PEO PRACTICE GROUP
PREDICTIONS FOR 2026
2025 PREDICTIONS RECAP
Governmental Volatility Will Keep PEOs in Constant Response Mode From the threat of another government shutdown to midterm election upheaval and contradictory state- versus-federal enforcement priorities, 2026 will be defined by regulatory uncertainty. PEOs will be expected to track fast-moving developments, adjust compliance frameworks in real time, and guide clients through shifting obligations. The firms that stay nimble and communicate clearly will be the ones clients rely on to navigate the unpredictability ahead. Cybersecurity Will Become a Core PEO Value Proposition With AI-driven attacks growing more sophisticated and harder to detect, cybersecurity will move from a back-office concern to a frontline PEO differentiator in 2026. Expect PEOs to invest heavily in threat monitoring, vendor-risk management, and incident-response protocols – and to market these protections as part of the service bundle. Customers will increasingly demand proof of cyber hygiene and contractual assurances, especially as regulators and insurers tighten expectations. Immigration Complexity Will Drive Surging Demand for PEO Support With shifting H-1B rules, rising I-9 enforcement, E-Verify expansion, and the potential elimination
of OPT/STEM OPT, employers will lean heavily on PEOs for stability. Clients will expect help navigating audits, work-authorization disruptions, visa-holder communication, and rapid workforce adjustments. The PEOs that build strong immigration-compliance programs in 2026 will become indispensable partners to clients facing talent shortages and heightened enforcement. AI Will Turbocharge PEO Efficiencies and Client Services PEOs will deploy AI across payroll, benefits administration, onboarding, help-desk functions, and compliance workflows – reducing manual effort while improving accuracy and turnaround times. More importantly, PEOs will begin offering AI-enabled value-adds to clients and worksite employees: personalized HR support, smarter benefits navigation, predictive compliance alerts, and enhanced employee-experience tools. The firms that scale AI responsibly will widen their competitive moat.
We correctly predicted that the administration would create a far more employer-friendly regulatory climate in 2025. The DOL pulled back on restrictive interpretations of independent- contractor status and signaled support for a narrower joint-employment standard. But the speed of various policy shifts caused operational strain for PEOs. Many providers reported difficulty updating client-facing tools, onboarding processes, and compliance systems quickly enough to keep pace with the regulatory reversals. We Saw a More Business-Friendly Environment in D.C. Just as we predicted, consolidation accelerated in 2025. Higher compliance costs, multi-state payroll complexity, and AI-driven operational needs pushed smaller PEOs toward acquisition. The year saw more cross-PEO rollups, more private-equity activity, and more partnerships with HR tech providers looking to integrate payroll, benefits, and compliance into unified platforms. M&A in the PEO Sector Was Hot and Heavy Our prediction of heightened immigration pressure on employers – and expanded reliance on PEO expertise – played out almost exactly as we forecast. Increased I-9 audits, renewed ICE enforcement efforts, sudden work-authorization changes, and visa instability created a surge in demand for PEO support. Clients leaned heavily on PEOs for I-9 compliance, audit preparation, E-Verify management, and workforce-continuity planning in response to raids and status disruptions. Immigration Enforcement Led to Reliance on PEOs
John M. Polson Irvine/Los Angeles Chairman and Managing Partner, Co-Chair
OUR PREDICTIONS WERE CORRECT
HOW DID WE DO?
Join Us for PeopleLaw 2026! The nation’s premier conference for PEO, staffing, gig, and others in the alternative work arrangement field returns to the Terranea Resort in Rancho Palos Verdes, CA, from Feb. 17-19 . Make sure you secure your spot today!
Sheldon J. Blumling Irvine Partner, Co-Chair
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