Outsourcing Accelerates U.S. Firms’ Ongoing Payroll Progress

Companies still engaging service providers to add employee self-service, AI-based compliance and other features, ISG Provider Lens™ report says

Demand for payroll outsourcing remains high in the U.S. as enterprises seek new features to improve employee experience, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The 2023 ISG Provider Lens™ Payroll Solutions and Services report for the U.S. finds that payroll is one of the most outsourced human resources functions in the U.S., with many organizations now on a mission to overcome the limitations of legacy payroll platforms. ISG expects this trend to continue for the foreseeable future.

“U.S. employees increasingly expect self-service payroll options,” said Stacey Cadigan, partner, ISG Human Capital Management and Enterprise Transformation. “Companies are responding by removing barriers to digital engagement, usually through outsourcing.”

Daily pay or earned wage access features, which allow employees to access a portion of their wages outside of their regular pay period, have become mainstream in the U.S., ISG says. Enterprises consider these offerings essential to attracting and retaining talent and are working with outsourcers to make them available.

There is a continuing drive in the U.S. to enhance employee experience across all HR functions, but especially payroll, the report says. Other popular new capabilities from payroll outsourcing partners include robust digital payment methods, financial wellness solutions and AI-powered decision-making tools.

Recent and ongoing business disruptions in the U.S. and worldwide, especially the growth of remote work since the COVID-19 pandemic, have forced companies to adapt their payroll systems to increasingly complex operations and compliance requirements, ISG says.

AI and ML tools are at the core of many payroll providers’ services, helping enterprises both address the new challenges and increase efficiency, the report says. These tools allow for automated validation of data inputs, real-time visibility into potential errors and compliance monitoring. Natural language processing (NLP) is also increasingly essential, providing for conversational virtual assistants that can field employee queries around the clock.

At the same time, many small U.S. companies are turning to outsourcing firms for simple payroll solutions that are easy to set up and use, ISG says. These systems now go beyond basic functions and offer comprehensive support for compliance, including automatic calculation of taxes, filing assistance and reporting.

“Small companies need modern payroll systems to remain competitive,” said Jan Erik Aase, partner and global leader, ISG Provider Lens Research. “Outsourcing providers help them advance by integrating new features into existing software.”

The report also explores other payroll trends in the U.S., including rising demand for oversight of affiliate companies’ payroll and the continuing difficulty of establishing fully touchless payroll due to varying state laws and other complexities.

For more insights into the payroll challenges facing U.S. firms, including aligning their service delivery approaches with those of providers, plus advice on how to address key issues, see the ISG Provider Lens™ Focal Points briefing here.

The 2023 ISG Provider Lens™ Payroll Solutions and Services report for the U.S. evaluates the capabilities of 19 providers across two quadrants: Managed Payroll Services: U.S. Small Market and Managed Payroll Services: U.S. Mid/Large Market.

The report names ADP, Paychex and Paycor as Leaders in both quadrants. It names isolved, Paycom and Paylocity as Leaders in one quadrant each.

The 2023 ISG Provider Lens™ Payroll Solutions and Services report for the U.S. is available to subscribers or for one-time purchase on this webpage.

About ISG Provider Lens™ Research

The ISG Provider Lens™ Quadrant research series is the only service provider evaluation of its kind to combine empirical, data-driven research and market analysis with the real-world experience and observations of ISG's global advisory team. Enterprises will find a wealth of detailed data and market analysis to help guide their selection of appropriate sourcing partners, while ISG advisors use the reports to validate their own market knowledge and make recommendations to ISG's enterprise clients. The research currently covers providers offering their services globally, across Europe, as well as in the U.S., Canada, Brazil, the U.K., France, Benelux, Germany, Switzerland, the Nordics, Australia and Singapore/Malaysia, with additional markets to be added in the future. For more information about ISG Provider Lens research, please visit this webpage.

A companion research series, the ISG Provider Lens Archetype reports, offer a first-of-its-kind evaluation of providers from the perspective of specific buyer types.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

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