Paychex Inc. Overview

Paychex Inc.

Paychex Inc. (Paychex), a provider of integrated human capital management (HCM) solutions for payroll, human resources (HR), and retirement, is a firm that specializes in HR solutions. Additionally, it provides small-to medium-sized enterprises with insurance services. Payroll processing, payroll tax administration, regulatory compliance services, retirement services administration, employee payment services, accounting and financial services, HR administration, other HR services and products, insurance, and a fully outsourced HR solution are just a few of the company’s payroll and HR products and services. Small and medium sized business owners may concentrate on the growth and management of their companies thanks to Paychex’s innovative software-as-a-service (SaaS) technology and mobile platform. The US city of Rochester is where Paychex is based.

Paychex Inc., a competitor of Automatic Data Processing Inc. (ADP), is the second-largest payroll accounting service in the United States. Over 375,000 businesses across the country use the service. Paychex’s typical client has just 14 employees, and the majority of its clients are small businesses with fewer than 200 employees. Paychex’s primary service is payroll processing, but it also offers a variety of human resource compliance and benefits administration services, such as payroll tax and workers’ compensation insurance administration, 401(k) plan record-keeping, and administration of section 125, which is about individual health care planning. Additionally, the business provides a variety of options for employee pay, including direct deposit. The business has more than one hundred locations across the United States, with its main office in Rochester, New York.

B. Thomas Golisano, the current CEO of Paychex, established the company. Golisano was a sales manager at Electronic Accounting Systems (EAS), a Rochester, New York, payroll processing company, in 1971. EAS targeted large businesses with at least 50 employees for its services. EAS did not target the small-business market because its minimum fees were typically too high for them to afford. But Golisano, who was 29 at the time, thought that payroll accounting services were just as important for small businesses as they were for large ones. Golisano’s suspicions about the size of the potential market were confirmed by some library research: in 1971, 95% of the country’s 3.5 million businesses had fewer than 50 employees. Golisano’s father owned a small heating contracting business, and Golisano saw firsthand how difficult it was for the small businessman to write payroll checks. Golisano made the decision to sell a payroll service at a price that was affordable enough for small businesses like his father’s.

When Golisano first pitched his idea to EAS, the company didn’t want to work with small customers. However, EAS was willing to rent an office to Golisano for his venture, and in 1971, Golisano established his own business, which was then known as Paymaster. Companies could use his service for a flat fee of $5 per pay period, which was proportional to the number of employees. Golisano made his service extremely convenient, and the price was reasonable. Golisano’s clients only needed to make one phone call, whereas EAS’s clients had to fill out forms and return them to the company each pay period. The client only needed to call in the hours worked by each employee and any changes, and the company took care of the rest. The procedure took about four minutes to complete.

Golisano had to wait a year to get 42 customers, and Paychex didn’t make a profit for three more years. Golisano used credit card loans and borrowed money to keep the business afloat during that time, which was a risky proposition. The small number of Paychex customers necessitated a large number of accounts for the business to continue. Golisano targeted CPAs in his marketing, and he started getting more and more referrals from satisfied customers. After five years, Paychex had approximately 300 Rochester customers and remained relatively stable.

In 1974, Golisano was approached by two of his friends on his own to expand the business. One individual suggested co-owning a branch office in Syracuse with Golisano and him. The second person approached Golisano and asked for a franchise, after which he opened a location in Miami. After that, Golisano started looking for people to start branches in other cities. He had 17 partners by 1979, including 11 joint ventures and six franchises. These were in operation in 22 different American cities. The partners of Golisano came from teaching, sales, and engineering backgrounds, among others. Some of them were family members or friends from high school; Some of them were his softball friends. On a trip to Florida, Golisano met the doorman of the Boca Raton Hotel, who became one of his partners. At the company’s Rochester base, they were all trained, and then they got help setting up businesses elsewhere.

