INDUSTRY PROFILE

Professional Employer
Organizations
8.8.2016
NAICS CODES: 56133
SIC CODES: 7363

Industry Overview
Companies in this industry provide outsourced human resources (HR) management services to client
businesses. Major companies include Automatic Data Processing (ADP), Insperity, and Paychex, all of which are
based in the US.
Operations similar to the businesses known as professional employer organizations (PEOs) in the US can be
found under different names in other countries. In Germany and Sweden, for example, companies that operate
similarly to PEOs are typically called "employee leasing" or "pass through" agencies. The UK has "umbrella"
companies that act as the employer of record for independent businesses.
The US PEO industry includes about 4,100 establishments (single-location companies and units of multi-location
companies) with combined annual revenue of about $100 billion.
Unlike other providers of outsourced human resources services, PEOs serve as co-employers of their clients'
employees. Personnel staffing agencies, which include temporary help and executive search services as well as
PEOs, are covered in a separate industry profile.

Competitive Landscape
Demand is driven by corporate spending and job growth. The profitability of individual companies depends on
good marketing and efficient use of information technology. Large companies enjoy economies of scale in
marketing and back-office operations. Small companies can compete successfully by specializing in an industry
or a job function. The US industry is concentrated: the 50 largest companies generate about 55% of industry
revenue.

Products, Operations & Technology

Services provided by PEOs include payroll processing, benefits administration, workers' compensation,
unemployment claims management, insurance sourcing, and risk management.
Payroll services involve collecting employee information such as wages, hours worked, deductions, and other
compensation-related data, and processing it to generate employee paychecks and tax filings on behalf of
employers. In addition to legal services and pensions, payroll is one of the most commonly outsourced HR
functions. Outsourcing can provide companies a cost-efficient means of completing routine tasks.
A typical customer account is supervised by senior staff and executed by a team of junior professionals and
support staff. In some cases a project team can include hundreds of individuals and require complex
coordination. HR services companies provide services that require special expertise, such as knowledge of
complex accounting rules and health care benefits.
PEOs and other human resources outsourcing (HRO) firms take on HR functions in addition to payroll
services. They handle benefits administration tasks: coordinating the benefits plan, overseeing health
insurance coverage for employees, and monitoring the daily functioning of the employer's investment and
retirement programs. Workers' compensation programs provide compensation and insurance coverage for
workers injured on the job.
PEOs take on responsibility for filing employment-related taxes on behalf of a client in addition to other HR
functions. PEOs partner with their clients to manage risks, compliance issues, and costs associated with human
resource activities so that the client can reduce employment-related risks and focus on core business activities.

As the employer of record for the client's workers, PEOs are liable for all payments and payroll taxes.
Technology
HR services firms depend highly on IT to collect, process, and report customer data. The largest companies
have proprietary software and systems that have been developed in-house, but most buy packages from a
handful of third-party developers that specialize in payroll services and benefits administration software. Online
payroll services, which allow companies to enter data directly through Software as a Service (SaaS), are an
increasing percentage of payroll services functions.
Because PEOs handle massive amounts of personal information, data security and privacy are top concerns.
Companies invest in technologies designed to protect, monitor, and asses their network environments. They also
use numerous hosting facilities as a hedge against disaster bringing down operations at any one site.

Sales & Marketing

Major end-use customers include businesses from a wide range of industries. HR outsourcing occurs mostly
among small to midsize firms, since they often lack the resources to provide such functions in-house. A typical
PEO client has about 20 worksite employees. But larger businesses increasingly are adopting the PEO model,
according to the National Association of Professional Employer Organizations. Between 2 million and 3 million
Americans are co-employed in a PEO arrangement.
Marketing involves direct sales presentations, referrals from existing clients, advertising, public relations,
telemarketing, and trade shows. Companies compete not only with one another, but also with the existing internal
HR operations of their potential customers. PEOs also compete with software sold by various vendors. Because
HR services involve employee-related processes and data of a sensitive nature, providers' reputation and
credibility are important.
PEO providers price on either a fixed fee model or on a percentage of gross payroll. Fixed fee models are based
on a client's total gross payroll, and may be advantageous for businesses where salary increases and bonuses
are common. Pricing models based on a percentage of gross payroll range from 2% to 15% of the total
payroll, depending on the number of services required and the industry. PEO services also charge an initial setup
fee ranging from $1,000 to $5,000 before the provider becomes a co-employer. Providers may grant volume
discounts for large companies, and may also bundle services for clients with greater needs.

