Why the Payroll Industry has been Susceptible to Boom-and-Bust Cycles—and why this May Be Changing

Have you heard the news? The payroll industry is doing extremely well, historically well in fact. This report from IBISWorld reveals that the number of businesses in the U.S. has grown each of the past five years and the industry itself has swelled to generate $74 billion each year. It’s also projected to continue its growth into the next decade. The growing number of businesses will naturally increase the demand for payroll services, but that’s not the only thing that’s been juicing the payroll industry over the last several years. As the economy and profits remain healthy, many companies and businesses are choosing to outsource their payroll services so they can focus more on their “core business,” a phrase we also see companies use when justifying a slowdown or pullback. But the larger point remains that companies tend to do well when demand is high. This demand generates revenues and profits, while straining the operational capacity of these businesses. Thus, many look to third-party vendors for many of their resource and service needs, payroll chief among them.


Is Outsourcing Payroll the New Normal?

One open-ended part of this debate is how resilient this practice of outsourcing payroll may become in light of new priorities that seem to be emerging in the modern economy for consumers and businesses alike. Specifically, we’re referring to the tendency to value time-saving services or penny-pinching expenditures. In other words, as payroll software and services get better and better at delivering reliable results at an affordable price and with a good amount of cost certainty, the old rules may not apply. The previous trend we’ve seen in which business owners and in-house accountants take on more of their own payroll services during the lean times may not be as strong, or it may reverse altogether in which business owners see the value of these services during times of contraction and expansion.