NAPEO Study Reveals the True Size and Scope of the PEO Industry

A white paper from the National Association of Professional Employer Organizations (NAPEO) estimates that the PEO industry generates between $136 and $156 billion in gross revenue, serving up to 3.4 million employees across 180,000 businesses.

These numbers include client payroll and service fees and represent the most accurate snapshot of the PEO market. Until this report, most data sources either undercounted or misclassified PEOs—making it difficult to measure their true economic footprint. This new analysis corrects that using verified, manually reviewed data.

How the Report Was Built

To produce reliable estimates, the report draws from five high-quality data sources and applies manual corrections to filter out misclassifications:

• NAPEO membership records
• 2014 FROS (Financial Ratio & Operating Statistics) Survey
• Hoovers/Dun & Bradstreet business listings
• ESAC-accredited data on wages and employee counts
• State administrative databases from Florida, Indiana, New York, Oklahoma, and Texas

The report also corrects two significant issues in public data: the mislabeling of worksite employees as internal employees, and the inclusion of unrelated companies (like staffing firms or IT providers) that do not offer true PEO services.

Industry Growth Over Time

PEOs have been growing steadily for decades. According to the report, the industry has added an average of 100,000 worksite employees and 6,000 client companies each year for the past 30 years.

This growth is fueled by two key forces:

• A rising demand for outsourced HR among small businesses
• Increasing complexity in employment law and compliance, especially after the Affordable Care Act (ACA)

Over time, these trends have positioned PEOs not just as a service provider, but as a strategic partner in helping businesses scale safely and efficiently.

PEOs Across the Nation

NAPEO's study found that PEOs operate across all 50 states and serve various industries. The study also looked at the state-by-state distribution of PEOs and worksite wages, assigning wages based on the location of the PEO (not the client). PEOs headquartered in key states like Texas or California may serve companies nationwide.

The report compared local records with federal data and applied scaling factors to account for firms not captured in national databases. This approach revealed that the number of PEOs in many states was underreported by as much as 66%.

PEO Industry Diversity

The report also provides a first look at ownership diversity within the industry. It found that 15% of PEOs are women-owned, and just 5% are minority-owned—both well below national averages for all U.S. businesses.

This disparity points to a potential area of focus for the industry as it matures—ensuring that ownership reflects the diversity of the clients and employees it serves.

Why This Report Matters

The findings confirm what many in the industry already suspected: PEOs are a major player in the U.S. business ecosystem. Despite employing fewer than 30,000 internal staff, they support operations for millions of employees—more than the size of entire industries like agriculture, information, or federal government employment.

Beyond scale, the report reinforces the value PEOs provide. Previous research has shown that businesses that work with a PEO:

• Grow faster
• Are less likely to fail
• Have lower employee turnover

When combined with the scale of the industry outlined in this report, the conclusion is clear: PEOs are not just an administrative service—they are a foundational element of growth and resilience for small and mid-sized businesses.

Final Takeaways

This report gives business leaders and policymakers a more accurate view of the PEO industry’s economic role. With billions in revenue, millions of supported employees, and decades of steady growth, the industry is far more than a niche.

It’s an essential engine for small business success.