3 trends driving fragmentation in the SMB payroll market

To best serve their customers, technology-first companies are looking to leverage the power of payroll and HR data. But with thousands of providers and more than 600 payroll systems on the market, that can mean building out many tedious integrations. Fortunately, there’s a better way.

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It’s no secret that employers are demanding greater connectivity between software systems than ever before. Tech-forward companies, looking to meet this demand, have started offering innovative solutions that leverage data from employers’ payroll systems.

Unfortunately, comprehensive payroll data is getting harder and harder to access. There are almost 6,000 payroll providers in the U.S. — a figure that includes everything from mom-and-pop accounting shops to software companies. From a software standpoint alone, there are more than 660 payroll systems used by the 6.3 million employers across the country. 

Staying competitive in this market means executing a successful integration strategy. The first step is for these companies to understand what the current payroll market looks like, which factors are driving diversification, and how using APIs that span multiple systems can help them access more data, build smarter and faster solutions for customers, and ultimately boost their business. We break this all down — and then some — in our Guide to the U.S. Payroll Landscape. 

First published in 2021, we’ve updated our guide to reflect how the payroll market has changed over the last four years and have added new data for Enterprise and International payroll providers. In this post, we’ll share a few takeaways from our research, including the three biggest trends influencing the SMB payroll market in 2025.

Finch's Guide to the U.S. Payroll Landscape (Updated for 2025)

A heavily fragmented market

The latest data indicates there are approximately 665 payroll providers in the U.S., which process more than $7.3 trillion in payroll annually. SMBs account for little over 39% of that total, or $2.9 trillion. 

Note: Because SMBs account for 99.7% of all U.S. employers, we’ve broken down the market share of each payroll provider based on their SMB customers.

The top three payroll providers—Intuit Quickbooks, ADP Run, and Paychex Flex—cover almost half (46%) of SMB employers nationwide. But extending to the top 10 only increases that coverage to 60%. For comparison, the top 10 accounting systems collectively cover 95% of the SMB market.

What’s more, beyond the top three, all other payroll providers each have less than 5% of the total market share, with coverage quickly tapering off. A number of these are newer platforms—like Gusto and Rippling—that have appeared over the last decade to satisfy evolving SMB needs and a growing demand for self-serve products with transparent pricing.

Since 2021, the SMB payroll market has contracted slightly — the top 10 providers have increased their combined market share by about 5%. But while younger companies like Gusto and Rippling have grown their market share significantly, newcomers continue to enter the market, typically with a unique niche or angle. Examples include Every and Warp (built for startups), Seso (for the agriculture industry), and Hammr (powered by Check and made for construction companies). While none of these companies has amassed a significant market share yet, continued innovation in the payroll space indicates that there is still plenty of volatility in the market and opportunity for new solutions to gain meaningful traction.

That means we can expect the industry to remain fractured in the coming years, as innovators continue to emerge and respond to changing market conditions.

In particular, there are three trends to watch that are spurring fragmentation in the U.S. payroll market. Let’s take a closer look at each.

Trend 1: SMBs typically pick a payroll provider based on their demographics

A business’s payroll system plays a critical role in its operations, and switching platforms comes at a high cost—so picking the right provider is essential. Still, SMBs often select a payroll provider based solely on demographics, including factors like:

• Number of employees: As an organization grows, it encounters a broader and more complex range of compliance requirements and payroll schedules.
• Industry: Depending on the industry, an employer’s workforce may have various worker types such as seasonal, temp, salaried, hourly, apprentice, interns, and so on, which introduce unique HR workflows. 
• Workforce location(s): With both remote work and international teams becoming more common, even among SMBs, it’s important that the employer choose a system that is able to support payroll in most, if not all, of the locations they have employees.

Only secondarily will SMBs look to the core capabilities and key features of the platform itself — such as options for customization, time tracking, benefits, insurance, and customer support. That means SMBs may not look for the best provider overall, but the best fit for their business.

Trend 2: World events are reshaping purchasing decisions

External circumstances also impact how employers think about payroll and the support they need from their payroll providers.

Some of the most pressing considerations include:

• Hybrid work, which has become a common practice among white-collar employers that can afford to have employees work remotely as well as in an office with limited impact to productivity. Some providers offer a range of remote-focused workforce management tools that can help an employer easily onboard and manage new talent. 

• The growing demand for interoperability has made integrations with other HR applications table stakes. Employers want end-to-end data connectivity to streamline operations, reduce manual data entry, and minimize errors. Some payroll providers integrate with a wide range of HR applications, giving them an advantage in both acquiring new business and retaining ARR.

• Increased regulations to protect employee data have upped the ante on compliance for employers, who are increasingly prioritizing payroll systems that offer robust security measures. Payroll providers that include a broader array of compliance tools can help employers adhere to regulations without fear of penalties. 

Industries that have their own regulatory bodies and in-person staffing needs — like food service, hospitality, construction, and agriculture — are particularly vulnerable to shifting conditions and face an even more complex decision when choosing a provider to accommodate them.

Trend 3: White-labeled and embedded solutions are powering new, tech-forward platforms, and PEOs have grown in popularity 

White-labeled and embedded solutions allow other companies to build payroll capabilities into their existing systems—essentially enabling any platform to become a payroll provider.

• White-labeled platforms like isolved and PrismHR allow HR systems, service bureaus, and professional employment organizations (PEOs) to keep their current branding and service models while providing the underlying infrastructure to power a range of human capital management (HCM) solutions.

• Embedded payroll platforms — such as Gusto, Check, Zeal, and Salsa — use an API to embed a payroll application into an existing product. While still nascent, this market has the potential to expand across vertical SaaS, the gig economy, HR tech, and fintech.

• International payroll providers have grown in popularity as it’s become increasingly common for U.S. businesses of all sizes to employ non-U.S. residents. To manage the complexity of international payroll, many employers have turned to  Employers of Record (EORs) or international PEOs, both of which are experiencing robust growth. The EOR market is expected to grow by a compound annual growth rate of 6.8% by 2032, while the PEO market is expected to grow at a rate of 10.9% by 2031.

As technology advances, it’s becoming easier for new companies to add payroll to their list of services and capabilities; and as international employment becomes more common, international PEOs and EORs are emerging and quickly gaining traction. Both trends are making it harder for any one provider to win a market majority.

The problem with payroll fragmentation

Market fragmentation means businesses serving SMBs have to integrate and coordinate with multiple payroll providers to cover a sufficient swath of their customers. It’s hard enough to build and maintain an integration with one platform — let alone hundreds or thousands.

Integrating with the top one, three, or ten payroll providers might allow a company to cover half of their customer base. But to efficiently serve the other half — or tap into new regions and industries — would require many incremental builds, draining time and resources.

To tackle this coverage issue, many fintechs, benefits platforms, and other B2B companies are turning to digital solutions that take a more comprehensive approach to payroll data and roll hundreds of payroll integrations into a single platform. That’s where Finch comes in.

How Finch can help

Finch’s Unified Employment API connects to an extensive network of payroll systems, and we are continually adding new integrations. Right now, we have compatibility with over 220 systems (and counting). 

That means, with Finch, product teams designing solutions for SMBs don’t have to worry about building any integrations in house or reconciling inconsistent data outputs from different systems. They get secure, standardized, and effortlessly scalable access to the fragmented payroll market right out of the box.

To start building with Finch, reach out to our Sales team or test it out in our sandbox for free.