Payroll Services

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation 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
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Feb 24, 2023 - Labor Market Remains Strong
                              • The US economy added 517,000 jobs in January 2023, according to the Bureau of Labor Statistics (BLS), and the unemployment rate dropped to 3.4%, which was the lowest jobless rate since May 1969. January’s gains far exceeded the 187,000 jobs that economists surveyed by Dow Jones had expected. In speaking to CNBC, chief US economist at the Mastercard Economics Institute said, “It was a phenomenal report. This brings into question how we’re able to see that level of job growth despite some of the other rumblings in the economy. The reality is it shows there’s still a lot of pent-up demand for workers where companies have really struggled to staff appropriately.” January job growth was led by leisure and hospitality (with 128,000 hires), professional and business services (+82,000), government (+74,000), healthcare (+58,000), retail (+30,000 hires), and construction (+25,000).
                              • As the pandemic has wound down, work from home (WFH) patterns have settled into a new normal. In January 2023, nearly 30% of all US work occurred in workers’ homes, according to WFH Research. That percentage has remained mostly unchanged since return-to-office rates peaked in spring 2022. However, in large urban centers remote work is closer to half. Hybrid schedules – typically three days in the office and two remote days – have become commonplace. About 13% of workers – including many in payroll services, customer service, and contractors – work entirely from home.
                              • Hours worked in the US temporary staffing industry declined 11% for the week ended February 11, 2023 compared to the same period in 2021, according to the Staffing Industry Analysts (SIA) | Bullhorn Staffing Indicator. Professional staffing was down 4% year over year and commercial staffing dropped 3%. The SIA noted that lower staffing levels were unsurprising given strong staffing volume growth in 2022 and mounting headwinds, including inflation, elevated interest rates, and gradual economic slowing.
                              • Nearly 20% of hiring managers said their firm has a salary transparency strategy, according to the Nelson Connects 2023 Digital Salary Guide and Workplace Trends Report. The report notes that awareness of compensation transparency in gaining ground among US businesses as more states, including California, Washington, and Colorado, require firms to post salary ranges in job posts. Nearly two-thirds of companies surveyed said they do not have salary transparency strategies.
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