By 1979, it became clear that the organization’s looseness was causing problems. Paychex had 18 principals, 5,700 customers, and 200 employees. The objectives and skills of the partners varied. The Paychex product was inconsistent due to the fact that different locations provided distinct services from one another. There was little input from other offices and little central planning. Golisano decided to combine Paychex into a single entity. He needed the consent of his partners to accomplish this. It was challenging to persuade individuals who had headed their own branches that joining a more conventional company structure would benefit them. Golisano devised a formula for the equitable distribution of stock and presented a five-year strategy for the company’s future that included going public. The consolidation was approved by all principals at the conclusion of a heated two-day meeting in the Bahamas. The company was founded as Paychex, Inc. in 1979.

The company underwent rapid transformation. Vice-presidents of the new corporation replaced those who had been presidents of their own branches. A team of sales professionals were soon hired and trained by the company. Management controls like productivity comparisons between locations were now applied to the branches, which had previously operated more or less independently. Additionally, the company attempted to standardize its services.As the business expanded, this became incredibly significant. The majority of its new business came from recommendations from pleased customers. It was essential that if one company praised the manner in which its account was handled by, say, the Syracuse office, a New York company could also anticipate receiving the same level of service. Carrying a three-ring notebook filled with hundreds of relevant figures everywhere he went, Golisano himself meticulously tracked his expanding organization.

As a result of the reorganization, Paychex initially encountered financial difficulties. In 1980, the company was forced to suspend salary payments due to cash flow issues. However, this problem was fixed quickly, and Paychex expanded as anticipated. Paychex began to attract clients in much greater numbers than anticipated with the establishment of its new professional sales team. The typical salesperson was bringing in 100 customers annually by 1982.This number steadily increased. Paychex held its first public offering in August 1983.The company was able to raise $7.7 million, which it used to help it grow even more. Paychex had close to 60,000 customers by 1986.In 32 states, the company had 58 offices. In the three years following the public offering, sales doubled to $51 million. The business was much larger than EAS, Golisano’s previous employer.

Within the subsequent three years, revenues nearly doubled once more. From its 115,000 accounts, the business made $101 million in 1989.Purchase Payroll, a Minneapolis-based business, was acquired by Paychex in 1987, and as a result, the company gained 900 customers. Additionally, Paychex began to expand its services. Paychex established Benefit Services in 1987 to manage client employee benefit plans. The company established a Personnel Services division the following year. Preparing handbooks for employees, educating clients about new workplace laws, and keeping them up to date on equal employment opportunity laws were among the new services that fell under this heading. Taxpay was a brand-new offering made available by Paychex in 1989.Paychex actually prepared, paid, and filed payroll tax returns with the government for clients who selected Taxpay. Paychex saw a significant increase in revenue as a result of two factors: Due to the minimal additional effort required by this service, Paychex saw an increase in revenue of approximately 45% for each client who chose Taxpay. Additionally, Paychex benefited from Taxpay because it accepted advance payments for taxes. Paychex was able to collect interest on this “float” money before the taxes were due. Paychex earned an average annual return of three to four percent by investing the float money, which was an average daily balance of $4,000 per customer, in tax-free municipal securities. In just a few short years, almost half of Paychex payroll customers also used Taxpay, which significantly increased Paychex’s revenue.

In the 1980s, Paychex saw annual growth of around 20% and was frequently included on lists like Forbes’ “Best Small Companies in America” and OTC Review’s “100 Most Profitable NASDAQ Companies.” Paychex began to face competition from Automatic Data Processing Inc., the leading payroll accounting service provider. ADP established a separate sales division to target small business accounts. Compared to Paychex’s 310 sales representatives in this division by 1989, ADP had 400.Companies with fewer than 50 employees accounted for 60% of ADP’s accounts in that year and generated approximately twice as much revenue as Paychex. Nonetheless, there was still room for expansion in the enormous market for small businesses. Additionally, approximately 80% of Paychex’s customers renew annually. The majority of the company’s lost customers did not switch to another provider. Small businesses have a very high failure rate, and the majority of businesses that lost customers simply closed their doors. Paychex sales representatives had to acquire an average of 160 new customers per year, or more than three per week, to keep up with this turnover.