Finance & Regulation

For many benefits outsourcing companies, demand is greater in the first and fourth quarters due to benefit
enrollment processes that occur during the latter half of the year. PEOs must manage a high cash flow and
may maintain high cash balances because they funnel payroll payments from employers. They invest
periodically in computer systems, and large firms may lease substantial amounts of office space.

Working Capital Turnover by Company Size

The working capital turnover ratio, also known as working capital to sales, is a measure of
how efficiently a company uses its capital to generate sales. Companies should be
compared to others in their industry.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents
financial performance of over 4.5 million privately held businesses and detailed industry financial benchmarks of
companies in over 900 industries (SIC and NAICS). More data available at www.microbilt.com.

Regulation
PEOs are regulated by the US Department of Labor and by state regulatory bodies. Laws that may impact the
firms include the Internal Revenue Code, the Federal Income Contribution Act, and the Federal Unemployment
Tax Act, and similar state laws. PEOs are considered co-employers along with the client, but the PEO is
responsible for employee wages, taxes, and benefits.

International Insights
Operations similar to the businesses known as professional employer organizations (PEOs) in the US can be
found under different names in other countries. In Germany and Sweden, for example, companies that operate
similarly to PEOs are typically called "employee leasing" or "pass through" agencies. The UK has "umbrella"
companies that act as the employer of record for independent businesses.
To serve multinational employers, some companies offer global employee leasing services. However,
benefits, rules, and regulations vary by country.
PEOs of all sizes face competition from other business process outsourcing (BPO) companies, some of which
offer broad ranges of services beyond the HR field. India is quickly emerging as a prime destination for HR
outsourcing, due to the abundance of low-cost English-speaking labor there.

Regional Highlights
In the US, HR services firms tend to be concentrated in populous states with large numbers of businesses.
California, Florida, New York, and Texas report the most sales from PEOs.

Human Resources
Wages for PEOs in the US are moderately lower than the national average. Due to the back-office nature of HR
outsourcing functions, the injury rate for PEOs is about 25% lower than the national average.
Industry Employment Growth
Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase

Bureau of Labor Statistics

Industry Growth Rating

Demand: Tied to business activity and job growth
Need sources of qualified labor and good marketing
Risk: Declines in job creation and competition from Internet job sites

Call Prep Questions

Conversation Starters
What is the outlook for overall employment growth in the company's main markets?
PEO revenue depends in part on the number of jobs that require HR administration, which in turn depends on
economic growth.
How does the company keep up with changes in tax codes and regulations?
Changes in tax codes and reporting regulations require frequent updates to payroll services software and
systems to ensure correct calculation and tracking of employer and employee data.
What are some advantages and disadvantages of having a handful of large customers?
Small HR services firms may depend heavily on a few big customers for a large portion of revenue.
What proportion of the firm's work comes from government clients?
Government agencies are increasingly contracting out HR management functions to HR services firms.
To what degree can the firm serve clients with operations outside the US?
There is a growing need for HR services providers that can offer services to global organizations.
What is the prime market segment for the firm?
Mid-market companies with revenues between $10 million and $100 million make up a prime market for HR
services firms.

Quarterly Industry Update

Which segments of the company's customer base are showing the strongest growth?
Against a backdrop of a 6.5% growth projection for all US occupations between 2014 and 2024, 16 occupations
are expected to lead the nations employment gains.

Operations, Products, and Facilities

What types of services does the company offer in addition to its main product?
HR services functions include payroll services, benefits administration, and workers' compensation
management.
How many accounts can the firm handle at one time?
HR services companies can reapply their expertise to multiple customers.
What new technologies look most promising to the company?
The largest companies have proprietary software and systems that have been developed in-house, but most buy

packages from a handful of third-party developers that specialize in payroll services and benefits administration
software.

