HR We Have A Problem: Hallway Truths from NAPEO 2026: The Real State of PEOs

[00:00:01] [SPEAKER_00] Welcome to the HR Huddle Podcast presented by Sapient Insights Group, the ultimate resource for all things HR. It's time to get in the huddle.

[00:00:22] [SPEAKER_01] Hey everyone, welcome to a very special episode of HR We Have A Problem. I'm Cliff Stevenson. I know normally I would be in the studio, mic'd up, all the equipment, we have a special guest, but we've been playing with the format a little bit. And we want to try something a little different. And honestly, I kind of like it. We may pursue this, so let me know if this is something you'd like to see more of or more in this style.

[00:00:51] [SPEAKER_01] But what was going on is I just went to the NAPEO Conference. That's the National Association of Professional Employer Organizations in Marco Island, Florida, which clearly I am not at now. I am actually at OC Tanner's Influence Greatness event. One of the reasons why we're sort of mixing up the format is because of all the travel that happens during the season.

[00:01:22] [SPEAKER_01] But let me talk to you a little bit. But let me talk to you a little bit about NAPEO because that's what this episode is going to focus on. So, first of all, PEO was probably where we should start. Because if you're not familiar, Professional Employer Organization is basically an outsourcing company, right?

[00:01:46] [SPEAKER_01] It's almost always small to medium-sized businesses, but not exclusively. That allows you to outsource all the heavy lifting depending on the PO of payroll, benefits, compliance through what's called a co-employment relationship.

[00:02:06] [SPEAKER_01] So, for a lot of small businesses, it really makes a lot of sense, right? Because you could spend a whole lot of hours. You may not have the expertise in-house of understanding these very complicated relationships, doing things like benefits, administration, and renewal, and all that.

[00:02:25] [SPEAKER_01] But that was my experience when I worked at a small business, about 100 people. Shout out to JCSI and all my RPOs out there. And that is what we did for other organizations. But also, I was the head of HR for our organization. And a lot of my time, honestly, was spent doing paperwork and not really helping drive the business, which is what you should be doing at that level, right?

[00:02:52] [SPEAKER_01] At larger businesses, there may be the opportunity to have specialized people. That's not always the case. But anyway, that's the idea. And for us at Sapient Insights Group, we had been tracking lightly, I will say, POs. That is part of our annual ATAR system surveys asking about the usage of POs and where people are finding value in it.

[00:03:15] [SPEAKER_01] And we've been seeing that usage go up. As I mentioned, it isn't just really small businesses anymore, although that is still the primary user of these services. So we wanted to really dig deep. And in this year's survey, we expanded the number of questions we ask around PO and other types of outsourcing arrangements. We are doing more analysis. We're devoting a larger section of the report that comes out of that survey to POs.

[00:03:43] [SPEAKER_01] So this was super interesting. I have been wanting to go to one of these types of events to find out more. And NAPEO is the biggest one. So what we were going down there for, and it was about a two and a half hour trip from where I live in Central Florida. So we wanted to go down and talk to these businesses going on.

[00:04:09] [SPEAKER_01] So in this episode, we're going to hear from a number of conversations strung together. Rather than one sort of in-depth, on-topic, or with one particular expert in the field, we're going to be hearing from a number of different people. All right. So there's a few kind of like themes though, even still, even though it was sort of unstructured in the sense that I wanted to get sort of the, what's really happening?

[00:04:38] [SPEAKER_01] You know, how is this really impacting organizations? We love our data here at Sapient Insights Group, but we need to know what that means. You know, if we're saying that a larger percentage of companies are using them, what are they actually seeing? What are the problems they're dealing with? So we talked about that. And it was pretty interesting to find that there was a few things that keep kind of kept coming up, regardless of sort of who we were talking to.

[00:05:02] [SPEAKER_01] Right. And there seems to be this sort of critical moment that happens for a lot of organizations. And you'll, you'll hear it in these conversations where you just can't keep doing HR with just in-house tools and limited expertise in just one area. Or maybe you just have sort of a general understanding, or maybe at a small business, HR really isn't in your field. Right.

[00:05:26] [SPEAKER_01] So you get this sort of tipping point or like, you know, this sort of buildup and you find yourself, I know for me, trying to track down literally, you know, I-9 forms or individual pieces of paper. And you're like, wait, this is ridiculous. You know, I need to have, you know, bookkeeper. I need someone that runs payroll and all this other stuff. We can't afford to do that. Right. So maybe we build someone out.