Paychex opened its own school in Rochester to teach salespeople how to meet this high quota. Paychex spent approximately $3,500 per trainee in 1991 to train its new salespeople in tax law, accounting principles, and selling techniques and send them out on rounds with more experienced salespeople. The school, which had 11 full-time teachers, cost much less than Paychex did to find new sales reps to replace those who quit or were fired. Additionally, new employees who had completed the training program began earning money for the business twice as quickly as before. In the 1970s, Paychex was founded by individuals with little or no experience in sales or payroll accounting; The workforce at the company in the 1990s was exceptionally competent and well-trained.

Paychex had approximately 125,000 customers and 335 sales representatives by 1990. However, sales representatives struggled to meet their ambitious quotas as a result of a recession that occurred in autumn of that year. As a result, the company was unable to process as many paychecks. Still, the Taxpay service was getting better and better. Paychex estimated that it had lost several million dollars at the end of fiscal 1991 as a result of cuts caused by the recession, but Taxpay revenue more than made up for the loss. With $137 million in sales and $9.6 million in profits, that was a record year. The company had approximately 26,000 Taxpay customers at this point, and by 1993, that number had increased to over 50,000.

Paychex added additional services. The company established a Human Resource Services division in 1991, providing clients with a variety of benefits including customized job descriptions, insurance services, employee handbooks, employee evaluation and testing tools, and more. Paychex took over time-consuming administrative procedures and used its expertise to assist its Human Resource clients in staying up to date on workplace regulations issued by the government. Paylink was then launched by the business in 1993. Paylink was popular with businesses that used personal computers because it allowed customers to use a modem to send payroll data to the Paychex database. Reportlink, a service similar to it, was added by Paychex in 1994.Reportlink sent the results of a client’s payroll calculation back to the client’s computers for use in internal reports and accounting.

Although Paychex continued to offer new services, its basic payroll accounting service still generated more than 80% of the company’s revenue in 1994. Additionally, acquiring brand-new payroll customers remained the company’s growth strategy. In a June 13, 1994 Barron’s article, CEO Golisano said that Paychex wanted to grow its customer base by 11 to 12 percent per year to keep revenue growing at close to 20 percent per year. Paychex always had to make up the 20% of clients it lost each year, so this actually meant bringing in even more new customers than it seemed. Even though there were still more than 4.6 million companies in 1994 that had fewer than 100 employees, more than 60% of these companies only had one to four employees, making them too small to be likely customers. Paychex was also up against a growing amount of competition from software developers. Payroll processing on one’s own can be relatively inexpensive and convenient for business owners with personal computers thanks to a wide selection of low-cost software packages available to them.

However, Golisano was sure that the business would reach its objective. He took time off in 1994 to run for governor of New York as an independent party candidate. Working with young people in the city to help them start their own businesses and leading a city campaign to reduce the number of teen pregnancies had piqued Golisano’s interest more and more. Additionally, Golisano was well-versed in tax laws and regulations that, in his opinion, harmed small businesses. Golisano claimed that if elected, he would work for tax reform and simplification, despite the fact that Paychex had made its living assisting clients with government red tape. Paychex prospered despite Golisano’s defeat, which was best described as a long shot. In accordance with Golisano’s wishes, the business saw a 11.8 percent increase in clientele in 1995. Half of Paychex’s over 200,000 customers were using the lucrative Taxpay service. With a net income of $39 million, earnings were up nearly 40%.With Pay-Fone and Payday, two acquisitions, the company increased its presence in the California market. Other human resources services, such as Paylink and Taxpay, continued to significantly expand, and the Human Services division introduced a service for 401(k) record keeping.