Customers, Marketing, Pricing, Competition

How concentrated are the firm's services toward one industry?
Industry specialization is common, but many HR services firms are broadening their practice to include more
disciplines.
How much of the firm's revenue comes from its largest customers?
Many small HR services firms get a large percentage of revenue from a few customers.
How important are the firm's long-term relationships with customers?
Large HR services firms frequently have long-term relationships with corporate or government customers.
How much of the firm's business comes from referrals?
HR services firms rely on referrals because the reputation and credibility of a service provider is important,
given the sensitive nature of the work.
What is the firm's process to bid on a project?
For public deals, HR services firms are often invited to bid on a project in competition with other firms through a
request for proposal (RFP).

Regulations, R&D, Imports and Exports

How does the company ensure adherence to federal and state regulations and customer privacy
policies?
Federal and state regulations aim to ensure that PEOs provide the benefits they promise to workers.
What co-employment policies does the company have in place?
PEOs are often considered co-employers along with the client, but the PEO is responsible for employee wages,
taxes, and benefits.
Which regulatory agencies have the most impact on the company's operations?
HR services companies are regulated by the US Department of Labor (DOL), the Securities and Exchange
Commission (SEC), and by state regulatory bodies.

Organization and Management

Is the firm organized as a partnership? If so, how many partners?
Many HR services firms are organized as partnerships and attract new professional staff by offering the
possibility of becoming a partner.
What type of management structure does the firm have?
Large firms typically have a CEO and other senior managers.
If the company operates several offices, how autonomously are they managed?
Many larger firms are collections of independent offices that cooperate on accounts as needed.

Financial Analysis
What fee structure does the company use?
PEOs generally price on either a fixed fee model or on a percentage of payroll; some have adopted hybrid
models.
How does the company plan for seasonal dips in cash flow?
Demand is typically greater in the first and fourth quarters.

Business and Technology Strategies

How does the firm plan to compete against larger firms with a broader line of services?
Payroll services firms can compete successfully with larger ASO/HRO/PEOs by offering special expertise.
What computer systems does the firm use to track expenses, billings, and contracts?
Office management software and systems are important for efficient operations, even in small firms.
What communication technology does the firm use?
Many HR services firms have big investments in computer and communications technology because a large
amount of work is usually done outside the home office.

Quarterly Industry Update

8.8.2016
Opportunity: Double-Digit Increases in Job Growth Expected for Several Occupations - Against a
backdrop of a 6.5% growth projection for all US occupations between 2014 and 2024, 16 occupations are
expected to lead the nations employment gains. Occupations that are on track to log double-digit increases in job
growth, a demand indicator for the professional employer services industry, are concentrated in health care,
information technology, construction, food services, and accounting, according to the US Department of Labor.
Health care jobs account for nearly half of the growth occupations. As boomers age and the elderly population
swells, demand is rising for workers trained as home health aides, personal care aides, medical assistants,
medical secretaries, nursing assistants, licensed practical nurses, licensed vocational nurses, and registered
nurses. An increased focus on cloud computing, cybersecurity, mobile networks, and software development is
fueling demand for IT professionals.
Industry Impact - Professional employer organizations that specialize in serving health care and IT clients should
anticipate volume increases for several years as job growth soars by double digits in these sectors.

5.9.2016
Opportunity: Tech Firms Dig Deeper for Top Talent - Demand for skilled workers in the technology industry is
driving salaries higher and helping 20 tech firms dominate Glassdoors most recent list of the 25 top-paying US
companies. Corporate spending, a demand indicator for PEOs, is most apparent at Google, Facebook, and
Twitter, which each have median annual compensation of at least $150,000, according to the online career sites
study. Juniper Networks, a networking equipment maker, ranked as the top-paying tech firm, with $157,000 in
median yearly compensation. Companies like Juniper, Guidewire, and Cadence Design Systems are offering
unprecedented salaries to wrestle highly skilled workers away from competitors. Payment processor Visa and a
few consulting firms, including A.T. Kearney and PricewaterhouseCoopers, were the only non-tech companies to
make the list. Glassdoor measured user-provided base salaries as well as commissions and bonuses. The uptick
in pay among tech companies bodes well for PEOs, many of which focus on a fixed fee model thats based on a
client's total gross payroll.
Industry Impact - Professional employer organizations serving technology companies through fixed fee model
agreements should anticipate rising revenue in the near future as competition for skilled talent spurs
unprecedented compensation.

