How do payroll companies make money?

Payroll companies generate revenue primarily through fees charged to their clients for various services. Here are some key ways they make money:

Fee Structures

• Per Pay Frequency: Fees are charged based on how often payroll is processed (e.g., weekly, bi-weekly). This includes a base fee and a charge per employee per pay period4.
• Per Employee Per Month (PEPM): Employers pay a monthly base fee plus a fixed rate per employee, allowing for unlimited payroll runs4.
• Fixed Pricing: Some companies charge a fixed monthly rate for a set number of employees4.

Additional Services

• Payroll Distribution: Handling the actual payment to employees.
• Tax Filing: Ensuring compliance with tax laws by filing necessary tax documents.
• Data Collection: Managing employee data for payroll purposes.
• Benefit Management: Offering services related to employee benefits13.

Interest on Funds

• Payroll companies often hold client funds temporarily before disbursing them to employees. They can earn interest on these funds, contributing to their revenue, although this is less significant with low interest rates12.

Strategic Acquisitions and Investments

• Companies like ADP use their cash reserves to make strategic acquisitions and investments, further expanding their offerings and increasing profitability2.

Cost Savings and Efficiency

• By leveraging cloud-based software, payroll companies can reduce operational costs and increase efficiency, making their services more profitable5.