Payroll outsourcing services set to grow to $32 billion by 2033

The payroll outsourcing services market is growing and shows no signs of stopping, according to recent research from Fact.MR. Entrepreneurs have fewer barriers to starting a business these days, and this has led to a rise in demand for payroll services.

However, demand isn’t coming just from small business owners. Enterprise payrolls have grown more complex thanks to the adoption of flexible work arrangements and greater employee demands. As a result, payroll outsourcing is growing.

What are some of the key trends in this report, and what do they tell us about the state of payroll outsourcing? Here are the important bits.

Demand to surge by 6.1%

Payroll outsourcing providers are still experiencing profound digital transformations of their businesses. The rise of cloud computing and automation has led to these service providers upgrading their technology stacks, resulting in more sophisticated service offerings.

However, the rise of sophisticated technology has given companies more payroll outsourcing options. Bringing payroll processing in-house is now easier, since automation does the heavy lifting.

Despite this phenomenon, outsourcing service providers are expected to face higher demand for their services.

One reason for this is the relatively higher cost of payroll in-house management for small companies. While growing firms will find bringing payroll in-house through a platform makes financial sense, smaller businesses will be better off relying on expert service providers.

Technology has also moved these service providers away from an external project manager role to a payroll collaborator. Usually, service providers impose inflexible deadlines and processes on their clients due to tech limitations.

With the rise of cloud technology, service providers can manage multiple clients from a single dashboard and offer each client a personalized view of their data. As data exports have become simpler, small businesses can expect higher quality services from their service partners.

Need for cost visibility leads to overall growth

Macroeconomic pressures are pushing companies to examine their costs and increase efficiency. Payroll is their biggest expense, so it makes sense that companies are demanding more visibility in this area.

Large and growing companies are using payroll data to model growth scenarios, for which payroll software used by in-house teams is ideal. However, outsourced providers can add immense value here by offering their expertise to companies that don’t find in-housing to be practical.

Thanks to technological advances, more outsourced payroll providers can dig deeper into payroll data and offer insights. For instance, payroll technology now allows granular analysis of trends like salary amounts, hours worked, and comparisons across branches and offices.

With these data in hand, company owners can understand workforce efficiency and create processes to increase it. A retail store owner might realize that revenue on some days of the week does not help them overcome in-store payroll expenses after accounting for net margins. They can either shut the store on that day or reduce staff to maintain their margins. Companies with international presences can run similar analyses on their workforces across borders, introducing practices into offices that need them.

While these types of analyses call for sophisticated data, payroll information is a building block. Outsourced service providers can offer current and future insights by modeling the impact of upcoming legislation, helping their clients position themselves well before change hits. In short, more payroll visibility is a good thing for the outsourced payroll services market.

Data security is a challenge

While the outlook for the payroll outsourcing provider market is rosy, it faces a few challenges. Data security standards are set to become more stringent, and outsourced payroll service providers may struggle to comply with new regulations.

Payroll data is a highly sensitive dataset, since it contains private employee information and insights into company workforce costs. Data security is not a core expertise for most outsourcing providers, and this will lead to technology integration challenges.

For instance, the outsourced provider will have to integrate its platform with a client’s. However, without expertise in the client’s infrastructure or knowledge to overcome them, the slightest deviation from the norm will put data at risk. If the client lacks sophisticated technical personnel, changes to configurations and software updates will create a ticking time bomb that a malicious actor will eventually exploit.

The rise of outsourced or virtual Chief Information Security Officers (vCISOs) can mitigate these risks by a big margin. However, outsourced payroll providers must consider this challenge when offering their services. Collaborating with a vCISO to smooth any integration and security challenges will help the service provider offer a well-rounded package to its clients. It’ll also emphasize the importance of data security and protect all parties involved.

The future is bright for payroll outsourcing

Payroll outsourcing providers can rely on technological advances to power their service offerings. As the market is set to grow, focusing on addressing challenges like data security will yield significant results for these companies.

As technology grows, we can also expect more companies to “insource” payroll, especially when the company is growing quickly.