2.1.2016
Opportunity: Small Companies Fuel Job Growth for PEOs - Companies like Paychex, which provides payroll
services to small and midsize companies, are benefiting from recent job growth among small companies and,
indirectly, from a rise in consumer spending. Once lagging behind their bigger brethren in hiring post-recession,
small companies are now adding staff to meet rising demand. According to Moodys Analytics, hiring at small
firms has outpaced that of larger firms for the past 19 months. Paychexs Human Resource Services revenue
climbed 11% to $283.9 million in second quarter 2016. The company attributes the double-digit jump to boosting
user numbers, adding full-service options such as assisting clients with health care reform, and offering a suite
of payment-processing products, a cloud accounting system, and a minimum-premium health-insurance plan. Job
growth, a demand indicator for professional employer organizations, has been more pronounced among small
businesses, mostly because their profitability tends to be tied to consumer spending. Small businesses that
serve certain sectors, including health care, construction, and services, have recovered more quickly from the
last recession than others.
Industry Impact - Professional employer organizations that serve small companies should expect client demand
to rise as companies recover more fully from the recession and add more employees.

10.26.2015
Trend: HR Apps Grow in Popularity - Growth in software as a service (SaaS) across the industry and a rise in
the number in HR-specific application vendors entering the market are changing HR tech strategies for 2016,
according to HR Dive. SaaS is expected to be the preferred delivery method for a variety of HR applications
such as payroll, benefits, recruiting, training, and analytics. New HR software vendors are also offering
cloud-based applications to better compete with more established companies like ADP, Oracle, and SAP. HR
administration is looking to free up resources by providing these self-service apps. By 2020, millennials are
expected to account for nearly half of the global workforce, according to ADP, and companies are looking for
efficient mobile and social platforms to support these digital natives throughout hiring and onboarding. More PEOs
are also making plans to replace mobile versions of their systems with mobile apps to improve navigation,
functionality, and aesthetics for clients. Companies that provide human resources management are using data
analytics, as well, to uncover workforce trends to refine recruitment and compensation strategies.

Industry Impact - PEOs with a well-executed tech strategy that includes SaaS, mobile apps, and data analytics
will more successfully serve the future millennial-heavy workforce.

Industry Indicators
US corporate profits, an indicator of corporate demand for human resources services, fell 4.9% in the second
quarter of 2016 compared to the same period in 2015.
US personal income, a measure of overall employment trends, rose 3.3% in July 2016 compared to the same
month in 2015.
Total US revenue for employment services rose 9.6% in the second quarter of 2016 compared to the previous
year.

Industry Forecast
Revenue (in current dollars) for US employment services is forecast to grow at an annual compounded rate of
5% between 2016 and 2020. Data Published: September 2016

First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic
Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the
economy captures the links between industries and the aggregate economy. Forecast FAQs

Companies
Company

Country

Sales
United States

$11,667.80M

England

$7,170.22M

Paychex, Inc.

United States

$2,951.90M

Trinet Group, Inc.

United States

$2,659.29M

INSPERITY, INC.

United States

$2,603.61M

Maximus, Inc.

United States

$2,099.82M

BARRETT BUSINESS SERVICES, INC.

United States

$740.84M

CERIDIAN LLC

United States

$615.91M

FIRST ADVANTAGE CORPORATION

United States

$581.25M

AUTOMATIC DATA PROCESSING, INC.

CAPITA PLC

England

$440.01M

WAGEWORKS, INC.

