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 4,400 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.

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
                              Payroll Services Industry Growth
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              May 22, 2024 - Steady but Flat Industry Growth
                              • The payroll services industry is expected to see weaker sales growth this year, but demand is projected to remain steady, if a bit flat, over the next several years. The industry’s year-over-year sales increased by 13.5% in 2022 before dropping to 6.4% in 2023, according to Inforum and the Interindustry Economic Research Fund, Inc. Sales growth is projected to moderate further to about 3.1% in 2024, then rise to 4.5% in 2025. The industry will then see steady but mostly flat average annual growth of about 4.9% through 2028, according to Inforum and the Interindustry Economic Research Fund, Inc.
                              • Inflation is expected to remain a challenge for the rest of 2024, and the labor market will soften, according to a survey of economists released in May by the National Association for Business Economics (NABE). After posting strong employment growth in the first quarter of 2024, NABE expects US job growth to gradually slow for the remainder of the year to about 125,000 new jobs per month in the fourth quarter. The panel of economists project that inflation will be 2.6%, about half a percentage point above the NABE panel’s forecast in February 2024. The panel still expects the Federal Reserve to cut interest rates once before the end of the year, but it will be about half a percentage point instead of three-quarters of a point, and will likely come later than the NABE panel had previously projected.
                              • Fresh college graduates are entering a job market that’s still healthy, and wages continue to grow, but some companies are pulling back on hiring for entry-level positions this year, according to The Wall Street Journal. A recent survey of about 225 employers by the National Association of Colleges and Employers found that firms plan to hire nearly 6% fewer new graduates than they did in 2023. According to research and analytics firm Veris Insights, by April 2023, about a third of graduating seniors had accepted a full-time position. By the same time this year, only 25% had secured a job. Some recruiting industry observers suggest AI is impacting demand for entry-level, white-collar positions by either automating some entry-level tasks or by requiring applicants to have skills in using AI. Recent college grads are also competing with junior-level job seekers who recently lost their jobs and have more experience.
                              • Computer science university students are finding tech companies’ demand for entry-level applicants has cooled compared to just a few years ago, according to The Wall Street Journal. After a hiring spree during the pandemic, some large tech firms have cut back on hiring, and some have trimmed jobs. Tech budgets are also shifting to investments in AI, which some tech job seekers worry could reduce demand for human coders. Compared to pre-pandemic levels, software development job postings on Indeed are down 30%. As the number of entry-level computer science roles drops, the number of potential competing applicants is rising. As of 2023, the number of US university students majoring in computer science has increased by 40% in just five years.
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