Justworks announced an additional $50 Million Series E round of VC, bringing its total raised to more than $143 Million. Justworks remains focused on being a tech-enabled Professional Employer Organization (PEO). The PEO model is popular with companies having less than 50 employees. While not limited to companies of that size, most employers see ROI of a PEO joint-employment agreement diminish at about the 50 employee mark. While the market segment of companies with less than 50 employees is by far the largest, it is also a crowded space where you’ll find competition from PEOs as well as payroll and HR service providers large and small. Because a percentage of companies in this segment will grow beyond 50 employees, PEOs inherently see higher than average customer churn.
In Justworks’ announcement blog post, it boasts having 86,000 employees on its platform. Using average employee size in the segment as a proxy for market share, this puts Justworks share of market at approximately .2% This both shows room for growth and speaks to how competitive the market is. The National Association for Professional Employment Organizations (NAPEO) lists more than 900 PEOs in the United States. For perspective, competitor Trinet lists 332,000 employees under management, ADP TotalSource has reported to service more than 500,000 employees and is just one of its outsource offerings, and Paychex is reported to provide outsourced HR to 1.4 million worksite employees.
U.S. employers have a lot of choice in PEO service providers and the PEO offerings from HCM providers like Paychex and ADP provide scale and a growth path without the need for customers to shift tech platforms when they outgrow the PEO model.
We expect to see some acquisitions in the PEO space in 2020. Which end of those transactions will Justworks be on, if any?