A payroll processing company handles employee information which includes wages, deduction, hours worked, and any other services that are compensation-related, to ensure that they are generated to employee paychecks and reports. This service is usually done on behalf of the employer.
Payroll processing companies are largely concentrated in the United States of America, as 70 percent of the industry’s revenue is accounted for by the 50 largest companies, with the four largest companies which deal in paychecks generation, tax filing as well as payroll reports for clients accounting for close to 50 percent of the whole industry. In the United States of America alone, about 285,212 payroll businesses employ about 929,849 people.
Steps on How to Start a Payroll Processing Company
Table of Content
Conduct Market Research
The first step in the market research process for your payroll processing company is to develop market-based research questions in line with your overall business goal and objective. In this regard, you should source information that will help you maximize your business, give you access to reliable techniques and processes that will help you operate your payroll processing company with less stress, and of course, build the business to profitability within the shortest time frame.
a. Who is the Target Market for Payroll Processing Company?
- Government Agencies
- Schools
- Transport and Logistics Companies
- Busy businessmen and businesswomen
- Hotels
- Hospitals
- Banks, Insurance Companies, and other related Financial Institutions
- Blue Chips Companies
- Corporate Organizations
- Manufacturers and Distributors
- Real Estate Owners, Developers, and Contractors
- Research and Development Companies
- Entrepreneurs and Start-Ups
b. Is Payroll Processing Company a Profitable Business?
Yes, a payroll processing company is profitable because there are loads of startups and medium-scale businesses in the United States that relies on payroll processing companies to help them handle their payroll.
c. Are There Existing Niches in the Industry?
Although there is no niche area in the payroll processing company, it is common for some payroll processing companies to specialize in any of the following;
- Billing Services
- Pay Adjustments
- Processing Federal and State Income Tax
- Time and Wages Computation
- Issuance of Manual Checks
- Voiding Checks
- Direct Deposits
- Benefits Administration
- Bookkeeping and Compilations Services
- Wage Garnishments
d. Who are the Major Competitors?
- Fingercheck
- Hamilton Edwards
- Sorge CPA
- The Hopkins Group
- AccuServe Payroll
- HR Wise LLC
- APS Payroll
- Atlantic Payroll Partners
- Cirrus Payroll
- Cloud Payroll Pros
- Zap Payroll
- Valor Payroll Solutions
- 3NINES TECHNOLOGIES
- Primary Services
- Insogna CPA
- SurePayroll
- Corporate Payroll Services
- The Temp Connection
- Delta Administrative Services
- Altitude Payroll.
e. Are There County or State Regulations or Zoning Laws for Payroll Processing Company?
No, there are no county or state regulations or zoning laws for payroll processing companies, but players in this industry are expected to work with the existing regulations governing similar businesses in the county or state where their business is domiciled.
f. Is There a Franchise for a Payroll Processing Company?
Yes, there are franchise opportunities for payroll processing companies, and here are some of them;
- Payroll Vault Franchising LLC (Initial Investment – Low – $44,369 and High – $70,569)
- Payroll Corp. (Initial Investment – Low – $68,800 High – $328,000)
- Padgett franchise (Investment Range – $50,000 – $106,000)
- Apex Payroll (Total Investment – $30,000)
- SurePayroll
- Payroll Matters® Franchise
- Accountables
- SmallBizPros
- Time+Plus Payroll Services
- Paychex
- Abacus Payroll, Inc.
- SBF Payroll Franchise
- Payworks
g. What Do You Need to Start a Payroll Processing Company?
- A Feasibility Report
- Business and Marketing Plans
- Business Licenses and Permits
- Office Space
- Computers, Laptops, and Servers
- EIN (Employer Identification Number) / Federal Tax ID Number.
- A Corporate Bank Account
- Hardware Equipment and Tools
- Software Apps
- Employees
- Startup Capital
Memorable Business Name ideas for Payroll Processing Company
- Blue Gates© Payroll Processing Company, Inc.
- Denis Whitley® Payroll Services, LLC
- Calculate© Payroll Processing Company, Inc.
- Pay Solutions® Payroll Processing Company, Inc.
- Pay Serve™ Payroll Processing Company, Inc.
