How Do Paychex And ADP Compare On Core Payroll Processing Business?

by Trefis Team
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Paychex
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Paychex and ADP offer payroll processing services to businesses of varying sizes around the globe. Payroll processing includes the paper and electronic distribution of employee compensation, along with the processing of tax withholdings and other employee contributions. ADP’s core customer base includes large enterprise customers, while Paychex primarily caters to small and medium-sized businesses. Correspondingly, ADP generated a significantly higher revenue per client compared to Paychex. Over the last five years, ADP has expanded its customer base at a faster pace than Paychex, as evident in the table below. As a result, the revenue generated by ADP through payroll processing operations grew at a CAGR of about 6%, compared to 3% for Paychex.

PAYX_ADP1

Over the last few quarters, Paychex has witnessed meaningful growth in its payroll revenues due to growth in small businesses. Paychex’s management believes that future small business growth could provide a a strong opportunity for the company to expand operations in this space. [1] We forecast Paychex’s revenue generated per client to grow at a faster pace than the historical rate (at a CAGR of around 4% from 2016 through 2021) as economic conditions improve. Consequently, growth in payroll revenues could be as high as 5% in the next five years.

PAYX_ADP2

Have more questions about Paychex (NASDAQ:PAYX) and ADP (NASDAQ:ADP)? See the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Paychex|ADP

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Notes:
  1. Small business is back: Paychex CEO, Yahoo! Finance, September 2015 []
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