Payroll Services NAICS 541214

        Payroll Services

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Industry Summary

The 4,400 payroll services in the US provide accounting, bookkeeping, and billing services related to workforce management. Payroll services provide outsourced services to clients that lack the resources, expertise, or desire to manage the process inhouse. Firms collect information on hours worked, pay rates, deductions, and other payroll-related data from clients; calculate payroll and tax obligations for each employee; prepare payroll tax returns for the employer; and process the withholding, deposit, and payment of employment taxes.

Evolving Regulatory Environment

The regulatory environment for payroll operations and employee benefit plan administration is characterized by constant change.

Security Breaches

Because payroll service providers collect, use, and maintain large amounts of personal information on their clients’ workforces, security breaches pose a significant threat to business.


Recent Developments

Mar 25, 2025 - Payroll Providers Expand into Insurance Sales
  • The line between payroll services and insurance companies is growing fuzzy and the pending $4.1 billion merger between payroll service giants Paychex and Paycor further solidifies the industry trend. At the corporate level, the merger will broaden Paychex’s customer base and allow it to utilize Paycor’s AI technology to become a “one-stop shop” for all corporate HR needs - including selling insurance. Previously, payroll companies had mainly left the selling of insurance (mostly worker’s compensation coverage) to its partner agents, but payroll firms are increasingly removing the middle man and selling policies directly. The announced merger - coming on the heels of ADP’s $2.1 billion purchase of WorkForce Software in 2024 - is cause for concern among insurance industry agents who fear being squeezed out of a lucrative customer base.
  • Payroll services industry employment has steadily increased for most of 2024. According to the US Bureau of Labor Statistics (BLS), employment was up 8.7% in October 2024 from the previous year. Average wages for nonsupervisory employees have jumped significantly throughout the year, with the latest BLS reports showing an increase of 13.7% in October year over year and an average wage of $38.60 per hour. The increases reflect high-demand in a rapidly transforming and technologically complex industry. More companies are outsourcing their payroll services as tax regulations become too volatile; an increase in gig workers, contractors, and remote workers present unique payroll challenges; and technology advances from increased reliance on cloud computing and AI all contribute to employment and wage growth.
  • In mid-November, a federal judge in Texas struck down a Department of Labor (DOL) rule that expanded overtime pay for US workers. In April 2024, the DOL issued final regulations that raised the salary threshold for white-collar workers to receive overtime. As a result of the DOL rule, the annual salary threshold increased to $43,888 from $35,568. The Texas court ruling now blocks a second increase raising the threshold to $58,656, which was scheduled to take effect in January 2025. Under the Fair Labor Standards Act, employers must pay overtime for working more than 40 hours per week. However, salaried workers with some executive, administrative, and professional (EAP) duties and a minimum salary are exempt from the overtime rule. The federal judge in Texas ruled that by setting the salary threshold as high as it did, the DOL created a “de facto ‘salary only’ test for the EAP exemption.” The Texas court ruling will strip overtime eligibility from an estimated 1 million workers. The Texas lawsuit was brought by a coalition of business and trade associations led by the Chamber of Commerce in Plano, Texas.
  • Wage reductions that swept through the white-collar workforce in 2023 are taking hold in several blue-collar sectors, according to The Wall Street Journal. During the pandemic, when employers were starving for workers, recruits were lured by generous pay. However, the power dynamic has shifted as the labor market has softened, and many employers are offering lower wages. Among 20,000 different job titles listed on ZipRecruiter, so far in 2024, average posted pay has dropped in retail, agriculture, manufacturing, food, and transportation and warehousing. Some of the biggest declines in advertised pay offerings were in retail (down nearly 60%), agriculture (-24.5%), and manufacturing (-17.3%). Some white-collar positions are also seeing new-hire wages drop. Wages for new hires in finance have fallen 9.2% in the past year, professional services wages are off 2.4%, and insurance pay has declined 1.6%, according to payroll and benefits software firm Gusto.

Industry Revenue

Payroll Services


Industry Structure

Industry size & Structure

The average payroll services provider operates out of a single location, employs about 49 workers, and generates $6.2 million in annual revenue.

    • The payroll services industry consists of about 4,400 companies that employ 216,500 workers and generate about $27.6 billion annually.
    • The industry is concentrated; the top 4 companies account for about 50% of industry revenue, the top 50 companies account for 66% of industry revenue.
    • Large firms that offer payroll services include Intuit, Paychex, ADP, and Gusto. Large firms may operate internationally and offer other human resources-related services.

                              Industry Forecast

                              Industry Forecast
                              Payroll Services Industry Growth
                              Source: Vertical IQ and Inforum

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