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

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

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

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

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.

LESSONS LEARNED FROM ACTUARIAL DUE DILIGENCE

When I’m performing due diligence on a target company, especially in the PEO space, there are common areas that sellers miss. Below are the top five most missed opportunities for sellers, counting down to the most commonly missed opportunity.

EARNED WAGE ACCESS: PEACE OF MIND FOR EMPLOYEES IN UNCERTAIN TIMES

The benefits of EWA extend to both employees and employers in many ways. EWA provides employees with greater control over their finances, enabling them to access their earnings when needed most. This flexibility empowers individuals to navigate financial challenges with confidence, whether it’s covering unexpected expenses or managing cash flow between pay periods.

TRANSFORM SMB SUCCESS THROUGH INTEGRATED TAX STRATEGY SOLUTIONS

In the evolving realm of PEOs, the adoption of strategic tax solutions marks a pivotal advancement in serving small and medium-sized businesses (SMBs). This innovative approach to better serve their clients not only boosts the value provided to SMB clients by enhancing their financial performance and compliance, but it also further solidifies PEOs as essential and indispensable partners.

THE FUTURE OF PEOS: THRIVING IN AN EVER-SHIFTING LANDSCAPE

For years, the PEO industry has empowered businesses of all sizes to navigate HR complexities. However, in today’s dynamic market, organizations are ever evolving, and PEOs are not an exception. As companies adapt to technological disruptions, a global market, and other challenges, professional employer organizations are also changing to meet their clients’ needs.

As we delve into the artificial intelligence era, there’s one pressing question in all our minds—what does the future hold for PEOs?

AI is not the only factor that is going to revolutionize the industry; changing workforce demographics, regulatory landscapes, and sustainability are some of the several factors that can influence the industry. These factors are not challenges; they can unlock opportunities for growth and innovation.

TECHNOLOGY

Technology integration is one of the trends that is here to stay. AI, data analytics, and machine learning can transform a business into a tech-driven superpower. How can PEOs leverage these tools to streamline their operations? PEOs can:

  • Automate payroll processing and other redundant administrative functions
  • Enhance the efficiency of employee acquisition through AI-powered recruitment and onboarding
  • Use advanced machine learning algorithms to identify the connection between turnover, workload, and other factors
  • Provide personalized employee engagement strategies
  • Leverage data to identify patterns in workplace accidents and create safety measures
  • Reduce fraudulent claims and make risk management more efficient

AI-powered algorithms can also help small businesses find PEOs with just a few clicks. Depending on a business’s size, industry, and needs, AI-enabled platforms can link them to the ideal PEOs for them.

DIGITAL MARKETING

Thanks to digitalization, marketing has evolved from a product/service-centric approach to a customer-centric approach. If used effectively, digital media platforms can help PEOs personalize their marketing efforts and reach a wider target audience with minimal effort.

The integration of AI, machine learning, and data analytics into marketing makes it easier for PEOs to find small businesses that precisely match their ideal customer profile (ICP). Through AI-enabled platforms, PEOs can identify qualified leads in just a few clicks. They can also generate a quote within minutes and increase their conversion rates.

From email campaigns to social media marketing, the PEO of tomorrow needs to have a holistic marketing approach to become an industry leader.

CHANGING WORKFORCE

A study by Glassdoor revealed that, in early 2024, Gen Z will replace Baby Boomers as the largest generation in the full-time workforce. How is this change relevant to PEOs? With a changing workforce comes new demands. For instance, the four-day workweek has gained overwhelming support from the younger generations. Understanding the workforce’s needs will help PEOs improve employee engagement and retention.

REMOTE AND HYBRID WORK

The COVID-19 pandemic accelerated the adoption of remote and hybrid work. It’s been three years since the pandemic, and remote work is still popular among employees. From virtual onboarding and training programs to digital collaboration platforms, PEOs can play a crucial role in helping businesses navigate the complexities of remote work. Providing innovative solutions for managing distributed global teams effectively could make a PEO indispensable to their clients.

GIG ECONOMY

The gig economy is another workforce shift that needs to be on a PEO’s radar. Statista research projects that 50.9% of the total US workforce will be freelancers in 2027. PEOs can expand their reach and add value to this growing segment of the workforce.