- Jerry Smith™ Payroll Processing Company, LLC.
- Payroll Doctor© Payroll Processing Company, LLC
- Payroll Guys® Payroll Processing Company, Inc.
- Payroll Pros© Payroll Processing Company, Inc.
- Garry Mackson© Payroll Processing Company, Inc.
- Phil Jones® Payroll Processing Company, Inc.
- Zenith Group® Payroll Processing Company, Inc.
- Daniel Marshal® Payroll Processing Company, Inc.
- Payten® Payroll Processing Company, Inc.
- Ed Landers® Payroll Processing Company, Inc.
- Sally Abrahams© Payroll Processing Company, Inc.
- AB and Co™ Payroll Processing Company, LLC
- Chris Norman® Payroll Processing Company, Inc.
- Baston Brown® Payroll Processing Company, Inc.
- Zenon™ Payroll Processing Company, Inc.
Register Your Business
a. What Type of Business Structure is Best for a Payroll Processing Company?
Even though there are several options when it comes to the business structure of a payroll processing company, the one that most players consider is an LLC. It is common to consider an LLC because providers want to protect themselves from lawsuits.
Please note that an LLC will need an EIN if it has employees or if it will be required to file any of the excise tax forms listed below.
b. Steps to Form an LLC
- Choose a Name for Your LLC.
- File Articles of Organization.
- Choose a registered agent.
- Decide on member vs. manager management.
- Create an LLC operating agreement.
- Comply with other tax and regulatory requirements.
- File annual reports.
c. What Type of License is Needed to Open a Payroll Processing Company?
- General Business License
- Zonal Permits (Applicable in some cities)
- Signage Permit
d. What Type of Certification is Needed to Open a Payroll Processing Company?
- Certified Payroll Professional (CPP), APA
- Payroll Certification, NBA
- Fundamental Payroll Certification (FPC), APA
- Certified Medical Administrative Assistant (CMAA) NHA
- Certified Instrumentation Specialist (CIS) IAHCSMM
- Senior Professional in Human Resources (SPHR) HRCI
e. What Documents are Needed to Open a Payroll Processing Company?
- DBA
- EIN
- Business and liability insurance
- Federal Tax Payer’s ID
- State Permit and Building Approval
- Certificate of Incorporation
- Business License
- Business Plan
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Online Terms of Use
- Online Privacy Policy Document
- Contract Document
- Company Bylaws
- Memorandum of Understanding (MoU)
f. Do You Need a Trademark, Copyright, or Patent?
If you are considering starting a payroll processing company, you may not have any need to file for intellectual property protection or trademark.
Cost Analysis and Budgeting
a. How Much Does It Cost to Start a Payroll Processing Company?
When it comes to starting a payroll processing company, the startup costs could range from $15,000 to over $150,000 depending on how much equipment the business owner decides to purchase and the office space leased. Please note that this amount includes the salaries of all the staff for the first month of operation.
b. What are the Cost Involved in Starting a Payroll Processing Company
- The total fee for registering the business in the United States of America – $750.
- Legal expenses for obtaining licenses and permits as well as the accounting services (software, P.O.S machines, and other software) – $3,300.
- Promotion expenses for the grand opening of the payroll processing company as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
- The total cost for hiring a business consultant including writing a business plan – $2,500.
- The total cost for the purchase of insurance – $2,400.
- The cost for renting or leasing operational office space – $45,000.
- Other start-up expenses including, commercial satellite TV subscriptions, stationery ($500), and phone and utility deposits ($2,800).
- Operational cost for the first 3 months (salaries of employees, payments of bills and software renewal fees et al) – $15,000
- The cost for the purchase of software apps: $50,000
- The cost for store equipment (cash register, security, ventilation, signage) – $1,750
- The cost of purchase and installation of CCTVs: $2,000
- The cost of launching a website: $2000
- Miscellaneous: $2,000
c. What Factors Determine the Cost of Opening a Payroll Processing Company?
- The size of the payroll processing company
- The choice of location
- The required licenses and permits
- The type of facility
- The additional services offerings
- The cost of hiring and paying a business consultant and attorney
- The cost for branding, promotion, and marketing of the payroll processing company
- The cost for furnishing and equipping the payroll processing company
- The cost for insurance policy covers
- The cost for registering the business
- Source of your supplies and ongoing expenses
- Cost of recruiting and training your staff
d. Do You Need to Build a Facility? If YES, How Much Will It Cost?
