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

                              Oct 24, 2022 - More Jobs and Workers
                              • Private sector employment grew by a net 208,000 jobs in September, according to payroll services firm ADP’s National Employment Report. September’s employment gains were up from the 132,000 positions added in August but fell short of the 270,000 positions added in July. Mid-sized establishments saw the most robust gains, with 100,000 new jobs, followed by large establishments (60,000), and small establishments (58,000). On an industry level, trade/transportation/utilities added the most jobs with 147,000, followed by professional and business services (57,000), education and healthcare (38,000) and leisure and hospitality (31,000). Industries with negative job growth included information services (- 19,000), natural resources and mining (-16,000), financial activities (-16,000), and manufacturing (-13,000). ADP’s chief economist, Nela Richardson, said, “We're in an interim period where we're going to continue to see steady job gains. Employer demand remains robust and the supply of workers is improving--for now.”
                              • A recent survey of payroll professionals reveals that many don’t feel prepared to tackle the challenges ahead. About 85% of respondents to Ceridian’s Future of Payroll Survey reported problems with their payroll technologies and 69% have issues with the payroll data. Payroll professionals’ largest pain points are compliance (42%), managing the complexities of multijurisdictional payroll (34%), and inefficient processes (27%). Payroll is expected to shift from a back-office function to a strategic business partner as businesses modernize, leave behind legacy systems and traditional approaches, and increase their focus on the employee experience.
                              • Recruiters for the tech industry are seeing a pull-back in demand as the economy slows and tech industry executives focus on reining in costs to protect profits, according to The New York Times. A decade-long tech boom that fueled high stock prices, salaries, and valuations created fierce competition for workers, and the industry turned to recruiters to lure the best talent. But as the economy has weakened, some tech firms have become more cautious. Netflix, Tesla, Peloton, Shopify, Redfin, and Oracle have laid off staff. Other major tech firms have slowed hiring, announced hiring freezes, or rescinded job offers. Some recruiters have reduced their rates by as much as 30% or turned to consulting to make ends meet.
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