[00:05:48] [SPEAKER_01] So you can, you start to kind of have just basically dropped balls on, you know, but we wanted to see what was going on. And that seemed to be a common occurrence, both from talking to solution providers when what they're hearing from their customers or directly from customers themselves.

[00:06:08] [SPEAKER_01] And the other thing is that I mentioned in an earlier LinkedIn post from going to Prism HR's event, they're another large PO provider that the services they're providing are normally things you would see for large businesses. You'll hear that kind of come up in a number of these conversations like, wow, this is really something you'd only think of for enterprise clients, which we say, you know, is 5,000 up, but you know, you get the idea of a large business.

[00:06:35] [SPEAKER_01] And we're talking about having global access in the case of Prism or access to specialized benefits, things of that nature that normally are just like not really offered at the small business space. So really interesting to do that.

[00:06:54] [SPEAKER_01] And the other thing that probably isn't too surprising, because I do think this is a case across HR tech is really getting a good handle on what is the value prop for these services. So before it was kind of, okay, you're almost like had to do it, right? But now it's like there's technology or there's services involved to help you understand that this is saving you this much money versus what it costs you to use these services.

[00:07:21] [SPEAKER_01] I talked to Alex Campos. I don't believe one of the interviews here, but I'll be talking to him more on a future episode going in depth of that. And he ends up Prism and, you know, he's talking about almost working himself out of customers sometimes, right? Because you've got them to a place where they're able to handle that complexity through internal teams. So how do you keep providing value for them?

[00:07:45] [SPEAKER_01] Maybe by finding services or, you know, specialized tech that can help them. So really pretty fascinating. And overall, this event was pretty cool because this is very much a whole term or a metaphor, whatever you want to call it, that kept coming up as, you know, a rising tide lifts all boats, right?

[00:08:13] [SPEAKER_01] Meaning that like when things are going well for the PO industry, it happens to help all POs, right? Or anyone with this, right? We want small business to thrive. No one saw it as competition. In fact, what should have been competing companies would instead say, look, that's not something we can do. We don't work with, you know, maybe educational institutions. That's someone else. Let me push you over to them or certain geographies or whatever the case may be.

[00:08:39] [SPEAKER_01] It was just really cool to see the sense of camaraderie and everyone working together that I think is anyone that works in small business is going to understand, right? It's very much you're the smaller fish and there's big fish out there and you got to work together to do that. So like I said, these are going to be hallway conversations. You know, I was asking people, hey, do you have a few minutes to go through that? But we're going to kind of have this in its role form.

[00:09:08] [SPEAKER_01] We want to kind of get into this idea of within our survey, we ask what we call quantitative data questions, you know, yes or no, rated on a number point scale. But we also have asked qualitative questions and we get more and more responses every year where we just say, what do you like about this particular piece of technology or what's working? What are some gaps that you're seeing? Describe that to us. What's not working? You know, so this is what we kind of wanted to capture with these conversations.

[00:09:37] [SPEAKER_01] Just tell us in your own words, what's happening? What is, if you're a provider of a service or technology, what's working? What do you hear from people? What are you seeing out there? I, you know, just let us hear it. And because I do think that those conversations are just as valuable as being able to say, you know, here are trends over time from the data. So, you know, that is the idea here. Let us know what you think in the comments.

[00:10:06] [SPEAKER_01] If you are listening to this on a podcast, wherever you can leave comments, you can also email me directly, cliff at sapientinsights.com. If you are seeing this on YouTube or one of the video platforms or LinkedIn, feel free to leave a comment. Give us your thoughts. We're developing this as we go. And we also like to collaborate just like these POs and small businesses and work together to get you what you need best.

[00:10:33] [SPEAKER_01] And if you are watching this on video and, uh, and if your question is going to be, why are you wearing a sweatshirt in the desert in summer? Um, no further questions. Sorry, we're out of time.

[00:10:46] [SPEAKER_05] It's one of those watershed moments, you know, it's kind of like Malcolm Gladwell's tipping point kind of thing. That if, if small companies, and I think they have a, if, if you're a small company that's been around for 20 or 25 years, it's going to be slow adaption, you know, adaptation to, uh, that environment.

[00:11:09] [SPEAKER_05] If you're in your twenties and you're forming a company with a business idea, this stuff is going to flow very easily for you. So there's going to be this, this breaking point. That one chart about the age difference. Yeah.