United States

$334.32M

Matrix Absence Management, Inc.

United States

$297.21M

France

$229.68M

United States

$191.75M

Germany

$185.43M

ADP TOTALSOURCE GROUP, INC.

United States

$142.27M

SUREPAYROLL, INC.

United States

$100.00M

Pro Unlimited, Inc.

United States

$93.18M

Sourcenet Solutions, Inc.

United States

$80.47M

Staff One, Inc.

United States

$72.51M

MEDICAL MANAGEMENT CONSULTANTS, INC.

United States

$71.47M

Hr America Inc

United States

$61.00M

FORTUNE INDUSTRIES, INC.

United States

$60.89M

Weichert Workforce Mobility Inc.

United States

$55.86M

Sdi International Corp.

United States

$49.42M

NORTHGATEARINSO, INC.

United States

$44.74M

RESOURCE SOLUTIONS LIMITED

ADP EUROPE
Accord Human Resources, Inc.
AMADEUS FIRE AG

Industry Drivers
Changes in the economic environment that may positively or negatively affect industry growth.
Data provided by First Research analysts and reviewed annually

Technology Innovation Advances in science and technology, including information technology

Government Regulations Changes in federal, state, or local government regulations or businessrelated policies

Critical Issues
Revenue Depends on Employment Growth - PEO revenue depends in part on the number of jobs that require
HR administration, which in turn depends on economic growth. During economic slowdowns, the volume of work
contracted falls due to personnel cuts and to client efforts to reduce spending on outsourced services. In years
of good economic growth, the number of jobs in the US economy grows 1% to 2% per year. PEOs that can win
more business during tough times on the basis of cost savings can offset lower volumes.
Changing Tax Code, Regulatory Issues - Changes in tax codes and reporting regulations require frequent
updates to payroll services software and systems to ensure correct calculation and tracking of employer and
employee data. These updates can be complex and require substantial work for service providers to maintain
compliance. The compliance challenge increases as payroll services companies expand into 401(k)s, health
savings accounts, and other cafeteria-style benefit offerings. Since many payroll service providers buy
software from third-party developers, they often depend on outside vendors to keep their systems up-to-date.

Business Challenges
Dependence on Large Customers - Small HR services firms may depend heavily on a few big customers for
a large portion of revenue. Large customers may lead to increased revenues, but also exposes PEOs to higher
risks. When major accounts experience financial hardships and large-scale layoffs, PEOs stand to lose a large
chunk of revenue.
Increasing Security Concerns - Payroll services companies handle sensitive information, such as corporate
and employee identification, bank account numbers, and salary data. Over the past few years, as more
information is transmitted online, clients have become increasingly concerned about data security for both their
company and its employees. Payroll services companies have raised the level of network and internal security
in recent years, but security issues continue to be at the forefront.
Dependence on Key Employees - Small and midsized HR services firms may depend heavily on a few senior
employees to produce a large share of revenue. Professionals with a well-known expertise often take clients with
them when they leave a firm. Many smaller firms rely on just a few managers to find new business.
Reliance on Brand and Reputation - Name recognition and reputation are important in HR outsourcing, given
the sensitive nature of the work at hand. Just as a good reputation can help a company acquire new business,
damage to reputation can result in the loss of existing and potential clients, and hurt employee recruitment and
retention. Any damage to a firm's reputation can be very costly to repair, given that a firm's brand can be worth
as much as its tangible assets.
Increased Work and Wage Disputes - More American workers are filing lawsuits claiming they have been
cheated out of pay. Factors behind the spike in claims could include the improving economy, ambiguous laws,
misclassification of employees, and heightened awareness of employee rights. Defending such lawsuits could
lead to rising administrative costs for PEOs. Companies that are subject to employment-related legal claims
typically carry liability insurance to cover any losses. However, a significant increase in claims or an inability to
collect from clients that violate such laws could impact PEOs' margins.

