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Paychex vs. ADP

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For the vast majority of employers, Paychex is a viable option. If you have followed my blog with interest, and find the players I generally talk about to be potential vendors for your company, then you are probably a larger employer.

Here’s an article from Motley Fool about Paychex. And here’s a quote:

More important than the broad growth numbers at Paychex is the underlying
growth in the payroll services portion of the business and the additional services related to payroll processing that the company can charge for. Long-term, there is still room for growth in payroll processing — not only by possibly taking share from a competitor such as Automatic Data Processing (NYSE: ADP), but also from a number of smaller players in the industry. Small business growth in the U.S. could also help.

OK – I’ll give up on the fact that Paychex is taking market share from ADP and other players. They probably are. The small market is pretty ripe pickings and Paychex is the low cost leader, but they also have financial strength and some quality. However, They have a terrible product and no market share in the large employer market. They will not get market share until they have better products, but they are not developing anything of interest and would have to aquire a product to be competitive (ADP purchased PeopleSoft source code).

ADP on the other hand, is getting into the HRO market (the number 2 player in terms of contracts signed), has a large benefits outsourcing arm (number 2 behind Hewitt in terms of employees served), is by far the largest payroll and tax vendor, and has a great HRMS solution (compared to Ceridian, Paychex, and even some software vendors like Ultimate and Oracle).

I place my bets on ADP. ADP is growing their market space. As the above quote points out – Paychex is just stealing business from other payroll vendors.

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