Changes in the Professional Employer Organization field

We bring our readers some news about recent developments in the field of PEOs.

As you may know, PEOs providing employer of record services have popped up all over the world in recent years. Working remotely is more relevant than ever after the Covid-19 pandemic made it the new standard. Companies employing white-collar talent have found that the entire globe is essentially their labor pool. Young IT professionals are highly flexible and mobile, some of them turning to a digital nomad lifestyle. However establishing LLCs everywhere to employ talent locally is an outdated way of working, hence the PEOs.

There has been a large amount of investments poured into PEO companies. In 2019 McBassi & Co estimated that the users of EOR services get a return of investment of 27,2 % on average, which means somewhere between 1,500 - 2,000 USD saved per employee hired via a PEO. The savings are large, and so were also the high margins asked by PEO firms and consequently the capital investments put into them.

Now the PEO field is undergoing somewhat of a consolidation and a second phase of development. In general PEO companies currently can be divided into a few different sectors:

1. The large, technologically focused PEOs that have developed their own sophisticated platforms for managing talent and work practically in every country;

2. The PEOs offering a full range of services including recruitment, HR, branding et cetera (sometimes called Business Process Outsourcing);

3. PEOs that are smaller, usually focused on delivering excellent quality in a specific geographical region or even a single country.

The fees asked by the different types of PEO firms range from 300-600 USD per person per month for the 1st category, around 1000 USD or higher for the second, and between 100-300 USD for the third.

Recent trends show that newcomers to the market are taking over market share from the global players. The reasons are usually because of service quality. The global PEOs subcontract much of their services which may not always lead to the best results. In some cases the large players overextended while expanding rapidly, trying to take on too many countries at once and not controlling the process well enough. The high fees asked by them are also a pain point for some in the current economic situation.

As it sometimes happens in business, first-mover advantage does not always guarantee success in the long term. Newcomers to the market are able to learn from what their predecessors did well and what mistakes they made. At Talentheads we expect that the demand for local expertise in EOR services will continue to grow, and that is exactly what we deliver.