Top Picks

Most small-business owners would agree-they didn't go into business to deal with the daily administrative details of managing a staff. And yet, as their business expands and the number of employees increases, that's exactly what they end up doing.

Enter PEOs, formerly known as employee leasing companies. These organizations shoulder the responsibilities of human resources, benefits consulting and other administrative services for businesses-and have become so popular they're growing at a rate of as much as 30 percent per year. "We allow the small-business owner to focus on the business of their business and let us focus on the business of employment," says Milan P. Yager of the National Association of PEOs.

But while in the past PEOs focused almost solely on helping smaller businesses, the trend for the future is to attract larger companies-even Fortune 100 corporations-as clients. According to the experts, that means the sky's the limit for this industry. "The fact that 97 percent of our market has not even been penetrated means there's a dynamic future ahead," Yager says.

But success is not a given, despite the fact that the market remains largely untapped. "One of the biggest obstacles is the amount of education needed to [run a PEO] right," says Paul Sarvadi, co-founder of Administaff, a PEO in Houston. "On the surface, it looks very simple. But the reality is, it's very complex."

Tracy Gaulding, a Houston Kwik Kopy franchisee and Administaff client with two stores and 35 employees, is glad he chose to use a PEO. Although in business since 1990, he brought Administaff on board just nine months ago-transferring payroll, worker's compensation, termination, benefits and other functions to the PEO. Says Gaulding: "I've thought about [not using a PEO], but I would dread having to do it [all by myself] again."

This article was originally published in the December 1997 print edition of Entrepreneur with the headline: Top Picks.