GLOBAL TEAMS

With the world becoming a global market, organizations have employees working from different parts of the globe. Modifying their services to manage international employees, and ensure compliance in various countries can expand a PEO’s scope and help them scale up.

REGULATORY COMPLEXITY

Employment, data privacy, and compliance laws are constantly changing.  PEOs, with their expertise in HR compliance, are well-positioned to help businesses navigate this complex regulatory landscape. Staying ahead of legislative changes and providing tailored compliance solutions is crucial for a PEO’s success.

CYBERSECURITY AND DATA PRIVACY

We live in a digital age where businesses need to modify their processes to comply with data privacy laws. Since PEOs have sensitive HR data, investing in secure technology infrastructure is essential to building trust and maintaining compliance.

SUSTAINABILITY AND SOCIAL RESPONSIBILITY

Sustainability and social responsibility are being embraced by several businesses to play their part in building a better future. PEOs could implement sustainable practices through paperless HR practices, employee well-being initiatives, and contributing to local communities.

CLIENT-CENTRIC OPERATIONS

Most businesses prefer customized solutions, rather than a cookie-cutter approach. Modern PEOs partner with their clients to understand their unique needs and industry trends and offer services that align with their strategic goals.

Effective communication and transparency in pricing are also major factors in strengthening client relationships.

The future of work is fluid and unpredictable. PEOs need to be agile and adaptable, readily responding to evolving regulations, workforce trends, and client needs. Continuous learning and innovation could help us stay ahead of the curve.

As businesses manage the complexities of the modern workplace, PEOs will continue to serve as their trusted partners. Embracing digital transformation, adapting to remote work environments, and fostering a culture of innovation play a major role in the industry’s growth.

Understanding and adapting to these trends is essential to not just survive, but to thrive in an ever-changing landscape. It can also assist us in shaping the future of work and redefining the HR landscape for years to come.

HOW A PEO CAN BENEFIT FROM A SOC EXAMINATION

What is a SOC examination?

A System and Organization Controls (SOC) examination, is an audit of the controls and processes implemented by a service organization to ensure the security, availability, processing integrity, confidentiality, and privacy of the data it processes. These examinations are conducted by independent third-party auditors and are based on standards developed by the American Institute of Certified Public Accountants (AICPA). The results of SOC examinations are provided in a SOC report, which includes an independent opinion report, management’s assertions, a description of the system, testing procedures and the results of the testing.

There are three main types of SOC Examinations, each of which has a different focus:

A SOC 1 examination provides independent assurance about the effectiveness of a service organization’s internal controls relevant to financial reporting. SOC 1 examination reports are typically required by organizations that outsource key business processes to service providers, where those processes impact the financial statements of the client organization. These service providers are often referred to as “service organizations.” Typical industries that obtain SOC 1 Examinations are:
• Payroll processing providers.
• Financial transaction processors.
• Third-party administrators (TPAs).
• Employee benefit plan administrators.
• Data centers and cloud service providers.

A SOC 2 examination assesses a service organization’s controls related to the security, availability, processing integrity, confidentiality, and privacy of information. SOC 2 examination reports are typically by those vendors that handle sensitive information.
Typical industries that obtain SOC 2 Examinations are:
• Software-as-a-Service (SaaS), cloud service, and other technology solution providers.
• Data centers and hosting providers.
• Healthcare organizations
• Payment processors
• Legal and other professional service firms.

Both SOC 1 and SOC 2 examinations may be either a Type I or Type II report. Type I reports on the suitability of design of controls and Type II reports cover the operational effectiveness of controls.

SOC 3 examination provides a summary report that is used to communicate the organization’s commitment to information security and privacy to a broader audience. This type of report is generally used for marketing purposes.

For the purposes of this article, we’ll primarily focus on SOC 1 and SOC 2, due to the highly summarized nature of the SOC 3.

So, now that we’ve covered what SOC examinations are, how can a PEO benefit from undergoing one?

The nature of services a PEO provides involve handling sensitive, personal employee data, and financial data. A SOC examination can benefit a PEO in many ways. A few examples of these benefits are:

Client Assurance:
SOC 1 and SOC 2 examinations provide assurance to clients that the PEO has implemented and maintains effective controls over these processes, ensuring the accuracy and reliability of financial information.

