If Johnny Paycheck had founded Paychex, his song might have been, "Take This Job and ... Let Us Do Your Payroll." The firm processes the payrolls of about 570,000 clients, making it the second-largest payroll accounting firm in the US after Automatic Data Processing. Other services include the production of accounting records and management reports; the preparation of payroll tax returns; and the collection and remittance of clients' payroll obligations. Paychex also provides human resources services, benefits administration, and group insurance management. Paychex focuses on small and midsized businesses (fewer than 100 employees) and owns more than 100 offices worldwide. The company was established in 1971.
Paychex has more than 100 offices in the US and Germany. German operations include offices in Berlin, Düsseldorf, Hamburg, and Munich.
Payroll services revenue accounts for 66% of the company's revenue, and human resource services (HRS) revenue accounts for the remainder. Its HRS operations include 401(k) plan record-keeping, time and attendance management services, and other administrative offerings.
Sales and Marketing
Paychex markets its services primarily through its direct sales force based in metropolitan markets, with sales representatives specializing within its portfolio of services. Sales representatives are supported by marketing, advertising, public relations, trade shows, and telemarketing programs.
In recent years, the company has increased its emphasis on the selling of ancillary services and products to both new clients and its existing client base. In 2013 it focused on segmenting its markets into payroll and retirement services.
It also solicits new client referrals through its relationships with existing clients, certified public accountants, and banks. About 60% of its new payroll clients come from these sources.
Paychex has enjoyed unprecedented growth over the last three years. Revenues jumped 4% from $2.2 billion in 2012 to $2.3 billion in 2013 and represented a historic milestone for the company. Profits also increased 4% from $548 million in 2012 to $597 million in 2013.
Its growth has partially been the result of an increase in payroll services revenue due to more checks per payroll, higher revenue per check, and price increases. HRS revenue also increased by 10% in 2013, positively impacted by favorable trends in checks per payroll, price increases, and growth in both clients and client employees.
Mergers and Acquisitions
Paychex grows its revenue streams through acquisitions. In 2013 it purchased HR Services, a provider of Software-as-a-Service (SaaS) products used to track and manage applicants, in a deal that strengthened its already growing HRS operations.
In 2012 Paychex scooped up Icon Time Systems, a provider of time and attendance keeping services for small businesses. The deal was an extension of an existing relationship with Icon Time Systems. In 2011 it collaborated with that company to introduce a new product -- Paychex Smart Time time clocks for small businesses. Also in late 2012 the firm bought Expense Wire, an expense report software program from Rearden Commerce.
In 2011 the company acquired SurePayroll, a provider of payroll processing software, for $115 million. The deal gave Paychex's customers additional options for processing payroll as SurePayroll's products allow employers to enter and edit payroll information in real-time online. Through the deal, Paychex gained about 30,000 small business customers and entrenched its hold in the always important online market.
Founder Thomas Golisano (owner of the Buffalo Sabres NHL team) owns about 10% of the company.