You don’t need to build a facility for your payroll processing company because it is a business that can be operated from a leased or rented office space or home office.
e. What are the Ongoing Expenses of a Payroll processing company?
- Utility bills (internet subscriptions, phone bills, signage and software renewal fees et al)
- Transport and logistics
- Salaries of employees
f. What is the Average Salary of your Staff?
- Chief Executive Officer (President) – $45,000 Per Year
- Human Resources and Admin Manager – $35,000 Per Year
- Payroll Administrators – $34,500 Per Year
- Accountant – $32,000 Per Year
- Sales and Marketing Executive – $30,000 Per Year
- Client Service Executive (Help Desk Office) -$28,000 Per Year
g. How Do You Get Funding to Start a Payroll Processing Company?
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell shares to interested investors
- Applying for a loan from your bank/banks
- Source for soft loans from your family members and friends.
Write a Business Plan
a. Executive Summary
Zenon™ Payroll Processing Company, Inc. is a standard payroll processing company that will be based in Brooklyn, New York, United States of America, but will operate all over the United States. The company has been able to secure a standard and well–positioned office facility in a conducive business district in Brooklyn. We are set to compete in the highly competitive Payroll Processing Services industry not only in the United States but also in the global market.
b. Products and Service
- Billing Services
- Pay Adjustments
- Processing Federal and State Income Tax
- Time and Wages Computation
- Issuance of Manual Checks
- Voiding Checks
- Direct Deposits
- Benefits Administration
- Bookkeeping and Compilations Services
- Wage Garnishments
c. Mission Statement
Our mission is to provide professional and highly reliable payroll processing services that will assist businesses, individuals, and busy corporate executives in effectively managing their payroll.
Vision Statement
Our vision is to establish a standard payroll processing company whose services and brand will not only be accepted in Brooklyn, New York, but also throughout the United States of America and other countries of the world.
d. Goals and Objectives
The goals and objectives of the payroll processing company are to help businesses handle employee information which includes wages, deductions, hours worked, and any other services that are compensation-related, and ensure that they are all generated to what then becomes an employee paycheck.
e. Organizational Structure
- Chief Executive Officer (President)
- Human Resources and Admin Manager
- Payroll Administrators
- Accountant
- Sales and Marketing Executive
- Client Service Executive (Help Desk Office)
Marketing Plan
a. SWOT Analysis
Strength:
The strength of the payroll processing company is that we have certified and well-experienced payroll administrators and support staff under our payroll. So also, we operate in a location where we can easily collaborate with other key stakeholders that can recommend clients to us.
Weakness:
As a new payroll processing company, it might take some time for our organization to break into the market and gain acceptance especially from top profile clients in the fast-growing and highly competitive Payroll Processing Services industry; that is perhaps our major weakness. Another weakness is that we may not have the required cash to promote our business the way we would want to.
Opportunities:
Beyond doubt, the opportunities in the Payroll Processing industry are massive considering the number of individuals and corporate organizations whose businesses depend on effectively managing their payroll and related business concerns. As a payroll processing company, we are ready to take advantage of any opportunity that is available in the industry.
Threat:
Self-administered payroll software represents the latest threat to a business such as ours. Other threats that we are likely going to face as a payroll processing company operating in the United States are unfavorable government policies and the arrival of a competitor within our location of operation.
b. How Do Payroll Processing Companies Make Money?
Payroll processing companies make money by offering the following services;
- Billing Services
- Pay Adjustments
- Processing Federal and State Income Tax
- Time and Wages Computation
- Issuance of Manual Checks
- Voiding Checks
- Direct Deposits
- Benefits Administration
- Bookkeeping and Compilations Services
- Wage Garnishments
c. Payment Options
- Payment via bank transfer
- Payment via credit cards
- Payment via online bank transfer
- Payment via check
- Payment via mobile money transfer
- Payment via bank draft
d. Sales & Advertising Strategies
- Introduce your payroll processing company and the services your offer by sending introductory letters alongside your brochure to corporate organizations, schools, the government, and other key stakeholders throughout the city where your payroll processing company is located.