[00:11:24] [SPEAKER_05] It's like, it's like a real thing because you have older people just wilting and they shouldn't be wilting, but they, they don't know how to make that shift to, um, you know, a different way of thinking when they were young.

[00:11:43] [SPEAKER_01] Yeah. You know, there's another thing that we've seen in our research too. It's not just the age, it's the tenure. We've seen a shorter and shorter tenures and roles, especially in the people.

[00:11:52] [SPEAKER_05] I think that will be changing you.

[00:11:53] [SPEAKER_01] Yeah. We have actually seen it start to grow, but we had a bit of a tipping point ourselves. We saw last year that over 50% of people that are in running the, any sort of workplace tech, you know, your HRS, your PEO systems payroll, name it.

[00:12:08] [SPEAKER_01] 50% have been in the role three and a half years or less. Like there's just so, you know, it's not, they could be of any age, but the tenure in the role is less. Right. So you do need a lot more sort of, I don't know, a UI user experience. Maybe that's why AI is becoming so popular. Right. Because it's kind of handling some of that systems for you. It's making it easy to use.

[00:12:29] [SPEAKER_05] It's making the experience easier and better.

[00:12:32] [SPEAKER_01] Yeah. So you think that could be part of what helps bridge that gap? I think so. Yeah. Yeah. Yeah. Yeah. You seem pretty bullish on the AI combo. And again, which I do think.

[00:12:43] [SPEAKER_05] I didn't want to talk about my company much to be self-serving, but you know, we are all in. Yeah. When it comes to that.

[00:12:52] [SPEAKER_01] That's Slavic 401k. Yeah. Yeah. Thank you for doing the wifi. Oh yeah. That's always the best sponsorship to have.

[00:12:58] [SPEAKER_05] Yeah. Makes you spell it, right?

[00:13:01] [SPEAKER_01] Yeah, that's right. I kept doing it with a K. Yeah. I was like, oh, I'll never get long after this, but really appreciate it. Really, you know, as people that deal in data, I really appreciate you coming up with all the different data points and going through and sort of setting the case for data first. Yeah. Which, you know, is something that, you know, all good AI will rely on, right? Well, that's exactly all good AI.

[00:13:25] [SPEAKER_04] Okay. Well, really appreciate it. Thanks for taking an extra.

[00:15:16] [SPEAKER_04] Good. Sure. And what do you, who are you?

[00:15:18] [SPEAKER_01] So I'm with Sapient Insights Group, you know, like Deloitte and other sort of. Oh, good. The research advisory firms, we're one of those. So I'm covering this from a outsider's perspective. Like here's what's going on. I'm writing this big 400 page report, especially in a lot of PEOs. Right, right, right. So I'd love to hear anything that you've seen that's interesting or anything to talk about yourself and what you won. Well, are you guys familiar with this award? I am not. This is my first time at this conference.

[00:15:41] [SPEAKER_02] So luckily Doyle died when I think she was 51, but she was a super helpful person to a lot of people in the industry. So they came up with the awards, kind of a, I don't know, man of the year or lifetime achievement award kind of thing. So there's a committee. I'm on the committee to select. And they called me and said, good news, bad news. Good news is you've been nominated. Bad news is you're on the committee. So I was shocked to win. There's so many good people.

[00:16:07] [SPEAKER_02] So this industry, the one thing I would say is unlike a lot of industries you guys probably look at, we all help each other like crazy. I've noticed that. There have been so many crises where, you know, if your software goes down, somebody else will run your payroll. If you've got a problem with a senator, someone will fly in to help. I mean, it's unbelievable how cooperative we are because we've only got a market penetration of about 15%.

[00:16:34] [SPEAKER_02] So I don't have to steal somebody else's to throw mine. I just got to go get the 85 that isn't out there.

[00:16:40] [SPEAKER_01] We are seeing a lot of growth in the PO industry though. I mean, they mentioned this conference is getting bigger. Our own research shows that more people are going POs, one of the reasons why I'm here.

[00:16:48] [SPEAKER_02] It's the smartest thing a business owner can do.

[00:16:50] [SPEAKER_01] Do you think it's just more education and knowledge or do you think it's the growth of the tools? Do you think it's a cost measure? What do you think is causing it? It's not cost.

[00:16:57] [SPEAKER_02] It's a value proposition. No, it's not. And quite frankly, like I never said the word save money in my life. Right. I help people make money, not save money. Right. I think it word probably is just starting to get out. But we had a 15% market penetration. I don't think there's enough salespeople in the world, in our world, to catch up with the numbers of small businesses at start. That's right. So there's a finite amount of, it's not like we're going to go from 15 to 70.

