BambooHR, Paylocity, and Asure Just Launched Managed Payroll. Now What?

[00:00:00] Three weeks in a row, three different vendors, all announcing managed payroll solutions. We have BambooHR, Paylocity, and AsureWorks. And the first thing people said when I posted about this was, Matt, it's just noise, move on, adjust another day. They can't execute on the services. Maybe, but I don't think that's the right question anymore. Today I'm going to walk you through what's

[00:00:25] actually happening, what these vendors are doing, why they're doing it, and what choices this may put in front of your payroll bureau or PEO. This is not just noise, but it's also not the apocalypse, but it could create a decision point for you and your team. Stick around because the most interesting part isn't the product launches. It's the number one of these CEOs gave on their earnings call that tells you exactly how much revenue they think is on the table.

[00:01:00] Welcome to Payrollin, the show where you will learn how to operate and grow your payroll business from the most dynamic minds in the business. If your company offers payroll services, this is the podcast for you. And now here's your host, Matt Vady. Let's go. All right. So let's take a look at this. So this category, it's kind of interesting because I found

[00:01:28] a comprehensive research report from ISG Buyer's Guide about payroll managed services. That was published in January of this year with a quote unquote analyst picture of what managed services is. And none of the products they referenced were actually managed payroll services. So I think that there's some confusion about what managed payroll services is. And for those of us in the industry, it's a lot like an ASO or a PEO only focused on the payroll side. So effectively,

[00:01:57] you know, the pitch that we would always give on the ASO is, hey, we've got best of breed software and technology combined with people who actually do the work for you. They process your payroll, they input new hire information, they help employees with onboarding, they help with HR, blah, blah, blah. Same thing on the payroll side. The promise of a managed payroll service is that you get a dedicated payroll specialist who's going to actually key in the data or pull it out of your

[00:02:23] timekeeping system and going to take any edits, any new hires, any updates and act as if they are your payroll person inside your company. Obviously, each company has limitations on how and what they allow that person to do. But when we offer managed payroll, we only offer it inside of an ASO or a PEO. That's the promise we make is, hey, look, our payroll specialists go so far as to a couple times a week. They will reach out if the client is using our timekeeping and say, hey, here are the people

[00:02:53] who missed punches. They reach out to the individuals directly and say, hey, you forgot to clock out on Tuesday. And then they make a note in the edits of, you know, I talked to Susie and she forgot to clock out on Tuesday. So managed payroll, the examples they gave were almost hilarious to me because I'll list them off here for those of you in the industry. I mean, they had Paychex Flex in there as a managed payroll services offering. Now Paychex does have managed payroll inside of their PEO and ASO models. They had some other groups in here that were just

[00:03:22] simply the payroll offering. Now, look, you're talking to a guy here right now or listening to a guy here right now that I proudly sold the first ever managed payroll services. We just call it BPO or I'm forgetting the name now. I had it written down going in, but at ADP back in probably 2009, 2010, when we just launched the payroll only. So we, again, we had BPO and ASO, we had ADP resource.

[00:03:48] And then when we made this big push into the business process outsourcing market, we went into a managed payroll services offering. I sold one. It's actually one of my most fun sales stories in my career. Before we go in deeper here, I was sitting in front of this prospect, a local company, and he's sitting there and he's telling me over and over again, like, yeah, this payroll solution you're putting in front of me is great, Matt. It just doesn't solve my problem of who's going to actually do the work because outsource payroll isn't really outsource payroll

[00:04:15] in a traditional environment. You guys do the taxes, you do the money movement, but I still got to have people over here to actually input the payroll. I was just pitching him traditional payroll services, traditional quote unquote outsource payroll. Well, as most of us have discovered it, that word outsource is a bit of a misnomer in the payroll industry because he's right. We don't do any of the actual work when it comes to processing payroll. We give them the online

[00:04:40] tool. We calculate the taxes. We remit and file. We do all the backend stuff. I know some of you listening are small local bureaus and you're saying, ah, well, we do some of the work. I'll guarantee you're probably getting underpaid for it and you probably shouldn't do as much as you do, but that's another episode altogether. What you do in a managed services environment is what I said to him next. I started to pitch him and say, Hey, we have this new product called managed payroll services or BPO or

