September 21, 2014

Sector Portrait: Professional Employer Organizations

PEO Trends: Consolidation, New Markets

Florida is one of the strongest markets for PEOs, which still see a lot of potential for growth statewide.

| 2/1/2011

Richard McKenzie Jr.
Co-owner - Administrative Concepts / Mckenzie joint venture
Bradenton

Richard McKenzie
In the PEO industry, Richard McKenzie Jr. is an odd combination of user and owner. A longtime citrus harvester in Polk County, McKenzie & Sons finds using a PEO allows it to avoid keeping a human resources director on staff, someone who would have to keep up with the concerns of an agricultural employer with a seasonal staff of up to 200. That could include everything from posting workplace safety rules to handling workers' compensation claims to filing year-end tax forms.

McKenzie bought the 60-year-old business from his father in 1979. Two years ago, he formed a joint venture with Administrative Concepts, the southwest Florida-based professional employer organization that his company uses. "I saw how well it works for me," he says.

McKenzie has helped Administrative Concepts, which had focused on white-collar businesses, tailor its services to the needs of the agriculture industry, from small family-owned farms to conglomerates. The joint venture has potential. Agriculture is Florida's second-largest industry with an estimated payroll of $80 million to $100 million. "Controlling costs is one advantage, but most of us in this industry want to pick up the phone and call someone who is knowledgeable on the latest issues with workers' comp or workplace safety regulations," McKenzie says. "That's the reason for using a PEO."

John Gibson
CEO - AlphaStaff Group
Fort Lauderdale

John Gibson
[Photo: Andrew Duany]
As the economy sputtered, AlphaStaff advanced its vision to become a national player. In January, it bought Selective HR Solutions, the Sarasota-based PEO division of Selective Insurance, adding clients in North Carolina, South Carolina, Maryland, Virginia and Tennessee and giving it a new sales network. "Our national accounts now represent about half our business," says CEO John Gibson.

While most PEOs sell their services directly to businesses, AlphaStaff is the only PEO that distributes its services exclusively through insurance agents, just as Selective had done. The advantage, Gibson says, is a dedicated sales force, while the benefit to the insurance agents is commissions.

Gibson says new federal regulations such as the Hire Act and healthcare reform have made outsourcing HR functions more alluring. Small and medium businesses under intense price and regulatory pressure are leveraging his PEO's expertise and scale to proactively manage HR issues, he says. For example, he notes: "We engaged a company to design a healthcare strategy for our clients in relation to healthcare reform. That's an investment small businesses couldn't make on their own."

The last two years have been especially good for AlphaStaff. The number of worksite employees it manages has doubled to about 70,000, Gibson says, adding, "The acquisition represents only about 20% of that growth."

» Last page: Chart of PEOs in Florida.

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