| 2/1/2011

In the last few years, the industry has seen some trends emerge:

Some PEOs still provide their services solely to customers with blue-collar employees, but more now have a mixed customer base. In 1996, the split nationwide was 80% of PEO customers were blue collar and 20% were white collar; today the split is closer to 50-50, Aaron says.

» The Evolution of PEOs The PEO industry started in earnest about 40 years ago to provide pension benefits to professionals such as physicians and attorneys.

1986 » In 1986, some of these companies went out of business, and rumors started circulating that the employee leasing industry would disappear.

1989-90 » In 1989 and 1990, the industry began to flourish.

1994 » The National Staff Leasing Association changed its name in 1994 to the National Association of Professional Employer Organizations.

1995-99 » The heyday for PEOs was from 1995 to 1999 with explosive growth until the difficult workers' compensation market of 2000 and the economic slowdown of post-9/11.

2004 » In 2004, PEOs made a comeback along with the economy as a whole. Despite the recession, which has brought some consolidation and new players to the marketplace, the industry has about the same number of providers it did in 2000.

The industry has undergone consolidation, particularly in Florida. Bradenton-based Gevity and Sarasota-based Selective HR Solutions both were bought out during the past couple of years. "Bigger players have been swooping up smaller players who grew tired of fighting the fight," says Mark Lettelleir, CEO of Modern Business Associates in St. Petersburg.

In Florida, the PEO industry suffered when clients in construction and hospitality downsized their staffs. Skrob of the Florida PEO association estimates the state has about half the number of PEOs it did 10 years ago. PEOs have maintained revenue growth by bringing on new clients in industries that hadn't previously outsourced HR services. "The recession caused employers to evaluate processes and expenses and where they had eliminated PEOs as options, they now are looking at it with a fresh perspective," Skrob says.

Some industries that use PEOs today include physicians' offices, light manufacturing, mail-order companies, retail stores and restaurants. The bulk of PEO clients fall in the business and professional services industry, according to the national PEO association. "Business-to-business is our best target market," says Brent Tilson, CEO of Tilson HR of Greenwood, Ind., and a board member of the National Association of Professional Employer Organizations.

Market penetration is an estimated at between 5% to 10% nationwide. However, the actual percentage is difficult to quantify because not all businesses are candidates for PEO services.

Florida is one of the strongest markets for PEO services, Tilson says. "I still run into companies that have never heard of a PEO," says Mark Perlberg, CEO of Oasis Outsourcing. "That's a great opportunity for us." However, PEOs in Florida are facing cost pressures from the rise in unemployment insurance prices, healthcare costs and changes to workers' compensation.

As the nation emerges from the recession, the PEO industry plans to capitalize on the increasing regulatory burden for business posed by healthcare reform and the new Hire Act enacted over the last two years.

» Next page: CEO profiles for PEO organizations in Florida