[00:05:08] whatever the name was at the time. It's going to drive me nuts that of all my notes I have here, I can't find that one, but we will do the payroll for you. You'll have a dedicated payroll specialist and you know, I'm pitching the price. I think it was 50, 60 bucks, pep them. And they had over a hundred employees. And so I was like, you know, it's really expensive. You're probably not going to want this. And he said something to me. I'll never forget. He said, Matt, this is the perfect solution for us. Please don't spend my money for me. And what he told me that day was that we've got the

[00:05:38] money for this. Don't let your limited thinking and limited beliefs come up with what I do or don't have in my budget. So whenever you're scared to pitch that big number. And if you are in that same boat of what I just described, where you're simply not charging enough for your payroll, don't spend their money for them, pitch the deal. If it's what's the right solution and let them come to the ROI or whether or not they have the budget on their own and then work from there. So anyhow, so let's look at the market as a whole here. What we have, we do have a lot of players in this market.

[00:06:07] I mean, everybody who kind of offers an ASO might have a variance of this again, it's, it's like the ASO, but without HR. And I think this is one of the sticky points for managed payroll is that everything kind of blends together. You know, in one of the press releases I'll get to in a moment, they talk about, well, this is different or better than a PEO because we don't mess with your benefits and we don't have to have, you know, access to your retirement. Well, guess what? Every time you

[00:06:33] process a payroll, you process a new hire, you've got to put them in benefits. You've got to put them into the retirement. You've got to put them in all the different systems. And this is where these models tend to struggle is who's going to enter the person into the John Hancock website. Well, that's what a payroll person would do is the managed payroll service going to enter them into the John Hancock website. I don't know. Right? So this is where some of the things, and you have to get deep into drawing the SOPs. I call it drawing the boxes on the front end of the client engagement.

[00:07:01] When you bring them on saying who's responsible for what, and oftentimes with the nationals, this is where the client gets let down is that they're not going to interface with the third party vendors, which we all know are so critical to the payroll process. But again, let me go back to the, you know, who's in this game and who did we hear from recently? So the three that recently told us that they were entering this market were Paylocity, Bamboo, and Assure.

[00:07:27] And so Paylocity product called Elevate Solutions, they have three different SKUs under it. I did think it's interesting that they have a little bit more of a managed implementation service. Now, this is a good idea. I remember when we were, again, going back to my ADP days. And for those of you that don't know me, I was there from 2008 to 2013, I think. But we worked with a staffing agency that actually would provide people to do implementations for major accounts. So you're talking 100 to 1000

[00:07:55] employees typically. And what they would do is just say, hey, we've got a bunch of ADP trained implementation people, and we'll move them from one project to the next, to the next, to the next. And they would come into our office and they would sell us as the sales reps to then go out and sell their people to the client. It wasn't an ADP product per se, but these people were a closely embedded partner. I'm sure there was a rev share. And it was a great idea for the customers that were a little bit bigger and had budget and didn't have the internal bandwidth to be able to implement

[00:08:24] a product. So I think this is a really smart move by Paylocity to bring that under their roof and say, hey, we'll actually do some of that data validation for your side. We'll do a little bit more of the implementation. I chuckle because, you know, the saying everybody says the sales reps is we do all the heavy lifting, right? We do all the heavy lifting as a local or regional player. And I'm sure many of you listening to this agree. However, when you get to an ADP implementation team,

[00:08:51] there's not a whole lot of heavy lifting there. These implementation specialists have 50 plus implementations in their queue at times. You think they're doing heavy lifting on 50 plus implementations? Absolutely not. So this is a great solution for a national player who needs to get extra hands and can charge a premium to have someone actually perform the implementation. And then of course they have an ASO and an Elevate Payroll, Elevate HR, their product names.

