Although demand for PEOs is expected to increase as the economy recovers and the Affordable Care Act is implemented, prices are expected to continue only slightly rising due to wide availability of substitutes.
Los Angeles, CA (PRWEB) April 22, 2014
Professional employer organization (PEO) services have a buyer power score of 4.0 out of 5, reflecting favorable pricing trends, positive market structure and low market risk. “This higher score indicates that buyers will have significant leverage in negotiating lower prices and package deals where additional features or products are included,” according to IBISWorld procurement analyst Andrew Yang.
Substitutes for PEO services are widely available. Companies can perform employee management tasks in-house by hiring human resources personnel. They can also use administrative service outsourcing, meaning the tasks are still outsourced but employment does not change from the buyer. “The existence of these substitutes is favorable because they enable buyers to negotiate lower prices by comparing the price of PEO services with substitute prices,” says Yang. Market share concentration is also fairly low due to the customization of the product and low barriers to entry.
Recent pricing trends have been favorable for buyers as few businesses have been created and the unemployment rate remains somewhat high. As the economy improves, however, new businesses are expected to be created and the unemployment rate is expected to fall. In addition, the implementation of the Affordable Care Act will increase the complexity and cost of providing employees with insurance. As a result, demand for PEOs is expected to increase significantly. Nevertheless, prices are expected to be stable due to the wide availability of substitutes. However, buyers can still negotiate cost savings by asking for unbundled rates where prices for individual services are separated. Buyers can then choose just the services they require.
Market risks are fairly low for buyers because most PEOs are financially stable and do not have high risks for bankruptcy. Supply chain risks are also fairly low because they are not dependent on any critical inputs that can disrupt the delivery of PEO services. Price volatility has also been low, indicating that buyers do not have to worry about price shocks. These market risks provide security for buyers expecting to form long-term relationships with PEO service providers. Major suppliers include Insperity Inc., Automatic Data Processing Inc., Paychex Inc. and Oasis Outsourcing Holdings Inc.
For more information, visit IBISWorld’s Professional Employer Organization Services procurement category market research report page.
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IBISWorld Procurement Report Key Topics
This report is intended to help buyers of professional employer organization (PEO) services. Companies use PEOs to outsource employee management responsibilities, helping to cut down costs and complexity. PEOs form a co-employment relationship with their clients where the PEO becomes the legal employer of the client’s employees and assumes various functions for the company. PEOs manage and administer four main functions: payroll, workers compensation, employee benefits and human resources.
Recent Price Trend
Product Life Cycle
Total Cost of Ownership
Supply Chain & Vendors
Supply Chain Dynamics
Supply Chain Risk
Market Share Concentration
Buying Lead Time
Key RFP Elements
Buyer Power Factors
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IBISWorld is one of the world's leading publishers of business intelligence, specializing in Industry research and Procurement research. Since 1971, IBISWorld has provided thoroughly researched, accurate and current business information. With an extensive online portfolio, valued for its depth and scope, IBISWorld’s procurement research reports equip clients with the insight necessary to make better purchasing decisions, faster. Headquartered in Los Angeles, IBISWorld Procurement serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.