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PEOs turning out to be "recession-proof" business model

PEOs may indeed be turning out to be a virtually recession-proof business model. A prominent association of Professional Employer Organizations credits the soundness of its $68 billion industry to an economy that is forcing more small businesses to outsource services to save money.

“The most essential thing for businesses to drive revenue is for the owner to get back into the core of how his business makes money,” said Milan P. Yager, executive vice president of the National Association of Professional Employer Organizations. “To do that the business is outsourcing its back office functions to PEOs.”

PEOs are taking on more clients who are outsourcing human resources, payroll, employee benefits and workers’ compensation.

However, Yager says the PEO industry is not growing as quickly because many clients have fewer employees.

“A lot of PEOs have reported an increase in sales, but the industry is not growing nearly as fast because the sales that we’re having have fewer employees,” Yager said.

But some, such as Bradenton-based PEO Administrative Concepts are staying in a break-even scenario rather than seeing growth.

George Bushong, chairman of the Four Corners of Excellence, which is the holding company for Administrative Concepts, said the company has gained $100 million in new business over the past year, but in return has lost about $100 million in business among existing clients who have downsized or closed.

“We are staying dead even,” Bushong said of Administrative Concepts, which has generated an estimated $300 million annually in payroll the past two years.

“We’ve always grown at 15 to 20 percent a year,” Bushong said. “We have not grown an inch in this economy. But believe me we are tickled with that. If someone would have told me we would stay even for two years, I would have thought ‘Woah, that’s a disaster.’ And, quite frankly, it’s not.”

But some PEOs like TriNet Services, a California-based company that acquired Gevity HR in Lakewood Ranch this year, are expanding services due to growth.

Recently, TriNet announced the addition of seven services for small businesses after seeing its customer base increase by 40 percent this year.

Some of the new products are reflective of services companies are most likely to outsource in this economy. They include employee development, career transitions, time and attendance, and human capital audit.

“Small business leaders have learned that the best strategy to navigate a turbulent economy is to devote their finite resources to what they do best and outsource the rest,” said Burton M. Goldfield, president and chief executive officer of TriNet. “These products give them a customized HR solution that will boost their productivity and profitability.”

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