Traditional payroll systems are complex and pricey, making them out of reach for the millions of small and mid-sized businesses across the United States. But the growing popular of software as a service (SaaS), which allows these businesses to access sophisticated software via the Web without installation or maintenance headaches, has made the idea of automated payroll much more appealing, according to a new study from AMI-Partners of New York.
The idea surfaced around 1999, when PayCycle and SurePayroll
decided to develop on-demand web-based payroll services options, but the market
remains small compared to the potential, said Laurie McCabe, author of the
report and a vice president at AMI-Partners.
According to AMI-Partners, there are 6.32 million small businesses
(1-99 employees) and about one million medium-sized businesses (100-999
employees). The vast majority of small businesses process payroll in-house
today, either manually or with payroll software. About 25% outsource their
payroll and spend about $159 per employee for payroll services. Of those that
use payroll software, 64% use accounting products from Intuit.
Today, only about 6% of small businesses use some
type of on-demand, SaaS payroll solution. Overall, only 2% of all small businesses plan to use
online payroll services, and 4% plan to deploy payroll processing software, the
study said.
The benefits of on-demand payroll for small and
mid-sized businesses are simple to explain: increased visibility, less errors,
more functionality, ease of use, reasonable price, and easier compliance with
standards and regulation.
So why are so few small and midsized businesses
using on-demand payroll today?
Part of the reason, McCabe surmises, is that vendors
have not been aggressive enough educating and promoting online payroll to the
SMB community. They must convince companies that these offerings will be easy,
affordable and provide tangible business benefit, she noted in the report.
The report detailed four on-demand payroll offerings
well-suited to the SMB market. PayCycle, one of the oldest vendors in the
business, is geared to the smallest companies, with its sweet spot in companies
with 20 employees or less. SurePayroll, another early vendor, offers HR and
compliance resources, a 401K play and pay-as-you-go workers’ compensation
solutions in addition to payroll. Its target market is companies with 100
employees or less, but most of its customers have nine employees or less.
ADP, which offers a host of business solutions to
companies of all sizes, has a Small Business Services division that focuses on
companies with less than 50 employees. It offers both traditional outsourced
payroll solutions and an online, do-it-yourself offering that allows companies
to manage payroll themselves using an online service.
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Intuit is the 300 pound gorilla in the accounting
market with its Quicken line of financial and accounting software. It is by far
the top financial software choice for small businesses. Intuit offers payroll
services both through its QuickBooks suite and as a separate offering. Although
Intuit’s
QuickBooks Assisted Payroll is a hybrid solution; instead of being a pure-play
on demand solution, customers run the software on their own computers but can
interact with Intuit, receive updates, and manage deposits online. It also
offers two pure-play online SaaS payroll solution: Intuit Online Payroll and
QuickBooks Online Payroll
AMI-Partners believes that although online
payroll services haven’t caught on in a big way in the SMB market, they will,
both because these businesses are used to using SaaS-based solutions in other
areas, and because vendors are ramping up their marketing. The company also
believes that online payroll services will spark offshoot solutions, giving
users a greater array of services and capabilities.
