How many companies use a PEO?

NAPEO’s 187 member PEOs serve more than 230,000 small and mid-sized businesses in the United States, employing a combined 4.5 million workers and generating $372 billion in revenue, according to NAPEO’s October 2025 research. More than 500 PEOs operate in the US in total, with industry-wide revenue estimated at approximately $414 billion. That NAPEO member figure represents roughly 15% of all US employers with 10 to 499 employees. The PEO industry has grown at a compound annual rate of approximately 7.5% since 2008, making it one of the fastest-growing segments of the HR services market.

PEO adoption isn’t evenly distributed. Certain states, industries, and company sizes adopt PEOs at significantly higher rates than others. Florida alone accounts for 25% of all PEO clients in the country. Companies in professional services, healthcare, construction, and manufacturing make up nearly half of all PEO users. And the sweet spot for PEO adoption is businesses with 10 to 49 employees, which represent 50% of all PEO clients.

This guide covers the latest verified data on PEO adoption rates, which industries and states lead in PEO usage, what size companies benefit most from PEO partnerships, and why PEO usage continues to grow.

More than 230,000 US businesses currently partner with a PEO, up from approximately 208,000 in 2022 and 175,000 in 2021, according to data published by the National Association of Professional Employer Organizations (NAPEO). These businesses collectively employ 4.5 million workers through PEO arrangements. The total employment created by the PEO industry is roughly the same as the combined number of employees at the four largest private employers in the United States.

There are more than 500 PEOs operating in the United States. NAPEO, the industry’s trade association, has 187 PEO members that account for more than 90% of the industry’s revenue. NAPEO members generated $372 billion in revenue as of the October 2025 release, with total industry revenue estimated at approximately $414 billion.

The roughly 30% increase from 2021 to 2025 reflects sustained demand from small businesses looking for compliance support, better employee benefits access, and payroll management without the overhead of building an in-house HR department.

Approximately 15% of all US employers with 10 to 499 employees use a PEO, according to NAPEO’s 2025 research. Among businesses with 20 to 499 employees specifically, the penetration rate is 14%. The penetration rate is slightly higher (15%) among businesses with 50 to 99 employees, which is the segment where HR complexity tends to outgrow what a small internal team can manage. Note that these penetration rates use different employee-size denominators depending on the business segment measured.

Penetration varies dramatically by state. In Hawaii, Florida, and Utah, the PEO penetration rate among businesses with 20 to 499 employees reaches 38% to 50%. In contrast, states with less established PEO markets see rates below 5%. The national average sits around 14%, which means the industry still has substantial room to grow in most of the country.

Penetration also varies by industry. NAPEO’s 2025 research shows the highest adoption rates (27% or higher) among companies in Information (publishing, telecom, software, and data processing), real estate and rental leasing, professional and technical services, and financial services and insurance. These industries are people-driven and heavily regulated, which makes expert HR support a competitive advantage rather than a discretionary expense.

Half of all PEO clients have between 10 and 49 employees, and another 35% have fewer than 10 employees, according to NAPEO’s 2025 client analysis. This means 85% of all businesses using PEOs are companies with fewer than 50 people. This 50% figure represents a shift from NAPEO’s 2022 data, which showed about 65% of clients in the 10-49 range, driven by faster growth in clients with fewer than 10 employees. The remaining 15% includes mid-sized companies with 50 to 499 employees and a small percentage of larger organizations.

The pattern is clear. PEOs are primarily a small business solution. Once a company crosses the 50-employee threshold, the economics of building an internal HR function start to compete with PEO pricing. Above 100 employees, most companies either have an in-house HR team or are evaluating whether to bring HR operations internal.

That said, the 2025 data shows growing adoption among smaller businesses with fewer than 10 employees, a segment that was historically underrepresented in PEO usage. This shift suggests more startups and early-stage companies are recognizing PEOs as a way to offer competitive benefits and stay compliant without hiring dedicated HR staff.

The value proposition shifts by company size. Smaller companies (under 25 employees) typically gain the most from workers’ comp pricing and the convenience of a single bill covering all employer-related liabilities. Mid-sized companies (25 to 99 employees) value the HR services and compliance expertise, especially if they don’t have a formal HR department. Larger companies (100+ employees) are usually seeking access to competitive health insurance or supplemental HR expertise without making capital investments in HRIS systems. Larger PEOs tend to serve clients with 50 to 499 employees, while smaller PEOs often focus on service-based small businesses.

Professional, scientific, and technical services is the industry with the largest share of PEO clients, followed closely by healthcare and social assistance, construction, and manufacturing, according to NAPEO’s 2025 data. Together, these four industries account for nearly half of all PEO clients in the United States.

