A recent study by NAPEO compared companies who do not use PEOs, to PEO clients. The PEO clients:

  • Have a growth rate that is over 2 times higher
  • Have an employee turnover rate that is 12 percent lower
  • Are 50 percent less likely to go out of business

Partly because of their use of PEO services, NAPEO says, companies are more stable, robust businesses that are better positioned for long-term success.

STRATEGIES FOR PEO INDUSTRY EXPANSION

With such a large potential on the horizon, it makes sense to encourage people working in the PEO industry to take the steps necessary to execute the growth strategies. We can divide this preparation into three categories: education & training, client retention, and complementary services.

EDUCATION AND TRAINING

Some people on the front lines are not fully informed about how PEOs work, when they are a good fit for a company, or how to choose the right plan for a client.

Trusted advisors such as insurance brokers, CPAs, or labor lawyers may be unaware of how to recognize a PEO opportunity. There are no PEO education actions that professionals in the CPA profession or the employee benefits world are required to take. They are not talking to their clients about PEOs because they don’t know enough. With more education and consistent reinforcement from the PEO community, these professionals would naturally recommend or refer their clients to PEOs more often.

This approach works. I have educated over a thousand insurance brokers about PEO sales strategy, opportunity, and approaches. I built training modules that helped learners be confident and competent in starting business conversations about PEO service providers, their platforms, carriers, and industry target markets. These trained individuals now include PEO topics in their client meetings more often.

NAPEO offers a wide range of educational materials for its members, including PEO University courses, webinars, virtual events, and live events, such as the Annual Conference and Marketplace. Outreach programs aimed at professionals outside the NAPEO membership would expose these individuals to PEO basics and allow the advisors a chance to network with experienced PEO veterans.

CLIENT RETENTION

Growth entails more than acquiring new clients. PEOs must also be adept at retaining their existing customers. Client retention strategies may include moves to communicate better with customers about medical plan rate changes or payroll administration. This improves the customer experience throughout the term of the PEO contract.

With benefit costs rising, renewal time is a point of vulnerability for insurance brokers. Clients unhappy with large health insurance premium increases quoted at renewal may decide to shop around with another broker. If the broker is informed about PEOs and connected to PEO advisors, however, they can often propose benefit plans purchased through a PEO at substantial savings and avert the loss of a client.

Trusted advisors can achieve customer communication improvements with targeted informational content and regularly scheduled executive meetings. Keeping clients informed of events and trends as they occur is more effective than waiting to address numerous questions at renewal time. PEOs must reach out to clients in the months leading up to renewal dates, allowing them to identify any issues or head off competitors.

EXPAND WITH COMPLEMENTARY SERVICES

Additional value-added services make it easier to sell against the competition and add worth to a PEO relationship. Some additional services PEOs can offer include embedded accounting tools or expanded compliance assistance.

Accounting services can help clients manage their finances more efficiently by integrating with the PEO platform. Access to compliance assistance helps companies deal with complex employment laws or regulatory compliance.

Other complementary services PEOs could offer might include international HR assistance, outplacement services, or executive coaching.

SALES AND MARKETING APPROACHES

To sell PEO services to a plentiful market, PEOs should consider the trusted advisors as an outside sales force. Just as they do with their own captive sales team, PEOs can actively help trusted advisors be successful in selling more PEO plans. These people already have relationships with companies who would benefit from a PEO relationship. Those companies just need their advisors to show them how PEOs will benefit the company.

PEOs have a financial interest in helping individuals like insurance brokers and CPAs sell more PEOs. They may need to consider offering incentives like higher commissions or bonuses to convince these professionals to talk with their clients about PEOs more often.

PEO education for advisors should be proactively pushed to those individuals. Everyone is busy. Waiting for insurance brokers to seek education on their own seems unreasonable. Treating independent advisors more like a sales force will prompt PEOs to roll out a strategy with resources, targets, deadlines, and result tracking.

A major hurdle to overcome is a perceived complexity surrounding underwriting and plan onboarding. PEO experts can expose the advisors to human helpers and platforms designed to make the PEO sales process easier.

