State of the Industry
A growing number of businesses are finding value in outsourcing their payroll responsibilities. Today’s payroll services handle several critical, time-consuming, tasks, including payroll processing and the calculating, filing and paying of payroll taxes.
Experts say that outsourcing payroll not only helps prevent errors that can be made when the work is done in-house, but it also frees up employee resources.
A recent report on the payroll industry by IBIS World shows that there are nearly 300,000 payroll and bookkeeping businesses in the United States that employ more than 1 million people. Full-service payroll companies account for 60 percent of the total number of businesses in this industry.
Overall, payroll and bookkeeping businesses generated $74 billion in revenue last year, up 5.4 percent over the past five years. To industry generated 9.1 billion in profit.
“As the number of businesses in the United States has grown each year over the past five years, the industry’s consumer base has grown and corporate profit expansion has given more businesses the resources to afford outsourcing their payroll,” the report’s authors wrote.” Over the five years to 2022, revenue is forecast to continue to increase, though at a slower rate compared with the previous five-year period as employment stabilizes, and companies in the industry are expected to attract customers to new cloud-based products and services.”
The report shows that of the businesses in the U.S. using payroll services, the most prominent are technology-producing companies, healthcare providers and manufacturing institutions. Those three types of companies alone account for more than 40 percent of the total organizations using payroll services.
“Operators in these industries are often highly specialized and prefer to outsource human resources such as payroll and bookkeeping services to focus on their core, profit-generating business functions,” the study’s authors wrote.
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While pricing varies from provider to provider, the cost structure most payroll services use is similar. Most services charge a base fee, plus a per employee charge.
- Base fees typically range between $20 and $100 depending on the services included.
- Per employee costs can range from $1 to $12 each.
How often you are charged also varies by provider. Some providers charge fees monthly, while others charge them each time a business runs their payroll. The providers that have monthly charges allow for unlimited payroll runs each month.
While some providers offer just one package that includes all of their services, others offer several plans at various price points that include different levels of service. For example, the cheapest plan may include payroll processing only, with the most expensive plan featuring additional services, including all payroll tax filing and payment responsibilities.
Besides the monthly or per pay run costs, some providers have additional charges for things such as setting up the system and completing year-end tax services.
When getting ready to sign up with a provider, there are several steps you should take to ensure you are getting the best deal possible, including:
- Check to see if they offer a discount for agreeing to a long-term contract.
- See if they are offer discounts for businesses with a large number of employees.
- Ask if they would be willing to waive any first-time costs they charge to land your business.
- See if they would be willing to match the price of one of their cheaper competitors.
Also, it is critical that you review all the contract details before signing anything. Make sure the contract includes everything you have agreed to and ensure it doesn’t have any built-in price increases after an extended period of time.
Additionally, read all the print when it comes to cancelling the service. Know if there are any costs associated with that and how much notice you need to give.