The larger threat is from companies who develop do-it-yourself payroll processing software and equipment, allowing business owners to not outsource their payroll and to save some money. The largest provider of this is Intuit Inc. (NASDAQ:INTU), which offers an online payroll service that features a mobile payroll app, as well as their more traditional QuickBooks Payroll solution.
The online payroll software, which is used by over 1 million businesses, starts at just $20 monthly and allows clients to pay employees, their payroll taxes, and file tax forms, and is getting easier to use as the technology evolves. This type of software is definitely a threat to companies like Paychex and Automatic Data Processing (NASDAQ:ADP), and investors should keep an eye on the popularity of this type of software.
As an investment, I like Intuit, and with the recent pullback from the highs it may be worth another look. Intuit is a great play, especially if you believe that small businesses will be created at a faster rate as the economy recovers. Virtually every small business I know used QuickBooks for at least some aspects of their business, and more than half of the people I know use TurboTax to file their taxes. Intuit Inc. (NASDAQ:INTU) produces best-in-breed software in areas where demand is definitely increasing.
Despite the popularity of the do-it-yourself products, there will always be a market for businesses who want to outsource, particularly in regards to HR and benefit administration. Paychex, Inc. (NASDAQ:PAYX) has a proven record of growth and dividend increases, and the improving job market should continue this trend. For those who are willing to wait, when interest rates finally start to rise, so will Paychex’s profitability and its share price. This is a great income play that could pay off big time a few years down the road.
The article This Payment Processor Could Provide Years Of Growth And Income originally appeared on Fool.com and is written by Matthew Frankel.
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