[00:09:19] We'll come back to them a little bit. Bamboo HR. Again, this one to me is the most comical of the three. If you've ever worked with Bamboo HR, this is such a complete turn in their model and that they are the least supportive organization in terms of customer support I've ever used for a product. And here's why I say that. It's not that their response times are bad. They are. They're really

[00:09:42] bad. They make almost no commitment to any SLAs around response times, usually like a day, two days, which in the payroll world is century. But the secondary part of that is their responses are always links to articles. They're never like the actual answer you need. So they really just kind of, I call it a minus one on the support side. Like we're always trying to plus one. We're trying to think about what can we do to help? What can we do to educate the customer, which they're very

[00:10:11] good at trying to do. You can tell that they have been informed that they need to educate the client and train the client, which is an important thing to do as a CS organization to say, Hey, let's train this customer so that next time this issue comes up, they can handle it for themselves and they don't have to contact us again. Yes. Best practice for CS. They're obviously a big company with a big CS staff and they're being trained to do that. Terrible experience for the customer. If every time you ask for a help, you're just being guided to an article,

[00:10:38] it's not customized to you. It's often hard to get to because they have a gated CS system. You've got to be logged into the app and there's issues there. Anyway, maybe things have changed, but we were a partner of theirs for years. We used to resell their product back before we had an HRS of our own. And so I think that they will have such, even when I hover over the pricing. So it's kind of funny. They do have the pricing on their website starts at $25 per employee per month

[00:11:03] for the payroll product that they're offering. And even when you hover over like premium services, there's a little icon next to it. And it, it has limitations in it. Data integrity services, two hours per year, new administrator training, two sessions per year. They're going to come into this market and they're going to quickly realize. And I'll talk about some of the feedback I've got from some of my friends in the industry about that do this. Like, you know, this is not going to make a customer very happy when you're constantly having to say, okay, you reached two hours. Now you owe us

[00:11:32] $200 an hour from here on out. It's going to work out in terms of their, you know, their margin, but retention, I think will be an issue because the challenge with this model is, can you do everything a payroll specialist would actually do? Can you adequately replace a payroll specialist with an outsourced team? It's a hard thing to execute on, on the front end. It's even harder when you keep throwing up a ton more limitations versus what the client wants. And then the third

[00:11:57] one who offered in was a sure software with a product called a sure works runs on top of their platform. And they say, Hey, you can use our payroll specialists on top of our platform or use our platform your own. So the question becomes like why these three all right in a row. And it's almost comical when you read their press releases. I think that a sure works or no, sorry. I don't want to throw a sure bamboo and pay loss city. I started to even dig into like, are they all of a

[00:12:26] sudden under common ownership because they just like copy pasted each other's press releases as organizations grow payroll and HR teams are being asked to support more complexity with fewer resources. And there's a nearly identical statement in the bamboo HR one. Again, if you want to be different, be different, nothing different about this stuff. So, but why are they doing it now? All of a sudden, why would this, especially somebody like a bamboo HR who has been an HRS and payroll software play

[00:12:54] even took them a long time to get into payroll in the first place. They acquired tracks payroll several years back. Why now? Well, I think the margin math is finally here. We have AI in the equation. AI can limit some of the manual work that's being involved. And it's interesting in terms of, you know, if you, you search for what's going on in AI and payroll and you get a lot of light, you know, jargon and lip service of stuff that, that could, or, or is happening.

[00:13:22] But to me, it's like, you know, it's like if an AI agent can handle a meaningful chunk of the exception management, data validation, compliance checks, et cetera, et cetera. I don't think that's the stuff. I think it's literally just some of the administrative work that the AI can handle. So if I can route tickets, if I can answer tickets, if I can take an inbound ticket from a customer, have that be automatically input into the system, you're going to be able to create

[00:13:47] operational headwind on this as an organization. We all are building out our own individual AI tools for our organization. I think those are going to be the things that are going to really help to lift this up more so than some of this lip service that you're seeing online, but is going to increase margins. They're going to need less labor to serve these accounts. And some of these organizations I know rely heavily on offshore support teams. So that helps as well. We have a client facing person