Trust and Credibility:
A SOC 1 examination demonstrates the PEO’s commitment to maintaining strong internal controls, giving them confidence in the security and integrity of the PEO’s services.

Competitive Advantage:
SOC 1 and SOC 2 reports serve as a demonstration of the organization’s commitment to security and reliability, providing a competitive edge over other PEOs.

Risk Mitigation:
SOC examinations are geared toward identifying and assessing potential risks in the PEO’s processes related to financial reporting (SOC 1), and information security practices (SOC 2). By undergoing a SOC 1 examination, the PEO can mitigate the chance of errors, fraud, deficiencies, material weaknesses in internal control, and other issues that could materially impact financial information (SOC 1), and can mitigate the likelihood of data breaches, unauthorized access, and other security incidents (SOC 2).

Compliance Assurance:
A PEO may have attractive prospects in regulated industries that may require assurance that their service providers are in compliance with industry standards. A SOC 1 report provides documented evidence of the PEO’s commitment to and compliance with established controls, and opens doors to opportunities closed to other PEOs without SOC 1 reports.

Compliance Adherence:
For certain industries, SOC 2 compliance aligns with industry best practices and regulatory requirements related to data protection. Meeting these standards can help the PEO avoid legal complications and demonstrate compliance with applicable industry regulations.

Operational Efficiency:
SOC 1 and SOC 2 examinations can reveal opportunities to enhance and optimize its internal controls and processes. This can lead to improved operational efficiency, reduction of soft costs associated with inefficiency, and a reduction the risk of errors.

Client Attraction:
SOC 1 and SOC 2 reports can be a persuasive factor for attracting new clients who prioritize security and reliability in their HR and financial processes.

Enhanced Internal Controls:
The SOC 1 examination serves as a mechanism for the PEO to proactively assess and enhance its internal controls, leading to a more secure and resilient operational environment.

Enhanced Data Security:
SOC 2 examination focuses on information security controls, helping the PEO strengthen its safeguards for sensitive data such as employee information, payroll data, and benefits details.

Enhanced Reputation:
SOC 2 certifications can enhance the reputation of a PEO within the industry. It signals to clients, partners, and stakeholders that the organization places a high priority on maintaining the confidentiality and integrity of sensitive data.

Global Market Access:
SOC 2 certification is globally recognized and can facilitate market access on an international scale. Many clients and partners, especially those in regulated industries, value the assurance provided by SOC 2 examinations.

See below to outline distinctions between SOC 1 and SOC 2 Examinations.

Criteria, SOC 1 Examination 

  • Purpose: Financial reporting controls.
  • Focus: Internal controls over financial reporting.
  • Report Types: Type I (suitability of design) and Type II (operational effectiveness).
  • Trust Service Criteria: No, focuses on financial reporting controls.
  • Audience Accessibility: Typically restricted, shared with specific stakeholders.
  • Level of Detail: Detailed report on controls.
  • Regulatory Compliance: Addresses financial reporting controls.
  • Common Users: Clients, management, external auditors.
  • Global Recognition: Recognized but may be industry-specific.

Criteria, SOC 2 Examination

  • Purpose:  Information security controls.
  • Focus:  Information security controls and practices.
  • Report Types:  Type I (suitability of design) and Type II (operational effectiveness).
  • Trust Service Criteria:  Yes, includes security, availability, processing integrity, confidentiality, and privacy.
  • Audience Accessibility: Typically restricted, shared with clients and partners.
  • Level of Detail:  Detailed report on controls.
  • Regulatory Compliance: Primarily addresses information security controls.
  • Common Users: Clients, business partners, stakeholders.
  • Global Recognition: Globally recognized for information security.

Currently there are no regulatory requirements for a PEO to have a SOC Examination. Obtaining a SOC certification is optional. While this is an optional certification, individual PEOs could experience significant benefits as previously described. The PEO industry, as a whole, would benefit by the quality, credibility, and further legitimization.

AI WITHIN UI

From my vantage point, the infusion of AI into the unemployment sector holds the key to unlocking a multitude of advantages that could revolutionize the efficiency, accuracy, and cost-effectiveness of unemployment insurance operations.