IBISWorld, the nation’s largest publisher of industry market research, estimates that revenue from the HR and Payroll Software industry will grow 2.2% annually to $3.2 billion in the five years to 2011. The industry has recently benefited from increased private investment in software and the need for businesses to cut costs as a result of the recession. More companies are now performing back-office duties in-house, including outsourced HR and payroll services. While more businesses are expected to use HR and payroll outsourcing in 2011 as corporate profit rises, the small business market will help ensure continued growth during the year. IBISWorld anticipates that industry revenue will increase 1.1% in 2011.

The industry generates revenue through the sale of new software, software license updates and subscription fees for online applications. Businesses use the software to automate administrative processes, while reducing the risk of litigation and other compliance issues. Companies also use the software to control labor costs, minimize risk and manage personnel.

Despite overall growth, the industry has consolidated, which is a common trend across the entire software publishing sector. With average profit margins of 20.2%, large software companies rely on acquisitions to fine-tune their product portfolios. Software companies have increasingly acquired smaller, niche firms to fill in gaps in their product portfolio. IBISWorld estimates that the number of industry establishments has fallen by 2.9% annually to 106 in the five years to 2011.

In the five years to 2016, revenue for the HR and Payroll Software industry is forecast to increase 5.0% annually to $4.0 billion. The industry will benefit from increasing private investment in computers and software and the further adoption of the software as a service (SaaS) business model. In this model, providers license their applications to customers for use as a service on demand. 

Some companies will return to outsourced HR and payroll providers as corporate profit increases. Nevertheless, a rise in the volume of administrative work, necessitated by improvements in the labor market, will increase industry demand over the next five years.

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