[00:14:12] and we have a backend person who's actually doing some of this labor on the backend. I talk to founders in the payroll, HR and accounting industry every single day. They all tell me they need more of one thing. It's not more money. It's not more AI tools. It's more time. How do I get more

[00:14:36] time? Well, I hired a virtual assistant through outsourcescale.com that helps me manage my inbox, manage my calendar, handles administrative tasks for me, helps support my marketing efforts and much, much more. The cool thing about outsource scale is that they actually train the virtual assistants on the latest and greatest AI tools to make sure that they can't only do that administrative work for you that you need to get off your plate, but they're doing it in the most efficient and effective ways

[00:15:03] possible. I've been so happy with my assistant from outsourcescale that I've actually added multiple other teammates to our other companies through them. Their pricing starts at only $7.99 a month and they make it super easy to get a new teammate onboarded and part of your team very quickly. Check them out today at outsourcescale.com. Now the revenue number that got my attention and I think

[00:15:31] is interesting to some of you is that the CEO of Assure on their earnings call of Q1 of this year said this represents two to three times revenue of a payroll only client. So they're going to add an additional $50 per employee per month on top of the platform fee that they would normally charge. Now this is coming from the earnings call. So I don't know what their actual pricing is. It's not published, but that's a very interesting model. And to me, this is the only way it makes sense.

[00:15:57] You're going to have to charge 50 to a hundred pepum. This again, that's why I'm so concerned about Bamboo's ability to execute here because they're going in low cost. They're going to have a bunch of limitations on it. And then it's going to be very hard to execute at high margin unless they just have the automation engine on the backend, but then are the customers going to be happy? Like, do they really opt in to a managed payroll service simply to have it just be as automated as humanly

[00:16:22] possible? Unlikely. I do think this is sort of the business of the current state though, right? Is like managed service offerings. So humans doing work on top of technology to fully outsource things. It is where a lot of organizations are looking instead of adding staff, instead of adding headcount. It's a very easy ROI. So for example, you know, we're going to start to see it more on the accounting and bookkeeping side is managed services there. Like, can I actually outsource a team of

[00:16:52] people on my finance side that are all working on the same map and working inside of my information and helping to provide different levels of support in there, which I think is very similar to the PEO model. You see this with some organizations, right? Is, you know, for example, we partner with a CPA here in town and they have a bookkeeper, a CFO level person, a controller level person that are doing different things on the account base. However, they're charging, you know, their 500 bucks per hour,

[00:17:18] whatever that might be. I think more of these monthly engagement style are going to be the choice of the consumer and the choice of the savvy provider. Again, because I can automate, I can offshore and I can standardize things. And if I serve, especially niche markets, then that gets easier to raise margin. So I thought that was interesting in terms of the earnings call with the Assure software CEO. And it puts a question in front of you, right? Like if you're one of these smaller bureaus or

[00:17:45] you're a bureau, you kind of have two different plays here. If you're a smaller bureau, that's effectively doing this. Now you have to look at your pricing and say, geez, if I've been charging this 10 employee company, 150 bucks a month, I'm inputting their payroll, they're scanning and emailing me new hire packets. And meanwhile, somebody else who's serving this 10 employee companies charging $50 per employee per month. I mean, that's three X my pricing. Like, am I leaving a ton of margin on the table for what I'm doing? Or is that my fault in that I came in at

[00:18:13] $150 a month or did my customer demand I come in there? I think oftentimes I see people get, they run into the same situation I did back when I was a sales rep where they're spending the money for the customer. Did you actually attempt to sell them at the rate that you could be very profitable or did you come in low because you thought they needed it low? Big question for you there. All right. So now the interesting thing here also that I got a chuckle out of is the anti-PEO

[00:18:39] play. So a lot of the marketing is referencing, you know, Hey, this is a great option for those of you that are not interested in a PEO, not interested in co-employment, not interested in benefits, not interested in all the things. I think it's really interesting that people try to make co-employment out to be this big negative. If you even search, like what are the risks of co-employment? All of the risks that are cited as the top risks are related to contingent staffing, which is effectively