TRUSTED ADVISORS: A CRITICAL KEY TO PEO EXPANSION

Advisors, such as accountants or insurance brokers, have earned a position of trust with companies that may benefit from PEO services. Given the size of the potential market among small businesses, these professionals are poised to reap the benefits of leveraging those relationships to inform and educate their clients about PEOs.

Organizations such as NAPEO, and support by PEO professionals and outside influencers, can help trusted advisors learn about PEOs. They can become familiar with the education resources, tools, and support it takes to increase their sales and grow the PEO market.

BUILDING PREMIUM PEO EXPERIENCES: THE TECHNOLOGY PHILOSOPHY AT ARMHR

Chris Chaney Chris Chaney on April 9, 2025

As the Product Manager at Armhr, I’ve had a front-row seat to witness how a thoughtful technology strategy can transform a PEO. Our approach isn’t just about implementing fast solutions – it’s about crafting lasting experiences that resonate with our ideal customers while leveraging and innovating on proven technology foundations.

THE POWER OF STRATEGIC PARTNERSHIP

One of our guiding principles at Armhr is “When we are good, our partners are good.” This philosophy shapes every decision we make, particularly in how we approach our technology stack. At the core of our platform lies a proven technology that powers our operations. This strategic choice reflects a deep understanding of what matters most in our industry: reliability.

Think about how Marriott International approaches their hotel portfolio. The Courtyard, Westin, and Ritz-Carlton properties all operate on the same core booking and rewards platform. Yet, when you walk into a Ritz-Carlton, you immediately know you’re experiencing something different. It’s the warm, personalized welcome, the premium amenities, the refined ambiance. The underlying technology managing your reservation might be identical, but the tangible experience is transformatively different. This is exactly how we think about technology at Armhr – technology facilitates experience, but it is not the experience.

GETTING BETTER EVERY DAY: THE JOURNEY OF CONTINUOUS IMPROVEMENT

Developing core technology from scratch is an arduous journey, riddled with countless edge cases and complex scenarios. It takes years to get right, and even then, the work is never truly finished. That’s why we chose to partner with a trusted, established platform to build our foundation rather than reinvent the wheel. Like Marriott’s approach to hospitality platforms, we recognized that true value lies not in rebuilding foundational elements, but in crafting and innovating on the experiences that surrounds them.

Our “Getting Better Every Day” philosophy manifests in how we enhance and customize this foundation. We’re not trying to rebuild a reservation system – we’re focused on creating the premium experience our ideal clients expect and deserve.

UNDERSTANDING OUR IDEAL CUSTOMER PROFILE (ICP)

Our product vision started with a critical first step: defining our Ideal Customer Profile. This wasn’t just a marketing checkbox—it was the backbone of our technology strategy. We immersed ourselves in deep listening sessions with clients, our sales team, and key market players to truly understand what “good” looks like for this specific segment.

What we uncovered was eye-opening. Our ICP isn’t fixated on the technology itself—they want the Ritz-Carlton experience. It’s not about the system running in the background; it’s about how it feels to engage with our platform. They expect white-glove service, seamless integrations, and a frictionless experience that transforms complex HR processes into something effortless.

CRAFTING PREMIUM EXPERIENCES AT SCALE

Like Marriott’s mastery in creating distinct experiences across their brands while using shared platforms, Armhr excels at delivering premium PEO services built on proven technology. This isn’t redundancy – it’s expertise in knowing where to innovate and where to leverage existing solutions.

Our approach allows us to:

  • Focus our innovation efforts on experience-defining features
  • Leverage the platform’s robust core while building distinctive value layers
  • Scale efficiently without compromising on quality
  • Maintain consistency while delivering personalized experiences

LOOKING FORWARD

As we continue to grow and evolve, our technology philosophy remains constant: build on proven foundations, focus on experience-defining elements, and stay true to our “Getting Better Every Day” mindset. We’re not just another PEO platform – we’re crafting the Ritz-Carlton experience in the PEO space, where every interaction reflects our commitment to excellence.

The beauty of this approach lies in its scalability and sustainability. By focusing our energy on experience-defining elements rather than reinventing core technology, we can continuously innovate where it matters most to our clients. This is how we maintain our position as a premium provider in the PEO space while ensuring consistent, high-quality service delivery.

