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Payroll Service Bureaus – Are Clients a Flight Risk? [Infographic]

Payroll service outsourcing is nothing new regardless of whether you look at large employers, or organizations that fall within the small- to medium-sized business (SMB) space. However, advances in other human resources-related technologies in recent years have, for the first time, enabled increasing numbers of smaller businesses to automate administrative tasks related to recruiting, employee onboarding, the Work Opportunity Tax Credit (WOTC), background checking and reference checking. And, to do so for a reasonable price.

This presents a challenge to independent payroll providers because larger, national payroll organizations are packaging these additional HR services into a single solution and luring existing clients and prospects away from regionally-focused, independent payroll service bureaus. Want to identify the warning signs that suggest your clients may seek payroll services elsewhere? Check out the infographic below and learn how to spot the red flags that your customers may be a flight risk.

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HR Software Provider Partnership Guide

4 Plays For Payroll Service Bureaus To Close Prospects

Independent payroll service bureaus, it’s time to put on your game face. Your competition isn’t getting any weaker these days, and technology innovation and adoption is moving at a breakneck pace. So, what do you do…sit down and relentlessly review game tapes to study your competitors’ every play? Well, not exactly, but it is critical to understand your competitors’ potential appeal to your existing clients and potential prospects.

In this blog, we’ll take a quick look at how large national payroll providers might try to remedy your clients’ payroll–and general human resources–pain. Then, we’ll examine how each pain point can be turned into an opportunity for your business to compete on a level playing field with the big providers when it comes to serving the needs of your small- and medium-sized prospects and customers.

Don’t Let Prospect Pain Lead to Competitor Gain

Take a closer look at what large national payroll software providers will typically bring to the table in order to win over the organizations in your market.

 

Gain Promised by National Payroll Provider

A fully loaded software platform with a variety of HR service-related add-ons beyond basic payroll.

  • Administrative burden is alleviated.
  • Single sign-on is provided.
  • “Free” applicant tracking module is available to streamline the process of posting new jobs.
  • “Baked-in” new hire paperwork automation exists to make employment paperwork paperless.

Your Pain as an Independent Payroll Provider

  • You’re outmatched when it comes to ancillary HR service software features.
  • Your potential clients are seduced by flashy bells and whistles touted by the national providers.
  • Your prospects are led to believe that only a big provider is going to meet their needs.
  • The national providers aggressively push technology, though you want to keep service as the emphasis for your conversation with prospects.

 

Opportunities for a Good Offense

In this section, we’ll examine each of your pain points as they relate to your prospects being recruited to use national provider solutions instead of your services. In doing so, opportunities for you to score more points in your market space will be presented, as well.

1 – You’re Outmatched Technologically

When faced with the prospect of playing basketball against a squad of seven footers, and you’re only 5’8”, it’s time to run some innovative plays–or, find some sturdy stilts. The challenge is no different when you’re competing against mega payroll software providers that have a one-stop shop software platform to meet every human resource need of your small- and medium-sized business clients.

Your Play: You can make your product offering look “big” as well by partnering with an HR software provider that specializes in systems that fall outside of your core product or service. Not only will your payroll function remain strong as you continue to make it your primary focus, you’ll give yourself additional reach with clients by incorporating options for recruiting, employee onboarding, reference checking, background checking and/or other HR-related tools.

2 – Their Flashy Bells and Whistles are Seductive

The big providers’ long list of customers, features and their share of the market can be impressive accomplishments in the eyes of your prospects. However, upon closer inspection sometimes the sizzle is just a smokescreen for a lack of substance. Specifically, while the big providers give users access to a suite of HR tools in addition to payroll processing, when individually examined these tools may be regarded as afterthought ancillary systems that get added onto the provider’s original payroll code.

Your Play: By forming a strong relationship with a best-in-class HR software provider, your business can match the feature offerings of national providers to get a foot in the door and generate initial interest. However, the especially important benefit of a strong partnership is that your business will have a better track record of customer retention, as it will be providing robust systems with a proven record of continuous development and innovation.

3 – They Throw Their Weight Around

Flashback to fifth grade P.E. class, and I bet your memories include witnessing the biggest, strongest kid always being picked first to be captain of the dodgeball team. The choice was natural as the kid was obviously athletic and a seasoned competitor. Your prospects and clients are thinking the same thing…they want the biggest- and strongest-looking payroll provider to take care of their needs. They want to be in capable hands.

