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New Data Reveals Who’s Partnering with a PEO — and Why It Matters
Businesses that partner with a Professional Employer Organization (PEO) grow faster, retain employees longer, and are significantly less likely to fail — and new data from NAPEO and McBassi & Company shows the trend is accelerating. PEO adoption is rising among small and mid-sized businesses who are turning to co-employment to solve HR complexity and compete for talent.
A new white paper from the National Association of Professional Employer Organizations (NAPEO) and McBassi & Company is shining a bright light on who’s using Professional Employer Organizations (PEOs) in 2025 — and what that means for small and mid-sized businesses nationwide.
The report, “PEO Clients: Who They Are, Where They Are, and What They Do,” offers the most comprehensive look yet at the industries, company sizes, and states driving PEO growth.
Small Businesses Are Leading the Charge
According to the report, there are now more than 230,000 PEO clients across the U.S., and the overwhelming majority are small businesses.
Nearly two-thirds of all clients have fewer than 50 employees, and more than one-third employ fewer than ten people.
That’s a clear signal that PEOs — once thought to cater mainly to mid-sized firms — have become a go-to solution for even the smallest employers looking to streamline HR, payroll, and compliance.
The study also shows a steady concentration among businesses with 20 to 49 employees.
This group represents a sweet spot where companies are large enough to feel the weight of HR responsibilities but small enough that outsourcing those functions can offer meaningful relief.
Where PEOs Are Thriving
PEO clients aren’t evenly spread across industries or regions.
Nearly half operate in just four sectors: professional and technical services, construction, healthcare, and manufacturing.
These are industries where regulatory complexity and administrative overhead often hit hardest — making the PEO model particularly appealing.
Geographically, the client base is concentrated as well.
Florida, California, New York, and Texas together account for more than half of all PEO clients.
Florida leads the pack, representing roughly 18 percent of the total, followed by California at 16 percent.
This strong regional presence highlights where the PEO market has gained the most traction, often in states with dense populations of small businesses and complex employment regulations.
PEO Adoption Rates Keep Climbing
Among companies with 20 to 499 employees, the overall PEO adoption rate is estimated at 14 percent — a figure that underscores how normalized PEO partnerships have become.
But adoption isn’t uniform.
In industries like Information, Real Estate, and Professional Services, roughly one in three companies of that size already work with a PEO.
States such as Hawaii, Florida, and Utah are leading adoption rates, with as many as half of all eligible firms using PEO services.
For business owners, these numbers send a clear message: if you’re not yet exploring PEO options, your peers probably are.
Why This Matters for Employers
The growing popularity of PEOs reflects broader changes in how businesses approach their workforce strategy.
As regulations tighten and benefits costs rise, more owners are recognizing that a PEO partnership can bring enterprise-level HR capabilities without the enterprise-level overhead.
For smaller employers, that can mean more time to focus on growth and less on compliance.
For mid-sized firms, it can mean enhanced employee benefits and risk management — the kinds of advantages that once required a full-scale HR department.
The latest NAPEO report confirms what many in the industry already suspected: PEOs are no longer a niche solution.
They’re an established, mainstream partner for small and mid-sized businesses navigating today’s complex employment landscape.
The Bottom Line
The takeaway from NAPEO’s 2025 white paper is simple.
Whether you’re running a five-person startup or a growing firm of fifty, the PEO model has proven its value across industries and states alike.
The data makes it clear that more businesses are choosing to outsource HR and compliance to stay agile, efficient, and focused on what they do best — growing their companies.
As the report shows, PEO clients may vary in size and sector, but they share one common goal: simplifying the business of being an employer.
If you’re ready to grow faster, protect your business, and give your people more, Payday HR can help.
Schedule a consultation today to see what growth looks like with the right HR partner.
Still need to know more before talking to us?
View our Buyer’s Guide for more information about how PEO partnerships work — and how to choose the right one for your business.
Related reading: PEO Partnerships Drive Growth, Reduce Risk, and Boost Business Success | How to Calculate the Real ROI of a PEO
Frequently Asked Questions
According to research from NAPEO and McBassi & Company, PEO adoption is growing rapidly among small and mid-sized businesses. The data shows PEO clients outperform non-PEO businesses across key metrics — including revenue growth, employee retention, and business survival rates — reinforcing the strategic value of co-employment partnerships.
PEOs are most commonly adopted by small and mid-sized businesses with 5 to 500 employees, particularly in industries with complex HR and compliance needs such as healthcare, construction, hospitality, and professional services. Business owners who want to focus on growth rather than HR administration are the most likely PEO clients.
Businesses are choosing PEOs over in-house HR management primarily to reduce costs, access better employee benefits, improve compliance, and transfer employment-related risks. A PEO provides the infrastructure of a large HR department without the overhead of building one — making it especially attractive for growing businesses that have outpaced their current HR capabilities.