[00:17:23] [SPEAKER_02] I mean, we might get higher, but there's a top end of that.

[00:17:29] [SPEAKER_01] Yeah. I was talking to Alex Campos from Venture slash Prism HR. Yeah. And he talks about that. He's like, basically, as I hope companies grow, eventually they stop using me. Right. Right. You're working yourselves out of customers, but that's a good thing. Yeah. Right.

[00:17:42] [SPEAKER_02] But it's very satisfying because it truly, I mean, our whole value proposition is we will refund your misery whenever you want it back. Because once you start using us, people never take it back. The hardest decision is to try it because people think they're giving up control when actually they're getting control. Because they're getting rid of stuff that they're no good at, that they don't want to do, that has to be done, and they can go sell widgets.

[00:18:07] [SPEAKER_04] Yeah.

[00:18:08] [SPEAKER_02] And it's just like, go sell two more widgets, I'll pay for myself. Yeah. And if I don't, you can have it back whenever you want it. And they never take it back. So from a business model standpoint, I love it. Because once somebody signs up, it's a recurring revenue stream for the next 10 years. And once you cover your hard costs, which is your office space and your staff and your software, everything just hits the bottom line. Right. So from a vehicle standpoint, from a business standpoint, it's the best model I've ever seen.

[00:18:36] [SPEAKER_01] And I would imagine from the buyer standpoint, it makes sense because as the world gets more complex, you've already got someone that's handling that.

[00:18:44] [SPEAKER_02] And it's also nice because when you're lobbying, it's party agnostic. Right. It's all about small business. So it doesn't matter what side of the aisle you're on. We're trying to help people grow.

[00:18:54] [SPEAKER_01] That's a great point. Well, thank you very much. Congratulations again.

[00:18:58] [SPEAKER_03] Thank you. It's a sequence. Think about each one of the feelings of the coat of armor or a plate of armor. And you're doing this now. You're going through your day today a bit like this. But you start bumping into an experience. One little plate of armor comes off. Then another comes off. Then another comes off. Then another comes off. At some point, you're going to walk around going, oh, that was an amazing experience. So think about each of these five as a plate of armor you're taking off.

[00:19:27] [SPEAKER_03] You can't start with the one on the far right because it's not accessible. You've got to start with the one on the left and move left to right. Are you with me?

[00:19:35] [SPEAKER_04] Yeah. Okay.

[00:19:36] [SPEAKER_03] Okay. The first one, it sounds weird, but the first feeling of love is control. If I walk into a new experience and I don't know where to go, I don't know what to see. I don't know what this manager's all about. I don't know what the rules are. I don't know what's expected of me. Then I'm going to say it like this. I want to be able to know what is this place? What are the rules? Weirdly, the first rule of love is set the rules. What are the rules?

[00:19:59] [SPEAKER_03] When we studied patients who loved their doctor, so they're the far right, and we asked them hundreds of questions on the experience. The two most powerful questions that predicted if you were on the far right. I love my doctor. Did my doctor explain my condition to me in words I could understand? And did my doctor give me something I could do at home to alleviate my conditions? Basically, the best doctors give the person control over their own affliction. Give that a name. Give it a routine that I can address.

[00:20:29] [SPEAKER_03] That's control. I know it sounds weird, but the first thing we've got to do is give people control. You're not controlling them. You're giving them efficacy control. Second one is harmony, which basically means, do you know what I'm feeling and do you care? Some nurses give painless injections. We know this because we ask people to rate the pain. Some nurses give virtually painless injections. We studied the nurses that gave painless injections to try to figure out what the heck are they doing.

[00:20:59] [SPEAKER_03] And they didn't use a different technique or a swab. It had nothing to do with the needle. It had everything to do with what they said right before they plunged the needle in. And the best nurses, although they said this particular phrase really differently, some of them jokey, jokey, jokey, some of them super serious. They all said the same thing right before they plunged the needle in, which you can probably guess if you've had an injection lately. They said, this is going to hurt a little bit.

[00:21:28] [SPEAKER_03] I'll try and make it hurt as little as I can. And somehow, in just naming what you're feeling, it almost felt like to the patient that they were sharing the pain. Anyway, they rate it to the pain level. The moment you name the feeling the person has, the person does this. Companies so miss on harmony. Every experience is very quickly an emotional experience. I got to the end of my Audi lease the other day.