- Advertise on the internet on blogs and forums, and also on social media like Twitter, Facebook, LinkedIn to get your message across
- Creating a basic website for your business to give your business an online presence
- Directly market your services
- Advertise your business in community-based newspapers, local TV and radio stations
- List your business on yellow pages ads (local directories)
- Encourage the use of word-of-mouth marketing (referrals)
Financial Projection
a. How Much Should You Charge for your Service?
Payroll companies generally charge a basic package fee. Fees may range from as small as $25 to as high as $200 per month. This cost typically includes paycheck processing, online access for employers and employees, direct deposit, and basic tax filing.
b. How Much Profit Do Payroll Processing Company Owners Make a Year?
A small payroll processing company owner will make between $55,000 and $75,000 per year.
c. What Factors Determine the Amount of Profit to Be Made?
- The capacity of the payroll processing company
- The location the payroll processing company is covering
- The management style of the payroll processing company
- The business approach of the payroll processing company
- The advertising and marketing strategies adopted by the payroll processing company
- The number of years the payroll processing company is in business
d. What is the Profit Margin of a Payroll Processing Company?
The profit margin of a payroll processing company is not fixed. It could range from 45 percent to 80 percent depending on the nature of services provided.
e. What is the Sales Forecast?
Below is the sales forecast for a payroll processing company. It is based on the location of the business and other factors as it relates to such startups in the United States;
- First Fiscal Year (FY1): $240,000
- Second Fiscal Year (FY2): $380,000
- Third Fiscal Year (FY3): $400,000
Set Up your Office
a. How Do You Choose a Perfect Location for a Payroll Processing Company?
- The demography of the location especially as it relates to small and medium scale businesses
- The demand for the services of payroll processing companies in the location
- The purchasing power of businesses in the location
- Accessibility of the location
- The number of payroll processing companies in the location
- The local laws and regulations in the community/state
- Traffic, parking and security et al
b. What State and City are Best to Open a Payroll Processing Company?
- Sugar Land, TX
- Fruit Heights, UT
- Scottsdale, AZ
- Shreveport, LA
- Fort Pierce, FL
- Tulsa, OK
- Alameda, CA
- Brooklyn, NY
- West Lake Hills, TX
- San Francisco, CA
c. What Equipment is Needed to Operate a Payroll Processing Company?
You should be prepared to purchase software applications. You will also need computers/laptops, servers, storage, internet facility, telephone, fax machine, and office furniture (chairs, tables, and shelves) amongst others, and all these can be gotten as fairly used.
Hire Employees
When it comes to hiring employees for a standard Payroll processing company, you should make plans to hire a competent Chief Executive Officer (President), Human Resources and Admin Manager, Sales and Marketing Executive, Accountant, Payroll Administrator, and Client Service Executive (Help Desk Office).
Launch the Business Proper
You can choose to open a payroll processing company with a party to officially launch the business. You can do a soft opening if you are operating on a low budget or you can go for a grand opening party.
The bottom line is that with a proper launching of the payroll processing company, you will be able to officially inform people in your city that your company is open for business.
a. What Makes a Payroll Processing Company Successful?
- Attention to details
- Willingness to take chances
- Tenacity
- Customer-centric business approach
- Good marketing
- Strong vision
- Passionate leadership
- Empowered employees.
b. What Happens During a Typical Day at a Payroll Processing Company?
- The office is open for the day’s work
- To-do list is reviewed
- Employees go straight to their job description
- Marketers go out to market the service of the company
- Reports are written and submitted to superior officers
- The business is closed for the day.
c. What Skills and Experience Do You Need to Build a Payroll Processing Company?
- Excellent payroll administrative skills
- Excellent computer skills
- Ability to Pay Attention to Details
- Good managerial and human development skills
- Good Accounting and Bookkeeping Skills
- Visionary Leadership
- Team-building & Interpersonal Skills.
- Excellent communication and negotiation skills.
- Organizational skills.
- Problem-solving ability.
- Good Supervisory skills
- Experience in managing payroll and tax-related services business
- Experience in managing people
- Experience in business administration
- Experience in handling relevant software.