[00:19:08] like hiring like through a staffing agency and having them work on site at your organization. It's just not the same through a PEO. It's a tired narrative. It's a whole bunch of fear, uncertainty, and doubt BS that a lot of payroll providers are trying to push. I mean, look, I'm obviously biased. I own a PEO, but you should know that when you're going in and you're just trying to create this fear, uncertainty, and doubt around something that's not real. I could never sell that way. I remember back in that same period of time, I guess this is the Matt walking down his

[00:19:36] ADP career history lessons show, but everybody was trying to sell against the affordable care act by calling it Obamacare and selling about all the fear, uncertainty, and doubt about things that were going to get rolled out 24 months from now, maybe, and like booking appointments on it. I just refuse to do it. Like I'm not an ambulance chaser. I'm not going to create the FUD around things that don't exist, might not exist, you know, or just aren't even real. Right. So you do

[00:20:02] that whatever you want, but that's my style. So, you know, I think it is interesting. They want to sit down in front of people who have looked at a PEO in the past, or maybe they're comparing it to PEO great positioning. I don't see anything wrong with it. As long as you're like not fighting that co-employment battle. And if you are, you better have a, like a legitimate reason. I just have not seen a lot of legitimate reasons that anybody would be, should be concerned about

[00:20:25] co-employment. I literally might, I use a PEO obviously. And so I, there would be no concern to me as a matter of fact, if anything, I feel great as a client about the fact that they now have some skin in the game to make sure things are done right. If an employee comes back and wants to take punitive action against me, the PEO has got skin in the game. Like there's, you know, far more upside than downside. So the people who are going down that path though, I do think there's

[00:20:52] a really valid path there. We do occasionally hear, like I talked about earlier, like, I don't need all that HR stuff. I just need somebody to do payroll. I still disagree in that. Like, you know, we price our ASO model at $79 per employee per month. And if somebody asked me to do payroll only, I'll tell them it's still $79 per employee per month, because we're going to have to do all this HR stuff. You might not call our HR business partner and say, Hey, I'm thinking about firing Sheila today. What can I say and not say, but we're going to do all that HR work related to the systems around

[00:21:21] the payroll system, regardless if we get into doing managed payroll. And I think that's the only real way to execute. And heck, some people would say our 79 pepums low. Some people say it's astronomical. You know, again, don't spend my money for me. Now, the interesting thing I do think here, so why does the PEO positioning actually matter? Here's the hidden nugget. It's to get in the good graces of the brokers. So the brokers that are fighting PEOs that are looking for a solution to

[00:21:48] bring and battle the PEO. Now, Bamboo, as an example, has flagged their broker program right after the managed payroll launch. No coincidence there. Hey, we can help you build a PEO product to compete with PEOs. Now, there's also this huge trend happening. The more I get into the PEO weeds, if you will, is that this PEO broker market is enormous. So I did an episode a couple episodes

[00:22:13] ago about the PEO market losing 40% of its players, shrunk from 900 PEOs to 500 PEOs. A lot of people ask me, hey, is the industry shrinking? Absolutely not. The industry is exploding. And one of the primary reasons, obviously the reason that the industry shrunk was M&A, but one of the primary reasons why it's also growing are these PEO brokers. A lot of PEO brokers are one of two paths

[00:22:37] that I've seen. Former ADP total source or, you know, Trinet or whatever sales guy or gal who goes out and works for a brokerage. They can go out and sell any PEO they want, get higher commissions from the PEO than they would have made on their own commissions. And so now it's a win-win. They're going out and they're selling PEO. They don't have to fulfill still, and they can go and find you five different PEOs to quote from if you're the client and, you know, effectively pick the one with the highest

[00:23:04] commission for them. And I know if you're a PEO broker listening to this, you're saying, oh, we don't pick the one with the highest commission. I know when we weren't paying very high commissions, nobody would refer us to anybody. So there's definitely a correlation there. And I still know, even though that we are paying higher commissions, everybody just keeps bumping the needle up. So there's a big market there of PEO brokers that are out there. And so that's actually causing a lot of inflation on the PEO side. And you'll see it, especially with the bigger ones,