Beyond total share, some industries are adopting PEOs at significantly higher rates than others. NAPEO’s 2025 research shows PEO penetration rates of 27% or higher among companies in Information (publishing, telecom, software, and data processing), real estate and rental leasing, professional and technical services, and financial services and insurance. A real estate firm can use a PEO to handle commission-based payroll and provide agents with strong health benefits. A software startup can rely on a PEO to manage multi-state labor laws as it scales nationally. A small accounting firm can offer enterprise-level benefits through a PEO to attract and retain top talent.

The common thread across high-adoption industries is that they’re people-driven, heavily regulated, or both. When talent acquisition and compliance are top priorities, outsourcing HR administration to a PEO becomes a competitive advantage rather than just a cost-saving measure.

Florida has the highest concentration of PEO clients in the country, accounting for 25% of all US businesses using PEO services, followed by Texas at 13%, California at 11%, and New York at 10%, according to NAPEO’s 2025 data. Together, these four states account for roughly 59% of all PEO clients nationwide.

Florida’s dominance in PEO adoption isn’t accidental. The state was an early center for the PEO industry’s development, and its large population of small businesses in industries like professional services, construction, and healthcare creates strong demand for co-employment solutions. NAPEO’s 2025 research also highlights Hawaii, Florida, and Utah as having the highest per-capita PEO penetration rates in the country, with PEO adoption in these states significantly exceeding the national average of 14%. The 2025 data also shows a slightly flatter geographic distribution than 2022, meaning PEO adoption is spreading more evenly across states as the industry matures.

PEO usage is growing because small businesses increasingly need access to enterprise-level employee benefits, regulatory compliance support, and payroll administration without the cost of building a full in-house HR department. The data consistently shows that PEO partnerships produce measurable business outcomes (PEO ROI) that justify the cost.

According to NAPEO’s 2024 economic analysis conducted by McBassi & Company, businesses that use a PEO have a growth rate more than two times higher than comparable non-PEO businesses, experience 12% lower employee turnover, and are 50% less likely to go out of business. These findings are based on a comparison of PEO clients and non-clients from January 2023 to January 2024.

NAPEO’s 2019 ROI study (by McBassi & Company, based on 2018 data) estimated the ROI of using a PEO at a cost savings of 27.2%. For every $1,000 spent on PEO services, an average client saves $1,272, yielding a net cost-savings benefit of $272 for every $1,000 spent. Cost savings come from five HR-related areas: HR personnel costs, health benefits, workers’ compensation, unemployment insurance, and other external HR expenditures.

For small businesses specifically, PEOs solve three problems simultaneously. First, they pool employees across hundreds of client companies to negotiate group health insurance rates that individual small businesses can’t access on their own. For companies with 10 to 49 employees, 52% of PEO users offer a retirement plan compared to just 23% of non-PEO companies in the same size range, according to NAPEO data. Most organizations add retirement plans, health benefits, and life insurance when they begin working with a PEO. Second, PEOs handle payroll tax filing, workers’ compensation, and employment law compliance, which reduces the risk of costly errors and penalties. Third, PEOs free up the business owner’s time to focus on revenue-generating activities instead of HR administration.

The pandemic reinforced PEO value during economic disruption. NAPEO’s 2021 white paper on PEOs and the COVID-19 economy found that while comparable companies saw a 6% employment decline from early 2020 to mid-2021, PEO clients had employment grow by 1% during the same period. The rate of employment growth over the six-month period measured was 81% higher for PEO clients than for comparable non-PEO businesses.

As companies grow, administrative and executive work volume increases, creating growing pains that can halt development if not addressed. PEOs help small businesses overcome five specific growth challenges.

• Time and resource constraints: When a business expands, there are more emails, tasks, and resource requests. Departments need additional technologies and employees. PEOs absorb the HR workload so leaders can focus on core activities and growth opportunities instead of supporting overburdened HR teams.

• Employee morale and retention: Growth places pressure on staff and systems. Workloads increase and the workplace can feel more hectic. PEOs provide better benefits, accurate payroll, and HR support that improve morale and retention. NAPEO’s 2024 white paper shows that companies using PEO services experience employee turnover rates that are 12% lower than comparable non-PEO businesses.

• Risk and compliance complexity: Growing workforces mean more employment law obligations, safety concerns, and workers’ compensation requirements. PEOs administer ACA and COBRA benefits, supply mandatory workplace posters and safety training resources, advise on wrongful termination and discrimination claims, assist with OSHA reporting and compliance, and offer safety program recommendations with dedicated safety teams.

• Recruitment demands: Small businesses rarely have dedicated recruiting teams or digital onboarding processes. PEOs provide applicant tracking, automated onboarding, and the employee experience infrastructure needed to compete for talent.

• Attracting investors and capital: Using a PEO can demonstrate a growth mindset to investors and financiers. Sustainable growth requires repeatable business processes, and PEOs have these in place. They also offer reporting tools for payroll and workforce data that provide reliable information during funding applications.