Your Play: When everyone wants to be on the big kid’s team, it’s going to be hard for the captain to customize his coaching to each individual teammate. So, in the interest of efficiency he may adopt a one-size fits all approach. Your prospects may face the same cookie-cutter mentality once they partner with a large payroll provider.

Therefore, consider reinforcing your own coaching excellence with a partner that rounds out your perceived weaknesses as they compare to your larger competitors. In doing so, give your clients a scalable system that can be customized to their payroll needs and current size, and that also includes integrations to the additional recruiting, onboarding and reference checking tools they desire for improved HR efficiency. Better yet, assure them that these additional modules are provided by a partner that is constantly improving its own core offerings while you focus on your bread and butter – payroll. Everyone wins.

4 – They Lead With Tech; You Focus on Service

Think of your competitors as the flashy, private school team with the latest style of uniform and top-of-the-line sporting equipment. They step on the field and you instantly fight off hearing “We will, we will, rock you” in your head. If your business doesn’t pick up a teammate with the right equipment to compete, then your new internal soundtrack will be “I’m a loser baby” as your customers walk out the door…before they even get a chance to be raving fans of your service. They won’t even know what they missed, because you won’t even get an at bat.

Your Play: Add some dazzle to your own pre-game warm-up routine by bringing a solid recruiting and onboarding software partner to the table to assure your prospects that you can fill the same kinds of HR service technology gaps as your competitors. Only then, will you get the opportunity to elevate the conversation to focus on service comparisons where you can further differentiate your firm.

The level of service your competitors offer doesn’t even rival the stellar support that you extend to your customers, right? By allowing your trusted partner to focus on tech development outside of your payroll offerings, you still have time to make servicing your clients a priority. Additionally, with the right teammate, you determine which is your better play: being first tier support on your partner’s products or introducing your clients to your partner’s close-knit team of U.S.-based support specialists that are used to working with small- and medium-sized (SMB) clients.

Game Time Decision

Your customers don’t want to experience employee turnover as a result of missing out on the latest, most engaging HR technology. And you don’t want turnover in your client base, either. Find a trusted partner that helps you provide best-in-class HR service add-on software to delight your customers. Check out ExactHire’s guide to choosing a partner below.

HR Software Provider Partnership Guide

Image Credit: 4 by Rosmarie Voegtli (contact)

Payroll Providers, Distinguish Yourselves!

For independent payroll providers it’s sometimes hard to stand out. Resources are limited and the expenses associated with advertising and expanding new services are prohibitive. For newly minted businesses, it might be all they can do just to get operations up and running efficiently. Meanwhile, very large and established providers (a.k.a. mega providers) are throwing big money into advertising and services in order to expand their market share. What’s a small, independent payroll provider to do?

Option 1: Invest In Marketing, Smartly

While the majority of advertising channels are too expensive for a small provider to consider, some digital marketing channels are nearly free. Great results can be achieved through the use of social media, search engine marketing, and email. But while these channels are free, they are also very competitive and that is why “free” becomes “nearly free.”

Being heard above the noise is no easy task, and so social networks, search engines, and even email platforms offer premium solutions to amplify an organization’s marketing efforts. Examples for each of these include:

  • Display ads (search)
  • Sponsored/promoted posts (social)
  • Targeting/segmentation/automation (email)

Individually, the solutions can be fairly affordable, but investing in premium solutions across multiple digital channels will quickly add up. So, again, the largest providers with more resources to invest will have an advantage over the independent providers.

Option 2: Invest In Your Services

Established independent payroll providers may be seeing their market share slowly recede each year. And unless their clients are going out of business or bringing services in-house, it’s likely that another provider has wooed them with ancillary HR services or software. So while it may have once been feasible for independent payroll providers to survive with the same technology and service offerings, today it’s a different story.

Small- to medium-sized business need more services and they don’t want to juggle dozens of vendors to get it–they want their current providers to offer more. The good news is that with today’s explosive growth and evolution of HR technology, independent payroll providers have an advantage over the mega payroll providers: their size and flexibility.

Envision a speed boat making a sharp turn; now, imagine a oil tanker changing course. As an independent payroll provider, you want to think “speed boat”. A speed boat cannot carry as many passengers as the tanker, but it can quickly change direction and get its people to their desired destination faster–and usually with a smile on their face.