[00:23:30] a Trinet, especially really heavily reliant on PEO brokers, and they pay them a metric ton. So their prices are going to continue to go up, but that's going to help the Bamboo HR slash localized broker of the world to come in and say, hey, I'm charging 25 bucks, PEPM for managed payroll. And, you know, I can put this custom plan in place for you as a broker, man, really smart move by them. Nothing about it is unique. Nothing about it is innovative,

[00:23:57] but it is something where it was a good time to let the brokers know in their initial messaging and their press releases of, hey, this is a way we can fight PEOs. Oh, and by the way, our broker program is paying better than ever. So let's talk about the execution gap. We talked about it for a couple minutes earlier, but why is this harder than it actually looks? You know, and do you want to get into this? I talked to my good buddy, Kyle Moore. Shout out, Kyle, if you're listening to this, I know you've been anticipating it and you could probably expand on

[00:24:24] this a lot more than I could. Kyle's primary business at Pay Advisors is managed payroll so much so that he'll actually do it on top of whatever platform the client's on because he's a maniac and I love him for it. Just playing with you, brother. But he's been doing a long time and, you know, he had some good feedback in that just execution is going to be very difficult. You know, I think if you're expecting, you know, in his words, some of these vendors are underestimating what it really

[00:24:50] takes to do end-to-end payroll and acting as a company's payroll manager is a much different beast than supporting their payroll software. I said he sat in on one of the demos of one of these and was very unimpressed and looked more like managed data entry than true managed payroll. And I think that's really what you're going to get, right? It's a lot of managed data entry more so than what we've described and that's all the facets of payroll. So it'll be interesting to watch it play out. I think it creates two opportunities for you. You could say, Hey, look,

[00:25:17] clearly market trend is moving towards managed payroll. Maybe I should consider offering a managed payroll service or managed payroll services as they continue to pick up tailwinds and continue to make progress. I'm going to be able to come up and scoop those clients up after the fact that are unhappy with these managed service providers. Now, the challenge is I don't think that it's going to move tons and tons of units in terms of people that do it. I think if you are somebody who has a big

[00:25:43] client base, this is a good opportunity to say, do we want to offer this? We can offer it as an upsell to 10% of our client base will probably convert. Now we're 50 bucks pep them on that 10% that converted. If we can make that work, wonderful. If you're smaller, again, you're going to want to think in those terms of like, anytime I think about an upsell product, I kind of use 10% as the starting number. If 10% of our client base converted, would it be worth us offering this product? And if not,

[00:26:09] you know, the, and I often do this with, we, we sold our HRS solution to payroll providers for years. And if they had a hundred clients and they, you know, it's like, all right, so if only 10 of them convert, how much money is that? I mean, we're talking about a couple hundred bucks a month. What, what number are we talking about? Is it really worth it to roll out a new software solution at that point? I'm not that great at sales. Sometimes I like to talk people out of the deal. All right. So in closing, you know, if you're a, your PEO owner watching this, you know, I want

[00:26:37] you to know that it's my job to, to help you to stay up to date on this stuff and to create useful information from what the market's telling us. If it was useful, please make sure you subscribe. If you've not heard of the gentleman's agreement and the lady's understanding, I mean, this is the point in the show where I've got to tell you about it. Like, Hey, look, I make all this for free. I literally just stopped what I was doing. I'm, I'm late to get my lunch. I'm starving right now. I've got another meeting in 20 minutes. I'm crowbarring this in. All you got to do is,

[00:27:04] is hit the like and the subscribe button. Like that's our agreement. I make this for free. You hit the like and the subscribe and maybe share it with somebody on your team. You think it would get value from it. That's the gentleman's agreement and the lady's understanding. I appreciate you stopping by. I hope that you have a blessed day. Thank you. If you enjoyed that episode, please share it with someone else, you know, who might enjoy it and learn from this. And also please rate us five stars on your favorite

[00:27:32] podcast player. We really appreciate you taking the time to listen and also don't hesitate to reach out with other topics you'd like to hear more about. Thanks so much.