Business Trends
Growth Prospects - HR outsourcing is a growing segment of the business process outsourcing (BPO) industry,
which itself is seeing rising demand. The BPO industry is expected to continue growing as employers look to cut
costs and reduce overhead. Automation of certain HR functions is seen as a way to increase productivity.
Industry Consolidation - Consolidation is driven mainly by the desire among large consultancies to provide a
wider variety of service offerings, including HR administration functions. Such firms may expand their offerings
by acquiring HR services firms that operate in promising markets and have existing customer bases.
Expanded Service Offerings - Many HR services companies are expanding their offerings to include additional
HR tasks, such as recruiting, new employee sign-on, orientation, and training. These natural service extensions
provide HR services firms with significant revenue opportunities from existing customers. Some companies
develop their own offerings while others resell those of third-party providers.

Industry Opportunities
Government Outsourcing - Government agencies are increasingly contracting out HR management functions
to HR services firms. Pervasive budget cuts among government agencies across the country are predicted to
increase demand for HR outsourcing, which can save governments money. Because of the risks that come
along with contracting out functions involving sensitive government information, public clients place more
emphasis on the reputation and experience of an HR services company.
Global Solutions - There is a growing need for HR services providers that can offer services to global
organizations. Only larger HR services companies will most likely have the scale and capabilities needed to
satisfy the needs of global customers with multiple locations and business units across the world. There may be
great demand for firms that can drive cost reductions and higher productivity on a global scale.
Mid-Sized Customers - Mid-market companies with revenues between $10 million and $100 million make up a
prime market for HR services firms. Off-the-shelf solutions at affordable price points are most popular among
mid-sized firms. HR services companies, both small and large, may be capable of providing such solutions for
this rapidly expanding market.

Health Coverage Mandates - HR services firms have launched new products to help clients navigate changes
to the US health care system. Helping employers solve problems related to health care reform holds significant
growth potential for PEOs. As more provisions of the Affordable Care Act take effect, businesses of all sizes are
reconsidering their options with regard to health coverage for employees.

Executive Insight
Chief Executive Officer - CEO
Establishing Client Relationships
Large contracts to provide personnel services of any type normally require executive-to-executive contact. The
company procuring the service needs to be assured that in the event of any issue - payment liabilities, payroll
errors, claims problems, etc. - resolution is just one phone call away. HR services executives need to be
available to resolve small issues quickly to retain and expand business.
Broadening Payroll Services
When payroll services firms introduce additional professional offerings, becoming HROs or PEOs, they can elicit
more business from their existing customer base. Licensing rules limit formal cross-industry expansion in many
cases, however, particularly with regard to the accounting and legal services professions. Often expansion can
be accomplished via alliances or other affiliations. Potential conflicts of interest are a concern.

Chief Financial Officer - CFO

Increased Responsibility of PEOs
Because the IRS considers a PEO the employer of record for its clients, it is liable for all payments and payroll
taxes. The increased responsibility borne by PEOs requires strict attention to financial record keeping.
Maintaining Cash Flow and Liquidity
A strong balance sheet, cash flows, and liquidity allow PEOs to pursue acquisition opportunities while investing in
core businesses with strong growth prospects. Executing on the most promising business strategies will require a
healthy financial position even in a weak economic environment.

Chief Information Officer - CIO

Securing Employee Personal Information
In processing payroll and benefits data, HR services firms must handle employees' personal data and other
confidential information. Safeguarding information is part of building trust between clients, employees, and HR
services providers. Information technology and processes must be kept up-to-date to maintain data security.
Providing Automated Support Systems
HR services firms use automation systems to support their professionals and increase productivity. Many firms
contract for online access to tax codes, employment law, and Code of Federal Regulations (CFR) libraries to
allow fast data searches. They also provide search access to news and publication databases.

Human Resources - HR
Training Skilled Employees
Professional employees require ongoing training to keep current. Lawyers and accountants require updates on
changes in the law and regulations. Database and systems administrators require training in the state-of-the-art
information technology to ensure cutting edge systems. The firm's training department must set up training for
each professional and assure that workloads permit attendance.
Retaining Key Personnel
Job growth in the HR services sector is expected to steadily increase in coming years, which will make
recruitment and retention important issues. Once firms attract skilled employees, retention is important due to
perceived difficulties in attracting replacements. Thus, compensation packages are designed and updated often
to make HR services firms attractive places to work.