[00:21:54] [SPEAKER_03] And what I must be feeling like everybody feels like at the end of an Audi lease or any lease was a three-year lease. But in three years, there's been so much change. So you get to the end of a lease and you're like, well, what are you feeling? You got to think what I was feeling was like a LASIK.

[00:22:08] [SPEAKER_04] I have so many new bottles of...

[00:26:06] [SPEAKER_01] So that is a wrap from this very special episode of HR We Have a Problem, live from NAPEO 2026. That was Marco Weil in Florida. Anyone knows geography? Clearly not where I'm at. But thank you for joining us. Love to know what you think. But again, add your thoughts to the conversation. That's what we're doing here, right? This is more of an ongoing, smaller conversations.

[00:26:35] [SPEAKER_01] Love to hear what you not just thought about that, but any of the topics that came up, right? Have you seen the same sort of thing? Are there certain moments where you kind of realized, look, I might need some help. Did you know about all the services that were available and provided? Was anything surprising to you? So really love the sort of collaborative aspect, and I want that to continue through.

[00:27:04] [SPEAKER_01] But, you know, there was a lot of talk also about growth. And the idea of seeing this as a working together, right? We're not, oh, no, everything's broken. We've got to figure out a way to fix it. Instead, it's like, yes, HR, we have a problem. But let's work together and solve it, but not just solve it, but make it better.

[00:27:32] [SPEAKER_01] Like, how do we get everything in a sense where we use all the resources around us and we develop as a whole, as a community, as an industry? Because I think it's really important. And, you know, as I was saying in the intro, we really have to start seeing the value not just as a sort of reactive, like, look, look, we're providing value.

[00:27:57] [SPEAKER_01] But, you know, showing it statistically at the beginning and throughout the process as, you know, we are not a cost center. We are driving business. We are sustaining us. This is going to be a period and has been a period of some volatility. And we are going to have to be adaptive, right? And as I also said at the beginning, I worked in RPO. Working in recruitment in 2008 through 2010, you needed to be adaptive, right?

[00:28:26] [SPEAKER_01] We had to figure out ways to bring value to customers who weren't hiring. And all of our business will be impacted by whatever the next great disruption is. There's no way to predict whether it's going to be a global pandemic, global economic recession, whatever the case may be. But we do know one thing, that there will be downturns, right? It's not realistic to think we'll always just continue on this path and nothing will change.

[00:28:53] [SPEAKER_01] Anyone that's been alive for over five years knows that the unexpected should be expected. So we've got to figure out how to be adaptive, how to be ready with all resources that we have available to us through services, technology, partnerships, even our friends and, you know, mentors and those we are team. Mentoring? Mentoring, right? But yeah, so thank you so much.

[00:29:22] [SPEAKER_01] I'm really excited to learn more with you all and to keep adapting what we're doing here. I also want to say a big thank you to Carrie Marshall over at NAPIO, who somewhat last minute was able to add us on. I believe we were the only analyst firm there, research advisory firm there. That was, I believe it was just us and we already feel part of the community.

[00:29:50] [SPEAKER_01] I also want to say hi to Pragya Gupta and Toddler Fever over at iSolved. Hayden over at Bright Mind. Hayden over at Bright Mind. I'm trying to thank everyone else that we, that I already knew. Some of the old friends and some of the new ones. It was really cool. So, you know, hi to everyone. Hi to all my new friends. Hi. Hi.

[00:30:15] [SPEAKER_01] So, thanks for inviting me in and I'm opening the door to invite more in right now. And let's just keep talking about this. This will probably be, like I said, we'll probably have a conversation with Alex Kempos over at Prism HR Venture pretty soon as well. We'll continue talking about this.

[00:30:35] [SPEAKER_01] One thing that I will give you kind of a sneak preview of for this year's HR annual systems report, our 28th, going into our 29th year, which is really amazing. Or is this the 29th? You'd think I would know from writing this 29th. But just really fascinating to see how much small businesses are, you probably have the term emote, right?

[00:31:03] [SPEAKER_01] We've got to find a way to sort of protect ourselves from economic impact. I think small businesses are the moat around the global economy, right? That is what most of us do. It is the majority of businesses are very small. So being in this world and really talking about it, there is as much to learn here as there is from the really big giants that we see on the news every day.

[00:31:26] [SPEAKER_01] So in the spirit of continuous learning and solving these problems, thank you for joining us again for this special episode of HR We Have a Problem.