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Paychex, Inc. - Payroll Services - Category
Directory
800-322-7292
911 Panorama Trail South
Rochester, NJ 14625
www.paychex.com
Sales
$1
billion
Business Description
Paychex is a leading, national provider of
comprehensive payroll services and integrated human resource and employee
benefit outsourcing solutions for small- to medium-sized businesses. Paychex offers a comprehensive portfolio of payroll, payroll-related, and
human resource products to meet the diverse needs of its client base. These
include payroll processing, tax filing and payment, employee payment,
retirement services administration, employee benefits administration,
regulatory compliance (new- hire reporting and garnishment processing),
workers’ compensation insurance, and comprehensive bundled human resource
administrative services. By offering ancillary services that leverage the
information gathered in the base payroll processing service, Paychex is able
to provide comprehensive outsourcing services that allow employers to expand
their employee benefit offerings at an affordable cost.
Payroll Processing: Payroll processing is the backbone of the Paychex
product portfolio. The Paychex Payroll service includes the calculation,
preparation, and delivery of employee payroll checks, production of internal
accounting records and management reports, and the preparation of federal,
state, and local payroll tax returns. Payroll processing clients are charged
a base fee each period that payroll is processed, plus a fee per employee
check processed.
The Core Payroll product is generally targeted for clients with 1 to 49
employees, although many clients with 50 or more employees utilize this
service. The Company’s average Core Payroll client employs approximately 14
people and processes approximately 31 payrolls each year. Core Payroll
clients communicate their payroll information, including hours worked by
each employee and any personnel or compensation changes, usually by
telephone or fax, to their assigned payroll specialist. Upon receiving the
information from the client, the Paychex payroll specialist enters it into
the payroll system. Paychex trains these specialists in all facets of
payroll preparation and applicable tax regulations and continually updates
this training. Clients can also transfer data from their personal computer
by using the Paychex Paylink® software or via the Internet. Clients receive
payroll checks and reports from either a delivery service, the U.S. Postal
Service, or by picking them up at the local Paychex branch.
Paychex also offers Core Payroll services to its clients and their
accountants via Paychex Online. This secure Internet site offers clients a
suite of interactive, self-service products and services twenty-four hours a
day, seven days a week. These include Paychex Online PayrollSM, Internet
Time Sheet, Internet Report Service, and General Ledger Reporting Service.
Clients can communicate payroll information via Internet Time Sheet or use
the Online Payroll service, as well as access current and historical payroll
information using the Paychex Internet Report Service. The General Ledger
Reporting Service transfers payroll information calculated by Paychex to the
client’s general ledger accounting software, eliminating manual entries and
improving the accuracy of bookkeeping. Over 80,000 clients are currently
enrolled in some type of online service.
The Company’s Major Market Services (MMS) Payroll product primarily targets
companies that have outgrown the Company’s Core Payroll service or new
clients that have 50 or more employees or more complex payroll and benefits
needs. Expansion efforts for MMS continue and, as of May 31, 2003, this
product was offered in all significant markets serviced by the Company.
Approximately one-third of new MMS clients are conversions from the
Company’s Core Payroll product.
Most MMS clients communicate their payroll information to Paychex using the
Company’s Preview® software. The Preview software provides clients
“in-house” control of payroll and human resource information because the
software and the payroll and human resource database reside on the client’s
personal computer or personal computer network. Clients can produce reports
and checks at their convenience. Paychex handles the software maintenance
and provides the client ancillary services as requested.
Ancillary Products and Services: Paychex provides its clients with a
portfolio of ancillary products and services that have been developed and
refined over many years. Ancillary products provide the Company with
additional recurring revenue streams and increased service efficiencies as
these products are integrated with payroll processing services. Paychex
offers the following ancillary products and services:
Tax Filing and Payment Services: As of May 31, 2003, 87% of the Company’s
clients utilized its tax filing and payment services (including Taxpay®),
which provide accurate preparation and timely filing of quarterly and
year-end tax returns, as well as the electronic transfer of funds to the
appropriate agencies (federal, state, and local). More than 90% of new
clients purchase the Company’s tax filing and payment services. The Company
believes that the client utilization percentage of these services is near
maturity. In connection with these services, the Company electronically
collects payroll taxes from clients’ bank accounts, typically on payday,
files the applicable tax returns, and pays taxes to the appropriate taxing
authorities on the respective due dates. These taxes are typically paid
between 1 and 30 days after receipt of collections from clients, with some
items extending to 90 days. The Company handles all regulatory
correspondence, amendments, and penalty and interest disputes, and is
subject to cash penalties imposed by tax authorities for late filings and
late or underpayments of taxes. Clients utilizing the tax filing and payment
services are charged a base fee each period that payroll is processed. In
addition to fees paid by clients, the Company earns interest on client funds
that are collected before due dates and invested until remittance to the
appropriate taxing authority.
