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
Recent Developments
Sep 24, 2024 - A Third of Workers Expect AI-Related Job Displacements
- In a recent poll by Flexjobs, 34% of workers said they thought artificial intelligence (AI) would lead to job displacement over the next five years. Nearly half (49%) of respondents said they do not use AI, and 21% said they use AI for work-related and professional purposes. Almost 20% (19%) of those surveyed said they rely on AI to support their job searches, including writing cover letters and résumés. About a quarter of Millennials (24%) said they use AI for professional or personal purposes, followed by Gen X (21%) and baby boomers (16%). About 9% of those surveyed said they expect AI to make their current job obsolete within the next five years.
- 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.
- Except for positions related to AI, jobs in the tech industry are increasingly scarce, according to The Wall Street Journal. Software development job postings have fallen by more than 30% since February 2020, according to Indeed.com. Since the start of 2024, tech companies have reduced headcounts by about 137,000, according to Layoffs.fyi. Heavy tech firm investments in AI have left fewer resources for other tech areas showing less promise, including devices and virtual reality. Tech firms are also cutting back on entry-level positions, internships, and tech recruiting teams while relying more on consultants and outsourcing. However, demand for AI-related tech fields remains strong, and some laid-off tech workers are upskilling by taking AI courses.
- The Conference Board’s Employment Trends Index (ETI) increased to 109.04 in August 2024 from 108.71 in July. Will Baltrus, Associate Economist at The Conference Board, said, “The ETI rose in August, recording just its second monthly gain of 2024. In the context of labor market data that is broadly softening, the improvement in the ETI is a positive indication that the pace of labor market slowdown remains sustainable ahead of September’s Fed meeting, where we expect the interest rate cutting cycle to begin. Though some ETI components have weakened, August’s gains puts the index back above the level it averaged in 2019—which at the time was considered a historically hot labor market. Baltrus added, “August’s bounce in ETI coincided with last week’s positive Employment Situation Report for August, which showed payrolls expanding at a healthy pace, unemployment ticking back down, and no signs are emerging that could accelerate the gradual slowing into deterioration.”
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