Many mega payroll providers, seeking greater margins, opt to build their own HR software or utilize enterprise solutions for all clients–a one size fits all approach. This might work for some SMBs, but more often, the smaller organizations find the solutions to be a poor fit. Even when these solutions do work somewhat adequately, the technology is updated slowly and with little input or influence from the end-users at smaller organizations. The result is that many SMB clients are saddled with a poor solution that fails to meet their needs, and any improvements to the software are slow in coming.  This is “oil tanker.”

But by seeking partnerships with established, customer-centric HR software providers,  independent payroll providers can quickly offer their clients more of what they need without the overhead of expensive software or the headaches of an enterprise-level customer service department. Clients will enjoy the same efficient and responsive customer service with their HR software provider as they do with their payroll provider, which means that as a client’s needs change, the providers can act quickly to meet them. That is “speed boat.”

Distinguishing Yourself

Although a handful of mega payroll providers control between 50%-75% of the entire market, the remainder is hotly contested by other independent payroll providers. And perhaps it’s this competition that is your organization’s more immediate threat. This begs the question, then: are you distinguishable from the next independent provider?

Regardless of whether you believe that your market share is threatened by mega providers, the threat posed by other independent payroll providers when they partner with HR software companies will only increase in the coming years. Can your organization stand by while other providers are striking partnerships with HR software providers? Or is your organization content to watch your market share slowly slip away as more and more clients realize that they can get more value and better services from another provider?

For payroll providers who wish to distinguish themselves among the crowded field of competition–and to do it without losing any more market share–it is imperative that they start considering a partnership with an HR software provider now. To help, ExactHire has produced a free guide, How to Partner with an HR Software Provider, that walks decision makers through a step-by-step process for approaching, deciding on, and establishing a partnership with an HR software provider.

Now you have access to the information and tools you need to bring more value to your clients.

Your choice: will you be an “oil tanker” or a “speed boat?”

 

For nearly a decade, ExactHire has provided hiring solutions for hundreds of clients across North America and beyond. If your organization is interested in partnering with an innovative, customer-centric HR software provider, please contact us today.

HR Software Provider Partnership Guide

Feature Image Credit: apples-stand out by Flazingo (contact)

How Can Payroll Service Providers Protect Market Share?

If you’re a small- or mid-sized payroll service bureau, then you are under siege. It’s not a surprise assault, but rather a slow, stealthy adversary that creeps into your market, much like an ominous freighter on the sea’s horizon. You can see it coming, but have no control over its course and the subsequent impact on your own existence. In fact, your only hope is to proactively launch a counter attack and build up your own clients’ and prospects’ resistance to the wares it is peddling.

So who is your antagonist in this nefarious, naval metaphor?  If you don’t already know, then you will soon, as it’s inevitable that the larger national payroll providers (e.g. ADP, Paychex, Ceridian, Paycom and Paylocity) will begin to make waves in your pond. But they aren’t your only potential foe, as recent newbie market disruptors such as Zenefits, Namely and Gusto (formerly ZenPayroll) carry a new kind of threat as well.

In this blog, we’ll take a closer look at how your competition is leveraging its strengths to recede your market share. Then, later on in this blog series we’ll examine your opportunities for positioning your business as an attractive alternative to the creeping payroll software providers.

National Payroll Provider Creeper AlertBeware of the Creepers

Of course your competitors aren’t as dangerous as the “creepers” in the video game of Minecraft; however, you don’t want to launch an offensive while unarmed, lest they explode any hopes you have of saving and then gaining new clients. Here’s how you start to sense their presence…perhaps you are a well-respected, service-oriented regional provider that makes sure its customers are more than just one number among many. In fact, your payroll software solution is quite robust and can outperform the payroll functionality of your publicly-traded competitors. Everything is working out well in your market until you start to get creeper-inspired emails like the one below.

Hi Toby,
I hope this message finds you well! I wanted to let you know that in the next month or so, our organization will begin transitioning to a new payroll software platform. Your firm has served us very well to date, but as we look ahead with more aggressive HR department goals, we’re looking for ways to optimize our internal resources, including implementing a system that is designed to bring additional features outside of basic payroll services.

If you are interested in learning more about the specifics of our decision to transition to a new system, I am happy to share more. Again, it’s been a pleasure working with your team over the last few years and we wish you all continued success.

Thanks for your help.
Mimi

That’s what the email actually said, but perhaps all you glean in your moment of frustration is something like this.