Employee Payment Services: As of May 31, 2003, 60% of the Company’s clients
utilized its employee payment services, which provide the employer the
option of paying their employees by Direct Deposit, Paychex Access Visa®
Card, a check drawn on a Paychex account (Readychex®), or a check drawn on
the employer’s account. More than 70% of new clients purchase some form of
employee payment services. For the first three methods, Paychex
electronically collects net payroll from the client’s bank account typically
one day before payroll and provides payment to the employee on payday. The
Company offers a Flexible Pay Package, which provides a cost-effective
bundle of payment options that offers the benefit of convenient, one-step
payroll account reconciliation for employers. Clients utilizing employee
payment services are charged a base fee for each period that payroll is
processed and a fee per transaction or per employee depending on the service
provided. In addition to fees paid by the client, the Company earns interest
on client funds that are collected before pay dates and invested until
remittance to clients’ employees.
The tax filing and payment services and employee payment services are
integrated with the Company’s Payroll processing service. Interest earned on
funds held for clients is included in total revenues on the Consolidated
Statements of Income because the collection, holding, and remittance of
these funds are critical components of providing these services.
Regulatory Compliance Services: Paychex offers New-Hire Reporting services,
which enable clients to comply with federal and state requirements to report
information on newly hired employees, to aid the government in enforcing
child support orders, and to minimize fraudulent unemployment and workers’
compensation insurance claims. The Company’s Garnishment Processing service
provides deductions from employees’ pay, forwards payments to the
third-party agency, including those that require electronic payments, and
tracks the obligation to fulfillment. These services enable employers to
comply with legal requirements and reduce the risk of penalties.
Comprehensive Administrative Services: The Paychex Administrative Services
(PAS) product provides businesses a full-service approach to the outsourcing
of employer and employee administrative needs. PAS offers businesses a
package of services that includes payroll, employer compliance, human
resource and employee benefits administration, and employee risk management.
This comprehensive bundle of services is designed to make it easier for
small businesses to manage their payroll and benefits costs while providing
a benefits package equal to that of larger companies. The Company also
operates a Professional Employer Organization (PEO), which provides
businesses with the same combined package of services as the PAS product,
but with Paychex acting as a co-employer of the client’s employees. The
Company’s PEO is operated primarily in Florida and Georgia, where PEOs are
more prevalent. Paychex offers its PEO product through its subsidiary,
Paychex Business Solutions. As of May 31, 2003, the PAS and PEO products
combined serviced over 103,000 client employees.
Retirement Services: The Company’s Retirement Services product line offers a
variety of options to clients, including 401(k) plans, 401(k) SIMPLE, SIMPLE
IRA, 401(k) plans with Safe Harbor provision, profit sharing, and money
purchase plans. This service provides plan implementation, ongoing
compliance with government regulations, employee and employer reporting,
participant access online, electronic funds transfer, and other
administrative services. Selling efforts for these products are focused
primarily on the Company’s existing payroll client base, as the processed
payroll information allows for data integration necessary to provide these
services efficiently. Retirement Services products were utilized by over
26,000 clients at May 31, 2003. This demonstrates the continuing interest of
small- to medium-sized businesses in providing retirement savings benefits
to their employees. Paychex is now one of the largest 401(k) recordkeepers
for small businesses in the United States. Clients utilizing this service
are charged a monthly fee and a fee per employee. Client employee 401(k)
funds externally managed totaled approximately $2.7 billion at May 31, 2003.
The Company earns a fee approximating 30 basis points from the external
managers based on the total of client employee 401(k) funds.
Workers’ Compensation Services: Most employers are required to carry
workers’ compensation insurance, which provides payments to employees who
are unable to work because of job-related injuries. Paychex provides
Workers’ Compensation Insurance Administration services by serving, via its
licensed insurance agency, as a general agent providing qualified workers’
compensation insurance through a variety of insurance carriers who are
underwriters. The Pay-As-You-GoSM program uses rate and job classification
information to enable clients to pay workers’ compensation premiums in
regular monthly amounts rather than with large up-front payments, which
stabilizes their cash flow and minimizes year-end adjustments. As of May 31,
2003, approximately 32,000 clients utilized the Workers’ Compensation
product.
Section 125 Plans: The Company offers the outsourcing of plan administration
under section 125 of the Internal Revenue Code. The Premium Only Plan allows
employees to pay for certain health insurance benefits with pre-tax dollars,
which can result in a reduction in payroll taxes for employers and
employees. The Flexible Spending Account Plan allows a client’s employees to
pay, with pre-tax dollars, health and dependent care expenses not covered by
insurance. All required implementation, administration, compliance, claims
processing and reimbursement, and coverage tests are provided with these
services.
Other Human Resource Products: Group health benefits are offered in selected
geographic areas, as are state unemployment insurance services, which
provide clients with prompt processing for all claims, appeals,
determinations, change statements, and requests for separation documents.
Other Human Resource and Benefits products include employee handbooks,
management manuals, and personnel forms. These products are designed to
simplify clients’ office processes and enhance their employee benefits
programs.
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