Just as Ritz-Carlton guests know they’re getting something special the moment they step into the lobby, our clients are looking for a different experience when they partner with Armhr. That’s not by accident – it’s by design, driven by our understanding of what truly matters to our ideal clients and our commitment to delivering excellence in every interaction.

OUTDATED TO OUTSTANDING: MODERNIZING YOUR PEO

Chris Chaney Chris Chaney on April 9, 2025

With the continuous rise of AI and automation, every company – and PEO – is feeling the pressure to modernize. Keeping up with the Joneses has never been a more acute feeling for businesses struggling to adapt to the changing environment than right now, and that feeling isn’t entirely misplaced. As the digital transformation rolls on and our industry evolves, questions like “What outdated processes do I need to reengineer?”, “How do I drive efficiencies while not alienating my clients?”, “How can I equip my team with modern skills, not just new technology?”, and ultimately, “What’s the right step forward for my business?” may be increasingly at the front of your mind.

IDENTIFY THE RIGHT AREAS FOR IMPROVEMENT

While addressing the challenges above is necessary if a company hopes to survive and thrive in the shifting landscape, it’s critical not to modernize your business just for modernization’s sake. For PEOs who have consistently provided high-touch customer service, a balance between modernization and personal touch must be struck. In that space, efficiencies are driven, your team is empowered, and your clients are satisfied. Easy, right? Rest assured that through modernization, you can achieve your goal of building a commercially successful, innovative and secure PEO that provides your customers with the best experience.

However, before you take any steps to evolve your business, you must first identify why you’re modernizing in the first place. Identifying an over-arching goal like the ones mentioned above is a good start, but breaking that goal down into several sub-categories will help drive actions to achieve your goal. Scaling efficiently to meet customer demand, improving enterprise valuation, retaining top talent, and strengthening your competitive advantage are a handful of noteworthy objectives. From those sub-categories, determine areas of improvement. Completing this exercise of identifying your unique needs will not only help you with next steps, but also help you clearly communicate with your team when changes are eventually implemented.

Everyone is in a different stage in the journey to modernize. Many PEOs, for example, rely on 20+ year old technology and use the same processes since roughly that same time. If you’re one of those PEOs, it’s time to examine that technology and those processes. If you used to offer only payroll and benefits but now provide a host of other services (hiring assistance, performance management, time and attendance, learning management, etc.), consolidating to a single software or a few platforms – instead of ten or twenty – could be another area to examine for improvement. Start developing relationships with alternative software providers to identify ways that they can help you consolidate the tools your team is using while providing the latest look and feel to your clients.

Carefully consider each platform your business uses, and each functional area, to see if there is room for consolidation. For example, does your learning management platform also offer a performance management module? If so, that could be one area of consolidation. What about your team’s collaboration platforms? If they are using multiple – be it Zoom, GotoMeeting, MS Teams, Slack, or others – eliminate confusion and increase collaboration by choosing one. Consider your CRM. Is it integrated with your other platforms? If you don’t have one, it may be time to ask whether your business size dictates the use of a CRM system to drive consistent workflow for repeatable results.

Onboarding and upskilling are internal processes that have room for an upgrade as well. To help retain talent and more easily integrate new hires into your established workforce, explore tools that help standardize their experience. Google Classroom is just one tool to educate your new hires. A key item that many companies forget is that without hands-on application to make sure information is being absorbed, even the greatest training program is sub-optimal. When upskilling, a policy of training, testing, additional training on missed items, and then further testing, is crucial to true mastery of a skill.

OUTSOURCING AND AI: CHALLENGES AND OPPORTUNITIES

Modernizing your business isn’t just about implementing technology, consolidating platforms, upskilling your workforce, or improving internal processes. It should also encompass two massive changes moving through the PEO world right now: outsourcing basic tasks and augmenting resources with AI. Outsourcing, while having been around for a long time, is increasingly being deployed by your PEO competitors. Although outsourcing can lead to cost savings and efficiencies (just like AI), it needs to be done with care. When choosing what to outsource, make sure you do not outsource your direct connection with your customers or processes that are rapidly evolving or sophisticated.  Be highly selective about what tasks you outsource and what you retain in-house, how you manage the relationship to ensure quality work, and what safeguards and best practices you implement to protect sensitive data, including encryption, access controls, and regular monitoring. Finally, when formalizing your relationship with outsourced providers, ensure you have good SLAs in place, strong data/IP protection, quality control checks, comprehensive communication, and robust contingency plans.

