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Paychex Market Analysis Essay

Paychex, Inc. (Paychex or “the company”) is a provider of payroll, human resource, and benefits outsourcing solutions for small to medium-sized businesses. The company operates in the US and Germany. It is headquartered in Rochester, New York and employed approximately 12,400 people as of May 31, 2013.

The company recorded revenues of $2,326.2 million during the financial year ended May 2013 (FY2013), an increase of 4.3% over FY2012. The operating profit of the company was $904.8 million in FY2013, an increase of 6% over FY2012. The net profit was $569 million in FY2013, an increase of 3.8% over FY2012.


Paychex, Inc. (Paychex or “the company”) is a provider of professional services to small to medium-sized businesses. The company offers payroll, human resource, and benefits outsourcing solutions. As of May 31, 2013, Paychex provided services to over 570,000 clients, including approximately 2,000 clients through its four offices in Germany. The company operates through a single segment. However, it has classified its services into two categories: payroll and human resource (HR) services.

Paychex’s payroll service includes the calculation, preparation, and delivery of employee payroll checks; production of internal accounting records and management reports; preparation of federal, state, and local payroll tax returns; and collection and remittance of clients’ payroll obligations. The company’s payroll services support the small business market through its core payroll and SurePayroll products. Mid-market companies are primarily serviced through Paychex’s Major Market Services (MMS) payroll product. The company offers Software-as-a-Service (SaaS) solution to meet the payroll and human resource administrative needs of its MMS clients. In addition, Paychex also offers ancillary services to its clients.

The company’s ancillary services include Paychex HR Online, an internet-based human resource management system that offers tools for managing employee benefits, personnel information, and critical human resource compliance and reporting needs; BeneTrac, an employee benefits management and administration system that offers its MMS clients a solution for streamlined benefits management; Paychex Time and Labor Online, a solution for time and attendance process; Paychex Expense Manager, an integrated expense management solution that allows clients to control discretionary spending; and applicant tracking service.

In addition, Paychex offers online payroll services through Paychex Online, an internet portal, which offers a suite of self-service, interactive services and products. These include Paychex Online Payroll, Internet Time Sheet, Paychex Online Reports, and General Ledger Reporting Service. The company also offers self-service and mobile applications for small business through its SurePayroll SaaS product offering. Paychex’s other payroll services include payroll tax administration services, employee payment services, and regulatory compliance services.

The company’s HR services include Paychex HR Solutions, an HR outsourcing solutions provider that addresses the outsourcing of employer and employee administrative needs of businesses. Its Paychex HR Solutions offering is available as an administrative services organization (ASO) and as a professional employer organization (PEO). Both options offer businesses a combined package of services that includes payroll, employer compliance, human resource and employee benefits administration, risk management outsourcing, and on-site availability of a professionally trained HR representative.

Paychex’s retirement services product line offers options to clients, including 401(k) plans, 401(k) SIMPLE plans, SIMPLE IRAs, 401(k) plans with safe harbor provisions, profit sharing plans, and money purchase plans. These services provide plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services. In addition to the above HR services, the company operates a licensed insurance agency, Paychex Insurance Agency that provides insurance through several carriers.

Its insurance offerings include property and casualty (P&C) coverage such as workers’ compensation; business-owner policies; commercial auto; and health and benefits coverage, including health, dental, vision, and life. Paychex also offers online HR administration software products for employee benefits management and administration and time and attendance solutions. Paychex HR Online offers tools for managing employee benefits, personnel information, and human resource compliance and reporting. The company’s other human resource services and products include the outsourcing of plan administration under section 125 of the Internal Revenue Code; state unemployment insurance services; and employee handbooks, management manuals, and personnel and required regulatory forms.


Thomas Golisano founded Paychex, Inc. (Paychex or “the company”) as Paymaster in 1971 in Rochester, New York, the US. In 1988, the company started its personal services division. In the following year, the company reached the 100,000 clients mark and opened its Taxpay division. This expansion continued into the 1990s. In 1991, Paychex formed the human resource services (HRS) division, with new offerings such as employee handbooks, employee evaluation, employee testing tools, insurance products and services, and section 125 cafeteria plans. Paychex acquired two California based companies, Pay-Fone and Payday in 1995.

The company expanded its client base to 210,000 clients and its Taxpay division reached 100,000 clients mark. During 1995, Paychex’s HRS division introduced its 401(k) Recordkeeping service. In 1996, the company acquired California-based Olsen Computer Systems and Florida-based National Business Solutions. Paychex acquired Advantage Payroll Services (Advantage), a provider of payroll and tax-filing services, in 2002. The acquisition of Advantage provided Paychex with more than 49,000 new clients.

Paychex acquired InterPay, a wholly owned subsidiary of FleetBoston Financial (a Boston, Massachusetts–based bank), in 2003, for $182.3 million. In the same year, the company was selected by the American Institute of Certified Public Accountants (AICPA) for its payroll services. Subsequently, Paychex acquired Stromberg’s (a provider of time and attendance and workforce management solutions) ‘Time in a Box’ product line, a Windows-based time and attendance solution for small to medium-sized enterprises (SMEs).

In 2005, the company and the American Bar Association (ABA), a voluntary bar association of lawyers and law students, teamed up to offer attorneys nationwide free access to continuing legal education (CLE) through a series of live teleconferences. In the same year, Paychex launched Accountant Advisory Boards in three cities in the US, further accentuating its focus on partnering with accounting professionals who play a vital role in influencing the purchase decisions of small business owners.

Paychex added Paychex COBRA Administration to its suite of human resource services for SMEs, in 2006. In the following year, the company introduced Tax Credit Services, a product that provided SMEs across the US with a tool to help them identify and apply for wage-based tax credits they may be eligible to receive. Subsequently, Paychex acquired Hawthorne Benefit Technologies, a privately held company in San Diego, California, and BeneTrac, a provider of online employee benefit administration solutions.

In 2007, the company launched Paychex workers’ compensation payment service, which is an expanded service to include Paychex major market services (MMS) clients. In the same year, Paychex and Taleo, a provider of on-demand talent management solutions, formed a strategic alliance to allow SMEs to compete in the recruiting and retention of top talent. Subsequently, Paychex and BeneTrac integrated Paychex preview payroll software and BeneTrac’s web-based benefits enrollment and administration technology. Later in the year, Paychex launched the Paychex accountant knowledge center, an online resource center available on the accounting portal of www.paychex.com.

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