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 49 workers, and generates $5-6 million in annual revenue.

    • The payroll services industry consists of about 4,300 companies that employ 210,400 workers and generate about $26.7 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

                              Mar 21, 2024 - Steady Job Growth
                              • The US economy added 275,000 jobs in February 2024, but the unemployment rate ticked up by 0.2 percentage points to 3.9%, according to the Bureau of Labor Statistics (BLS). February’s gains were unexpectedly robust, as economists surveyed by Dow Jones had projected a non-farm total of 198,000 new jobs. Steady job gains support the Federal Reserve’s aim to cut interest rates later in 2024, according to CNBC. February job growth was led by healthcare (67,000 hires), government (52,000), food service and drinking places (42,000), social assistance (24,000), construction (23,000), transportation and warehousing (20,000), and retail (19,000).
                              • US average shift work volume increased by 0.5% in February compared to the prior month, according to data compiled by HR solutions firm UKG. After two months of declines, February marked a return to shiftwork gains, and UKG noted that the labor market continues to favor workers. All major industry sectors tracked by UKG saw shift work grow in February. The public sector saw the largest gains in February, with a rise in shiftwork of 2.1%, followed by retail, food service and hospitality (1.4%), manufacturing (1%), and healthcare (0.3%). The UKG Workforce Recovery Scale, which compares shift activity to pre-pandemic levels, rose to 97.2 in February compared to 96.8 in January.
                              • The Employment Trends Index (ETI) fell to 112.29 in February from a downwardly revised 113.18 in January, according to the Conference Board. The ETI has trended downward since peaking in March 2022, but the index is still up compared to pre-pandemic levels. The Conference Board said job growth was likely to continue cooling but with modest gains through the end of the year. Four sectors - healthcare, social assistance, leisure and hospitality, and government – accounted for 73% of February’s payroll gains.
                              • Amid an overall cooling of the tech jobs market, hiring for roles related to artificial intelligence (AI) is proving resilient, according to The Wall Street Journal. In January 2024, AI job listings were up 42% compared to December 2022; overall, IT job listings declined 31% over the same period, according to an AI job tracking tool developed by researchers at the University of Maryland. The tracker defines AI jobs as requiring skills in AI models or algorithms. After overhiring during the pandemic, some tech firms are reallocating resources to emphasize AI and are paying higher salaries to lock in top talent. According to listed pay ranges for openings on job site ZipRecruiter, AI-related jobs can command tens of thousands of dollars more than tech jobs in other fields.
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