VP Sales/Marketing - Sales
Selling Expertise
More customers want to see an HR services provider's track record, and evidence of actionable results such as
cost reductions and other measures of value. Marketing to such demanding customers requires communicating
the company's deep expertise in the customer's respective field, and the immediate impact of its services.
HR Outsourcing as a Strategic Tool

The most common reason that businesses cite for outsourcing HR functions is to reduce overhead. However,
businesses want their staff to concentrate on core competencies as well. HR servicing companies can
emphasize the time freed up for HR leaders to focus on vital areas rather than on transactions. This shift of
attention can transform a company's HR department from day-to-day transaction management to long-term
strategic management, providing value to the company.

Executive Conversation Starters

Chief Executive Officer - CEO
What action plans are in place in case of pressing customer issues?
HR services executives need to be available to resolve small issues quickly to retain and expand business.
What are some risks of payroll services firms becoming multidisciplinary?
Potential conflict of interest is a concern for payroll services firms expanding into additional offerings.

Chief Financial Officer - CFO

How does the company ensure that it maintains all necessary employment records?
The increased responsibility borne by PEOs requires strict attention to financial record keeping.
To what degree is cash flow and liquidity important for the company?
A strong balance sheet, cash flows, and liquidity allow PEOs to pursue acquisition opportunities while investing in
core businesses with strong growth prospects.

Chief Information Officer - CIO

What safeguards does the firm have in place to protect confidential data?
Safeguarding information is part of building trust between clients, employees, and HR services providers.
To what degree does the firm utilize automated systems?
HR servicing firms use automation systems to support their professionals and increase productivity.

Human Resources - HR
What continuing education and training does the company offer employees?
Professional employees require ongoing training to keep current.
What importance does the firm place on talent acquisition versus retention?
Job growth in the HR services sector is expected to steadily increase in coming years, which will make
recruitment and retention important issues.

VP Sales/Marketing - Sales
How has the company's typical customer changed over the years?
Marketing to demanding customers requires communicating the company's deep expertise in the customer's
respective field.
What other ways can the company improve its customers' HR departments, apart from reducing costs?
PEOs can emphasize the time freed up for HR leaders to focus on vital areas rather than on transactions.

Financial Information
COMPANY BENCHMARK TRENDS

Quick Ratio by Company Size

The quick ratio, also known as the acid test ratio, measures a company's ability to meet short-term obligations
with liquid assets. The higher the ratio, the better; a number below 1 signals financial distress. Use the quick ratio
to determine if companies in an industry are typically able to pay off their current liabilities.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over
4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More
data available at www.microbilt.com.

Current Liabilities to Net Worth by Company Size

The ratio of current liabilities to net worth, also called current liabilities to equity, indicates the amount due
creditors within a year as a percentage of stockholders' equity in a company. A high ratio (above 80 percent) can
indicate trouble.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over
4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More
data available at www.microbilt.com.