Through the remainder of the 1990s, Paychex aimed to expand even further. Its market penetration remained low enough to allow for expansion. Additionally, the company pledged to make use of emerging technologies in digital communications and computer networking to enhance its offerings and capabilities. Paychex bought Olsen Computer Systems Inc., based in California, and National Business Solutions, based in Florida, in 1996.That year, the company celebrated its 25th anniversary and was ranked second on the Wall Street Journal’s Shareholder Scoreboard’s list of 1,000 companies in the “Industrial & Commercial Services” category.

The business had achieved five years of earnings growth of more than 30% by 1997. It added the Paychex Access Card as part of its continued expansion of its product and service offerings. The company developed the card in collaboration with First Chicago NBD Corp. so that wages could be deposited into a Paychex Access Card account. A MasterCard-branded debit card could then be used to withdraw these wages, eliminating the need for paper paychecks. The company was included in the Standard and Poor’s 500 Index (S&P 500) in 1998 due to the industry’s continued recognition of its success.

Paychex wanted to keep expanding in the United States because it saw the domestic market as a profitable way to make more money. In a 1999 Business Week article, Golisano responded that Paychex only had 5% of the payroll processing market and that the industry as a whole had only 13% overall penetration. He was asked if his company could continue to achieve such impressive results. “So long as we continue to do our job, there is no reason why we shouldn’t grow at relatively the same rates,” Golisano stated with firmness.

That’s exactly what Paychex did as the new millennium dawned. The company achieved its 11th consecutive year of record revenues and net income in fiscal 2001.The company kept making investments in new technology and creating new services for small businesses. Additionally, Paychex remained steadfast in its long-held belief that employee training was essential to its success. In fact, 750,000 hours were spent on field training and ongoing training programs in 2000, when 5,000 employees received training at the University of Paychex. The company first appeared on Fortune’s 2002 list of the “100 Best Companies to Work For” in the United States thanks to its dedication to its workforce.

A Small Business Jobs Index was introduced in 2014 by Paychex and IHS Markit to assess the health of companies with 50 or less employees. The Paychex | IHS Markit Small Business Employment Watch now provides wage data from 2011 to the present as well as small business employment data dating back to 2005. Financial experts, analysts, and journalists frequently consult The Employment Watch when assessing the state of the economy. Martin Mucci, CEO of Paychex, frequently makes media appearances to analyze data from Small Business Employment Watch and to offer perspective on what Paychex’s corporate health indicates about the state of small business and the economy in general.

Paychex acquired Oasis Outsourcing Acquisition Corporation for $1.2 billion in December 2018. At the time of the Oasis acquisition, Paychex had 14,500 employees and 650,000 payroll clients. In 2017, Oasis, a professional employer organization (PEO), had 1,100 employees, 8,400 PEO clients, and an annual revenue of more than $9 billion. Paychex now provides HR outsourcing services to 1.4 million worksite employees as a result of the acquisition of Oasis.

Paychex Inc. Awards

• Paychex Flex received the 2016 TekTonic Award from HRO Magazine for being a best-in-class mobile and cloud-based technology suite.
• In 2016, the Rochester Democrat and Chronicle named Paychex one of the Best Places to Work in Rochester.
• Ethisphere named Paychex one of the world’s most ethical businesses for the eleventh time in 2018.
• Forbes ranked Paychex number 76 on their list of the world’s most innovative businesses in 2018.
• Paychex was ranked 211 on the Forbes 2019 list of the World’s Best Companies.
• In 2019, Paychex was included on the FORTUNE list of the Future 50 companies.

The financial statement of the company as at 2021 is as follows:

• Revenue – $4.06 billion
• Operating Income – $1.46 billion
• Net income – $1.10 billion
• Total asset –  $1.23 billion
• Total equity – $ 2.95 billion

The total number of employees as at 2021 was 15,000.