Payroll Services
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 4,300 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.
Industry size & Structure
The average payroll services provider operates out of a single location, employs about 40 workers, and generates $5-6 million in annual revenue.
- The payroll services industry consists of about 4,300 companies that employ 171,700 workers and generate about $24 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
Payroll Services Industry Growth
Coronavirus Update
Apr 11, 2022 - Great Resignation Continues
- Through the CARES Act, more than $300 billion is earmarked for small businesses in the form of loans and payroll tax deferment. A key aspect of the package for payroll services is business tax credits which allow small businesses that continue to employ workers through the crisis to defer their payroll taxes so they can continue paying employees. Employers could delay paying payroll taxes for 2020, then pay 50% in 2021 and the other 50% in 2022, according to the National Taxpayers Union Foundation.
- The US economy added 431,000 jobs in March 2022, according to the Bureau of Labor Statistics (BLS), and the unemployment rate declined to 3.6% compared to February. March’s gains were slightly less than economists expected but still robust, considering inflation and concerns of a recession were on the rise. Economists surveyed by Dow Jones had expected March to bring 490,000 jobs. March job growth was led by the professional and business services sector (+102,000), retail (49,000), and manufacturing (38,000). Other sectors showing strong growth included social assistance (+25,000), construction (+19,000), and financial activities (+16,000).
- US hiring activity grew slightly in the fourth quarter, according to the latest quarterly Business Conditions Survey conducted by the National Association for Business Economics (NABE) and released in January. The survey showed that 32% of NABE member respondents said employment at their firms increased in Q4, up from 30% who reported employment growth in Q3. The percentage of respondents who expect their companies to increase hiring over the next three months rose to 50% in Q4 compared to 30% who expected an uptick in hiring in Q3. While the intent to hire is up, firms still report significant labor shortages. Nearly 25% of those surveyed said they were experiencing shortages of unskilled labor; 57% of firms report skilled labor shortages.
- On a seasonally adjusted basis, about 4.4 million workers quit their jobs in February 2022, according to the US Bureau of Labor Statistics. In 2021, more than 47 million people voluntarily left their jobs in what is being termed “The Great Resignation.” February’s quit figures marked the eighth consecutive month when job openings outnumbered the number of unemployed persons. Economists suggest workers are quitting to look for better-paying positions or ones with better benefits. As of February 2022, there were 0.6 unemployed persons for every US job opening. In April 2020, there were five unemployed persons for every job opening.
- US average shift work volume, a demand indicator for payroll services, fell 0.6% in March compared to the prior month, according to data compiled by HR solutions firm UKG. While overall shiftwork in March was down slightly, activity surged strongly in the second half of the month, boosting optimism for a robust uptick in shift work in April. By March 2022, more than 98% of pre-pandemic shiftwork had returned. All major sectors tracked by UKG saw shift work declines in March, led by sector & nonprofit, which dropped by 3%. Other drops in shift work included retail, hospitality, & foodservice (-0.9%), services & distribution (-0.4%), manufacturing (-0.3%), healthcare (-0.1%). UKG noted several durable shiftwork trends as the country adapts to the “next normal,” including stronger shift work growth for large firms than for small ones, men have returned in larger numbers than women, and job openings far outnumber applicants.
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