New research shows how partnering with a PEO will be the smartest move for small businesses in 2026.

The way businesses manage people is changing fast. Recently released research from the National Association of Professional Employer Organizations (NAPEO) shows that PEO partnerships are helping business owners scale. It’s smarter, more efficient, and a game-changer for businesses in 2025.

Here’s what the latest data shows.

Businesses that Work with a PEO

Working with a PEO is like having your own full-service HR department, staffed with experts in payroll, benefits, compliance, and HR. They handle it all, allowing business owners to focus on growth.

More than 230,000 small and mid-size companies across the country have already teamed up with a PEO. Based on data from over 50,000 PEO clients nationwide, NAPEO's new study shows that these partnerships are expanding and delivering measurable results.

📌Half of all businesses working with a PEO have between 10 and 49 employees, and another 35% have fewer than 10. That means the vast majority of companies using PEOs are true small businesses that simply need help managing the complexities of HR.

Geographically, PEOs are everywhere, but some states are leading the charge. Florida, California, New York, and Texas together account for more than half of all businesses that work with a PEO. In states like Hawaii, Florida, and Utah, nearly 40–50% of all businesses with 20 to 499 employees already use a PEO.

PEO Benefits for Small Businesses

Where do PEOs deliver the most value? NAPEO researchers identified a clear sweet spot for PEOs - businesses with 20 to 499 employees. Among these, the average PEO penetration rate, meaning the percentage working with a PEO, is 14%, and it’s slightly higher (15%) among businesses with 50 to 99 employees.

Why this group? Once a business passes 20 employees, HR complexity grows exponentially. You’ve got to handle benefits enrollment, payroll taxes, federal, state, and local compliance, and new (and changing) employment laws, all without losing focus on sales or service. PEOs help keep all that manageable.

For smaller businesses, PEOs can bridge the gap between being “too small for a full HR department” and “too big to keep doing it all yourself.” For large and mid-size firms, they bring efficiency, technology, and compliance expertise that’s hard to match in-house.

Industries That Use PEOs

PEOs support every corner of the economy and represent a wide range of industries. That diversity says a lot. Nearly half of PEO clients come from the following industries: Professional, Technical, and Scientific Services, Construction, Healthcare, and Manufacturing. Whether you’re running a construction crew or a tech startup, a PEO can tailor their support to fit the realities of your work.

➡️  ➡️  READ MORE: DIY Payroll: Just Because You Can, Does it Mean You Should?

But some sectors are adopting PEOs even faster. The study shows the highest adoption rates, 27% or higher, among companies in sectors such as Information Technology, Real Estate and Rental Leasing, Professional, Scientific and Technical Services, and Financial and Insurance.

Why these? They’re people-driven and heavily regulated. When talent and compliance are top priorities, having expert HR support becomes a competitive edge.

Here are a few examples:

🚪A real estate firm can streamline commission-based payroll and provide agents with strong health benefits.

🤖A software startup can manage multi-state labor laws as it scales nationally.

🏦A small accounting firm can offer enterprise-level benefits that attract top talent.

Even in growing industries, like healthcare or manufacturing, PEOs are helping businesses stay compliant, efficient, and competitive as labor laws and benefits costs continue to evolve.

Why Businesses Stick with PEOs

Working with a PEO isn’t just convenient – it’s strategic. Years of data confirm the return on investment.

According to NAPEO's latest findings, businesses that partner with PEOs:

💎Grow 7–9% Faster

💎Experience 10–14% Lower Turnover

💎Are 50% Less Likely to Go Out of Business

Here’s why PEO clients thrive:

☑️ Compliance Confidence. PEOs stay on top of changing employment laws so you don’t have to.

☑️Better Benefits. By pooling employees across many small businesses, PEOs can access large-group health insurance rates and better retirement plans that most small firms can’t get on their own.

☑️Time Savings. Outsourcing payroll, onboarding, and benefits administration means leaders can focus on strategy and customer growth.

☑️Employee Satisfaction. When staff have access to better benefits, accurate pay, and HR support, morale and retention improve.

In short, PEOs help small businesses act BIG without sacrificing agility.

PEO Growth Trends in 2025

The 2025 report shows steady growth among smaller clients, especially businesses with fewer than 10 employees. That’s a sign that more entrepreneurs are realizing they don’t have to get big before partnering with a PEO.

Larger PEOs tend to serve clients with 50 to 499 employees, while smaller PEOs often focus on service-based small businesses. This mix means there’s a PEO for every stage of growth, from startups to established companies

Now Is the Time to Work with a PEO

The 2025 NAPEO white paper is the most comprehensive PEO client study ever conducted, and it confirms one thing: PEOs have gone mainstream.

A few key takeaways:

🔹The PEO industry now serves 4.5 million workers nationwide.

🔹Adoption is rising, especially in high-growth states like Utah and Florida.

🔹Small businesses are joining at a faster rate than ever before.

🔹The advantages, such as compliance, employee benefits, and time/money savings, hold steady across all industries.

PEOs aren’t a niche solution anymore. They’re a proven growth partner for America’s small and mid-size businesses.

Ready to Find Out What a PEO Can Do for You?

Working with a PEO isn’t about outsourcing, it’s about upgrading how you manage HR It’s about investing in smarter growth, happier employees, and peace of mind. In a business world that’s only getting more complex, that’s a benefit worth having on your side.

If you have a small to mid-sized business, a PEO can lighten your workload and strengthen your business. Imagine focusing on growth while experts handle payroll, taxes, compliance, benefits and HR.

That’s the PEO difference.

Thousands of successful businesses are already doing it — and the data proves it works.

📥  Download the complete 2025 NAPEO white paper: PEO Clients: Who They Are, Where They Are, and What They Do, by Laurie Bassi and Dan McMurrer, McBassi & Company, October 2025, HERE

More Guidance & Helpful Resources

🔶The Changing Workplace Business Series

Today’s workplace is undergoing a full transformation, but we're here to help you make sense of it all.

Check out our new business series, The Changing Workplace, where we tackle important topics impacting your workplace, such as 🔸What's Next for DEI, 🔸Navigating the Flexible Work Era, and 🔸Mental Health and the Workplace

⚕️Employee Benefits Series

As healthcare costs continue to rise, employees want - and expect -benefits that reflect their values and needs. So, before you renew or make changes to your employee benefits program, check out the following:

▶️ 2025 Benefits Benchmark Report. This webinar offers clear, actionable insights based on one of the most comprehensive studies in the country.  Learn how national and regional trends are reshaping benefits, how your benefits compare to the competition, and where you may be overspending. Watch the 2025 Benefits Benchmark Report ▶️ HERE 

🔷 How to Build an Effective Employee Benefits Package. Get control of rising costs while offering benefits employees will actually use. Follow these strategies to build a budget-friendly benefits program.

🔷 The ROI of Employee Benefits. By viewing employee benefits as a strategic investment rather than an operational expense, employers can unlock measurable returns in terms of retention, productivity, and employee satisfaction.

🔷 Are Your Benefits Keeping Up? If you're grappling with talent shortages, turnover, or rising costs, it’s time to take a closer look at your employee benefits program. Find out how it compares and learn how to future-proof your offerings for the next generation of workers.

About Propel HR. Propel HR is an IRS-certified PEO that has been a leading provider of human resources and payroll solutions for 25 years. Propel partners with small to mid-sized businesses to manage payroll, employee benefits, compliance, and risks, and other HR functions in a way that maximizes efficiency and reduces costs. For more information, visit propelhr.com