NAPEO’s 187 member PEOs generated $372 billion in revenue as of the October 2025 release, with total industry revenue estimated at approximately $414 billion across more than 500 PEOs operating nationwide. The five largest PEOs account for an estimated 39% of the industry’s 4.5 million worksite employees. The next 25 largest firms account for an additional 19%. The remaining PEOs collectively represent about 42% of total worksite employees.

Globally, the PEO market was valued at approximately $66.23 billion in 2024 and is projected to grow to $170.8 billion by 2033, according to Straits Research, representing a compound annual growth rate of 11.10%. The US accounts for the majority of the global PEO market, though international adoption is accelerating as more countries develop co-employment regulatory frameworks.

The PEO industry has grown at a compound annual rate of approximately 7.5% from 2008 to 2022, according to NAPEO’s 2023 Industry Footprint paper, outpacing overall US employment growth by roughly 7% annually during the same period. PEO worksite employees earned $305 billion in 2022 alone. The industry’s sustained growth reflects increasing demand for HR outsourcing among small and mid-sized businesses facing growing regulatory complexity.

PEOs are a primarily US-based co-employment model, while employers of record (EORs) are used for international hiring where the company doesn’t have a local entity. The two serve different purposes, though both handle HR, payroll, and compliance on behalf of the client company.

All PEO types require the client to have its own legal entity in the US. The PEO becomes a co-employer, sharing employment responsibilities with the client. EORs become the sole legal employer, which means the client doesn’t need an entity in the hiring country at all. The US PEO market is far more mature (NAPEO members alone generate $372 billion in revenue), while the global EOR market is much smaller and newer, though growing rapidly as international hiring accelerates.

For US-based companies, a PEO makes sense for domestic employees, where you already have a legal entity. An EOR makes sense when you’re hiring in countries where you don’t have an entity. Some companies use both: a PEO for their US workforce and an EOR for international hires.

No. A common misconception about the PEO relationship is that the client loses control of their company. In a PEO arrangement, you contractually separate the administrative duties from the operational duties. For regulatory purposes, the PEO is the administrative employer and the client company is the workplace employer. The PEO handles payroll, tax filings, benefits administration, and compliance. You retain full control over hiring, firing, job assignments, and day-to-day management of your workforce.

The co-employment relationship is a partnership, not a takeover. You remain the PEO’s customer and can terminate the relationship at any time, typically with 30 to 90 days’ notice depending on the contract. From your employees’ perspective, working with a PEO doesn’t change their day-to-day work life. Most employees appreciate the improved benefits, and PEOs assist with explaining the changes and additional service offerings available.

Approximately 4.5 million workers in the United States are employed through PEO arrangements, according to NAPEO. That total is roughly equivalent to the combined workforce of the four largest private employers in the country. The worksite employees employed by PEOs earned $305 billion in 2022.

There are more than 500 PEOs operating in the United States, according to NAPEO’s industry overview. NAPEO’s 187 PEO members account for more than 90% of the industry’s revenue. The five largest PEOs control approximately 39% of all worksite employees.

Approximately 15% of all US employers with 10 to 499 employees use a PEO, with the highest penetration rate (15%) among businesses with 50 to 99 employees. Among the smallest businesses (fewer than 10 employees), PEO adoption is lower but growing. NAPEO’s 2025 data shows that 35% of all PEO clients now have fewer than 10 employees, indicating the industry is making inroads with startups and micro-businesses.

PEOs are growing, with the number of businesses using PEO services increasing from approximately 175,000 in 2021 to more than 230,000 in 2025, according to NAPEO. The industry has grown at a compound annual rate of approximately 7.5% from 2008 to 2022 (NAPEO 2023 Industry Footprint), outpacing overall US employment growth by roughly 7% annually. The global PEO market is projected to reach $170.8 billion by 2033.

Yes, but PEOs are primarily used by small and mid-sized businesses. Companies with 100 to 499 employees account for roughly 6% of all PEO clients. Larger companies tend to build in-house HR teams rather than use co-employment arrangements. The PEO model delivers the most value for businesses with 10 to 99 employees that need HR infrastructure but can’t justify the PEO cost of a dedicated HR department.

The average PEO client has between 20 and 50 employees, though 85% of all PEO clients have fewer than 50 employees. Half of all PEO clients fall in the 10 to 49 employee range, which is the segment where PEO benefits are strongest relative to the cost.

PEOs pool employees from hundreds of client companies to negotiate large-group benefits that individual small businesses can’t access on their own. Through a PEO, small businesses can offer 401(k) retirement plans, health insurance (medical, dental, and vision), life insurance, dependent care assistance, and educational incentives at rates typically reserved for much larger employers. NAPEO data shows that most organizations add retirement plans, health benefits, and life insurance when they begin working with a PEO.