AI presents – and will continue to do so as processing gets smarter and faster – massive opportunities to drive productivity and improve both internal and external satisfaction at your company and with your clients. AI can assist in filling knowledge gaps and provide insights into process improvements. Increasingly, most common tools such as the MS Office suite, incorporate AI assistants into their applications, providing even more opportunities for increased productivity.

While AI impacts the personal touch your team provides, it doesn’t have to do so negatively. Virtual assistants, automated communications, AI-driven CRM, data analytics for personalized customer service, and streamlined repetitive tasks are only a few of the practical ways that AI can empower your team to save time. Time saved can then be reinvested into engaging with customers, strengthening relationships, and providing the level of personal touch that your clients are accustomed to. By incorporating automation, your team can provide proactive service, better responsiveness, and operational efficiency.

Managing change and introducing new technologies and processes will look different for each company. To start, make sure your team knows that change is coming and then communicate the core objectives and the reasons behind the transition, whether that be improving the client experience, implementing ‘X’ system or streamlining processes. In this communication, establish a clear timeline. This will not only provide a ‘light at the end of a tunnel’ but also keep your team on task. Finally, train your employees to ensure smooth adoption, establishing internal leaders to drive results and subject matter experts (SMEs) who can help ensure accuracy. Throughout the process, maintain structured communication to drive engagement and minimize internal resistance to change.

In the current environment, it is not a choice to modernize – either you do so or go the way of the dinosaurs. The future belongs to those who innovate. You should fully embrace, not fear modernization. By identifying clear areas of improvement within your company, evaluating new technologies, and empowering your team through the process, you will truly lead our industry into the future.

WATCH OUT!: HOW TO OVERCOME PITFALLS WHEN SCALING YOUR BUSINESS

Chris Chaney Chris Chaney on April 9, 2025

Each PEO embarks on a unique growth journey, shaped by its vision, goals, and challenges. By adopting a forward-looking mindset and implementing strategic planning, any PEO can achieve seamless scalability. This approach minimizes disruption for internal teams and clients alike, fostering sustainable growth, enhanced efficiency, and long-term success.

2025 PREDICTIONS: 5 BIGGEST TRENDS PEOS CAN EXPECT IN THE NEW YEAR

Chris Chaney Chris Chaney on January 31, 2025

Even though D.C. might be friendly confines for the PEO community in the new year, that doesn’t mean 2025 will be a cakewalk for businesses. State lawmakers and regulators will pick up the slack. They’ll continue to create a patchwork of legal compliance measures – and PEOs will be caught in the middle.

TOP 5 CHALLENGES SMBs WILL FACE IN 2025

Chris Chaney Chris Chaney on January 31, 2025

A major area of the growing digital world that SMBs need to prioritize is cybersecurity as they adopt new technologies. This includes implementing robust security measures to protect against cyber threats, regular training for employees on cybersecurity best practices, and ensuring compliance with data protection regulations.

ECONOMIC UPDATE AND THE RISE OF AI: WHAT PEOS NEED TO KNOW

Chris Chaney Chris Chaney on November 8, 2024

As AI transforms the business landscape, PEOs are uniquely positioned to assist small businesses in navigating this technological revolution. They can provide guidance on AI-related HR practices, help with training and development programs focused on AI skills, and offer insights into how AI can enhance various aspects of workforce management.

KPIs for ACCOUNTING DEPARTMENTS

Chris Chaney Chris Chaney on June 16, 2024

What key performance indicators (KPIs) determine the success or failure of a PEO’s accounting department? Timely and accurate numbers are definitely at the forefront. The PEO space can be a dynamic environment to operate in. The risk and margins are ever-changing and keeping our finger on the pulse is imperative to our success.