COMPANY BENCHMARK INFORMATION

NAICS: 56133
Data Period: 2015

Last Update September 2016

Table Data Format

Mean

Company Size
Size by Revenue

All

Large

Medium

Small

Over $50M

$5M - $50M

Under $5M

2091

46

2041

100%

100%

100%

100%

100.0%

100.0%

100.0%

100.0%

Officer Compensation

1.5%

0.5%

0.8%

2.3%

Advertising & Sales

0.5%

0.5%

0.5%

0.5%

Other Operating Expenses

97.0%

98.1%

97.9%

95.8%

Operating Expenses

98.9%

99.1%

99.2%

98.6%

Operating Income

1.1%

0.9%

0.8%

1.4%

Net Income

0.5%

0.4%

0.4%

0.6%

Cash

28.2%

23.1%

26.6%

30.6%

Accounts Receivable

29.9%

34.5%

35.9%

25.8%

0.0%

0.1%

0.0%

0.0%

79.4%

79.0%

81.0%

78.9%

2.1%

1.7%

1.8%

2.4%

18.5%

19.3%

17.2%

18.8%

100.0%

100.0%

100.0%

100.0%

6.9%

8.0%

7.6%

6.2%

Total Current Liabilities

49.6%

50.3%

49.6%

49.4%

Total Long Term Liabilities

10.4%

8.1%

8.4%

12.1%

Net Worth

40.0%

41.7%

42.1%

38.5%

Company Count

Income Statement
Net Sales
Gross Margin

Balance Sheet

Inventory
Total Current Assets
Property, Plant & Equipment
Other Non-Current Assets
Total Assets
Accounts Payable

Financial Ratios
(Click on any ratio for comprehensive definitions)
Quick Ratio

1.22

1.18

1.31

1.20

Current Ratio

1.60

1.57

1.64

1.59

124.2%

120.7%

117.9%

128.4%

x1,649.05

x628.57

x1,651.84

x4,863.75

Total Debt to Net Worth

x1.50

x1.40

x1.38

x1.60

Fixed Assets to Net Worth

x0.05

x0.04

x0.04

x0.06

Days Accounts Receivable

26

22

28

27

Inventory Turnover

x0.00

x0.00

x0.00

x0.00

Total Assets to Sales

22.8%

16.6%

20.7%

27.4%

Working Capital to Sales

6.8%

4.8%

6.5%

8.1%

Accounts Payable to Sales

1.6%

1.4%

1.6%

1.8%

Current Liabilities to Net Worth

Current Liabilities to Inventory

Pre-Tax Return on Sales

0.8%

0.7%

0.6%

0.9%

Pre-Tax Return on Assets

3.4%

4.1%

3.1%

3.4%

Pre-Tax Return on Net Worth

8.5%

9.9%

7.3%

8.8%

Interest Coverage

x2.95

x3.00

x3.28

x2.88

EBITDA to Sales

1.9%

1.8%

1.6%

2.1%

Capital Expenditures to Sales

0.5%

0.7%

0.6%

0.4%

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over
4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More
data available at www.microbilt.com.

ECONOMIC STATISTICS AND INFORMATION

Change in Producer Prices - Bureau of Labor Statistics

VALUATION MULTIPLES
Professional Employer Organizations
Acquisition multiples below are calculated using at least 4 US private, middle-market (valued at less than $1 billion)
industry asset transactions completed between 8/2010 and 11/2014. Data updated annually. Last updated:
November 2015.

Valuation Multiple
Median Value

MVIC/Net Sales

MVIC/Gross Profit
1.5

MVIC/EBIT

1.6

MVIC/EBITDA
3.8

3.6

MVIC (Market Value of Invested Capital) = Also known as the selling price, the MVIC is the total consideration
paid to the seller and includes any cash, notes and/or securities that were used as a form of payment plus any
interest-bearing liabilities assumed by the buyer.
Net Sales = Annual Gross Sales, net of returns and discounts allowed, if any.
Gross Profit = Net Sales - Cost of Goods Sold
EBIT = Operating Profit
EBITDA = Operating Profit + Noncash Charges

SOURCE: Pratt's Stats, 2014 (Portland, OR: Business Valuation Resources, LLC). Used with permission. Pratt's Stats is available at
http://www.bvresources.com/prattsstats

Industry Websites
AccountingWEB
Industry news, links, services.
ADP Research Institute
Industry news from a leading provider.
Chartered Institute of Personnel and Development (CIPD)
Europe's largest HR and development professional body.
Employee Benefit Adviser
News and information for HR and benefits decision makers.
HR Dive
Industry news.
Human Resources
Latest trends in HR outsourcing.
National Association of Professional Employer Organizations
Industry news.
Paychex HR Resources
White papers, regulatory updates, demos, calculators, and articles from a top provider.

Glossary of Acronyms
ARO - Administrative services outsourcing
BPO - Business process outsourcing
CFR - Code of Federal Regulations
HRO - Human resources outsourcing
PEO - Professional employer organization
SaaS - Software as a Service