How are PEOs Changing in the Face of Disruptive Technology?

By Alex Frommeyer Jun 26, 2018 No Comments

A few weeks ago, I was excited to get the opportunity to attend the PrismHR Live 2018, the largest technology conference in the PEO industry. A PEO is a professional employer organization, which is a company to where other businesses can outsource a variety of employee services. The most common include payroll services, employee benefits, worker’s compensation, and other human resources tasks. One of the things that make PEOs so interesting is how complex they are; the definition of a PEO, for both legal and practical purposes, is very broad, which allows many different types of organizations to exist under the same banner, while having wildly differently cost structures and product offerings.

One company that ties many PEOs together is PrismHR. PrismHR is a technology company that provides software PEOs use to manage their many worksite employees, which typically exist across dozens or hundreds of employers. They offer a suite of tools and deep integrations with other partnering vendors. PrismHR Live is a conference that allows many PEOs from across the country to get exposure to the PrismHR software system, but also many of the vendor partners offering services industry wide.

From my perspective, PrismHR Live offered me a chance to learn more about the industry, and specific players within it, all in the span of a few days. The Professional Employer Organization space is a relatively small industry, with only 700 total PEOs, and most of those PEOs have 1,000-2,500 total worksite employees. Because of their size, these organizations have always been attuned to the value of technology in their businesses and are often early adopters to systems and products that exist in this vein. PEOs were first popularized partially because of the strain that typical employers felt trying to provide all the HR functions that a company needs in a competent way. PEOs used their size, aggregate buying power, and efficiency ethos to really shape the way services could be delivered in payroll, corporate training, and services of its kind.

As an industry born from technological disruption (in this case of traditional in-house corporate HR departments), on observation from my time at PrismHR Live is that PEOs are more prepared than one might assume at first glance for coming waves of technological disruption in the HR, benefits, payroll, and administration space. PrismHR itself is certainly already braced for that future, doubling its investments in new and compelling services, and deepening the bench of integration partners that are compatible with Prism’s systems. As opposed to looking strictly for opportunities to automate operations like many traditional business models in this era, the Professional Employer Organization market as a whole is much more incentivized to seek innovation in products and plans. Why? Differentiated products and service plan offerings set up a unique value proposition that effectively sell and keep a PEO relevant for a business owner for a longer period of time. If an owner can just buy the same thing for the same price outside of the PEO, which is the value the PEO is bringing to the table? A ~30 year track record shows that PEOs are used to this pressure, meaning that disruption and change are actually quite welcome dynamics from their perspective.

In short, PEOs are well positioned to create unique value for small and medium sized employers in the near term. As companies continue to feel margin pressure and the squeeze of regulation, shifting consumer taste and spending habits, and restricted liquidity in both equity and debt markets, a PEO can serve to take headaches off the table and even increase operating margins and serve as a value add. Classically, PEOs have suffered from some reputational problems since most business owners don’t deeply understand the PEO set up, which is a recipe for missed expectations. The industry can definitely benefit from better education and exposure, and PrismHR is definitely doing its part with the Live conference. I look forward to attending many more in the future!

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Alex Frommeyer

Author Alex Frommeyer

CEO, Beam Dental

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