, with fewer than 500 workers, that do not have HR departments. PEOs have grown from fewer than 100 in the mid-1980s to over 2,000 today; they are growing at a 30 percent to 40 percent annual clip (according to the National Association of Professional Employer Organizations). There are 15 states that have laws to license or register PEOs (Hirschman, p. 80; & Meyer, 1997, pp. 34-38).
Employee leasing is not new, it has been around for ten years. The term was first used when the employer would fire its employees and the leasing firm would hire them and lease them back to the employer. Fraud was popular in Florida and Texas which gave the business a bad name. The last five or six years has brought regulations and licensing requirements to deal with fraudulent companies. Recent acquisition of large PEOs by national payroll processing companies has added legitimacy to the business. National Business Solutions and Staff Leasing, two of the largest PEOs, were purchased recently by Paychex and ADP (Beller, 1997, pp. 30-32).
Since there have been problems with fraud and mismanagement, PEOs need to be carefully evaluated. Firms must have enough insurance reserves to cover claims. Cases where PEOs lacked insurance reserves resulted in bankruptcy; others disappeared and left the client to pay benefits and claims. Regulation has limited the number of complaints regarding PEOs. Florida passed the Employee Leasing Licensing Act in 1991 and has since licensed 214 PEOs. Prior to regulation, companies might set up shop and then disappear. Since regulation, complaints have involved minor misdeeds such as filing late reports (Hirshman, pp. 80-85).
Voluntary regulation also exists within the PEO industry. The Institute for the Accreditation of Professional Employer Organizations (IAPEO) has accredited 15 firms since its inception in 1995. The National Association of Professional Employer Organizations (NAPEO) has certified nearly ...