Hi Toby,
Your services aren’t keeping up with the “holistic HR” times, so we need to move to a modern solution that will. You’re great to work with, but not so great that we’ll skip out on the chance to run our HR department more efficiently. Sorry ‘bout ya!

Ta-ta,
Mimi
President of the Creeper Fan Club

If you’re still not convinced that your customers are susceptible to the subtle onslaught of new opportunities presented by enterprise-level platforms, then consider the comments noted in the transcripts for Q2 2016 earning calls for both ADP and Paychex.

“In the second quarter, we continued to see very strong demand for our solutions, which is evidenced by our new business bookings growth of 15%. Sales of additional human capital management modules that assist with the Affordable Care Act or ACA compliance continue to contribute meaningfully to this performance, which has exceeded our expectations on a year-to-date basis. As a result, we are now forecasting new business bookings growth of at least 12% for FY16.” Carlos Rodriguez, President and CEO of ADP

“We made good progress across all major product lines during the second quarter. Compared to second quarter of last year, payroll revenue advanced 4% as a result of growth in client base and revenue per check. HRS revenue grew at double-digit rates in the second quarter once again led by our success in selling HR outsourcing solutions to our clients, and total service revenue grew 7%.” Martin Mucci, President and CEO of Paychex

While the above comments encapsulate just one recent quarter’s performance, at a minimum they should spike your adrenaline a bit if it isn’t already pumping. If the major payroll players are seeing notable success in endeavors outside of their original core payroll services, then it’s a certainty that they will continue to pursue them aggressively.

The Lure of Having Features Beyond Plain Ol’ Payroll Software

The economies of scale available to large national software providers have given them the ability to expand their offerings into other verticals complementary to payroll. And while you don’t care if they sell their top of the line platform to Fortune 1000 companies, you do need to be aware of how small business-focused sales teams are luring your local clients away. Here are two tactics involved.

Insurance, PEO and ASO Services

Think about the huge customer lists of the “big boy” providers, coupled with the vast internal resources available. They can train and certify employees to offer additional services, as well as to develop add-on HR systems that complement their payroll application. With staff available to offer insurance benefits and a built-in warm lead flow of clients, it’s no surprise that companies like ADP and Paychex are succeeding in up-selling insurance to existing clients to then fund their efforts to convert new customers by poaching from your pool.

They take it a step further to make a ripple in the small- and medium-sized business (SMB) space, as well, by offering PEO (Professional Employer Organization) and ASO (Administrative Services Organization) services to alleviate the stress felt by companies that are strapped when it comes to internal HR resources. In fact, ADP’s PEO business, ADP TotalSource, is the largest PEO in the United States according to its Q2 2016 earnings call transcript.

You may not want to go near the PEO business with a ten-foot pole; however, you do want to keep your SMB clients from switching their payroll business to a large competitor. However, if that competitor makes the rest of your client’s HR duties easy and all you are bringing to the table is payroll, then you are fighting an uphill battle. Your competitors have the money and resources to make their entire HR services platform top of mind for your clients.

Free HR Software

If I told your clients that I had human resources management software that they could have for free, what would they say? Some might be reluctant because there’s no such thing as a free lunch. However in the case of how Zenefits and Gusto are disrupting the insurance and benefits space, the client would learn that these organizations get paid by becoming the broker of record when they sell insurance to the client. The commission on these transactions more than makes up for the cost associated with giving their clients “lite” HR software for free. It’s no surprise they’ve captured a lion’s share of new customers in the few years since their entrance.

And while Zenefits, in particular, has been momentarily tarnished by the major compliance faux pas of eluding some states’ regulatory requirements for insurance sales, it will likely bounce back as it continues to be supported by major VC money and a new CEO. Plus, rival Gusto has gallivanted into the market without skipping a beat on a similar go-to-market model.

Go With Your Flow, Don’t Fight Against the Tide

It’s not very productive to battle the current that is bringing major competitors into your space, as you can’t control their approach. However, you do have options for bringing additional HR efficiency to your clients and their organizations.

Stay tuned for more details on those opportunities in the next blog in this series. Or, if you can’t wait, contact ExactHire to learn how your payroll service provider organization can partner with us to bring enhanced hiring and onboarding software functionality to your customer base.

HR Software Provider Partnership Guide

Image credits:

North Shore Trip – August 2015 – MV American Integrity at Sunrise by pmarkham (contact)

Tiny Creeper Statue by post-apocalyptic research institute (contact)