The payroll business looks deceptively simple from afar—move money from employer to employee, square it with the taxman, repeat twice a month. Up close, it’s a thicket of rules that change by jurisdiction and season, with penalties for mistakes, security risks that never sleep, and a customer base allergic to downtime. That mix has created one of software’s most durable profit pools and a handful of listed champions with unusually high retention and cash generation. In 2025, the center of gravity still sits with Automatic Data Processing and Paychex, but the cast around them has reshuffled, and the moats that matter—compliance scale, switching costs, and float—are being tested by a new wave of embedded platforms and richly funded private insurgents.

Start with the scoreboard. By revenue and installed base, ADP remains the dominant force in U.S. payroll, extending from small businesses to global enterprises with a full-stack HCM suite and a large PEO business. Market researchers peg ADP as the largest single vendor in global payroll applications, with roughly a 10% share in 2024, ahead of specialized mid-market SaaS names like Paycom and Paylocity. That share figure understates the company’s influence in the U.S., where many accountants and brokers default to ADP for its breadth and integrations.

The sector’s most meaningful consolidation this year arrived when Paychex bought Paycor for $4.1 billion. The tie-up formally closed on April 14, 2025, and pushes Paychex further up-market, marrying its distribution and service engine with Paycor’s cloud HCM geared to complex midsize employers. Management touts broader AI-enabled workflows and cross-sell into larger accounts; the headline is simpler: the number two incumbent just neutralized a direct challenger and gained speed in the 100–1,000-employee band that’s been fertile ground for the cloud natives.

If ADP and the fortified Paychex sit atop the pyramid, the mid-market specialists form its ambitious middle. Paycom has carved out a recognizable lane as a single-database HCM with employee self-service at the core—a design decision that compresses back-office workload and drives high module attach rates. The company still posts double-digit recurring growth and high-40s adjusted EBITDA margins, a sign that once a client’s data and processes live inside Paycom, inertia works in its favor. Even Paycom’s guidance breaks out “interest on funds held for clients,” a reminder that these providers are quasi-financials when rates are high. Paylocity, meanwhile, keeps leaning into product breadth and is pushing beyond HR into finance workflows, trying to become the system of record for both people and numbers inside the SMB back office. Its recurring revenue growth remains healthy as it expands wallet share inside existing accounts.

The other headline name is Dayforce, the company formerly known as Ceridian. It completed a formal rebrand last year; this August, private equity heavyweight Thoma Bravo agreed to take Dayforce private in a $12.3 billion deal, betting that the asset can run faster off the public market while shouldering a modernization agenda and AI investment cycle. For public-market investors, the takeaway is practical: one fewer pure-play listed HCM competitor and another proof point that patient capital still sees long runways in payroll-adjacent software.

Moats in payroll look old-fashioned because they are—regulation density, distribution, and scale economics. The heaviest pillar remains compliance. The ability to keep fifty states and thousands of localities current on rates, remittance schedules, leave rules, garnishments, and reporting is a data and process problem that never ends. Providers spread that fixed cost across millions of paychecks, which is why the top platforms enjoy structurally high gross margins and near-religious renewal. Switching costs are next. Moving payroll isn’t just flipping a vendor; it’s migrating historical earnings, taxes, benefits, time and attendance, and hooks into accounting and ERP. The migration window tends to be narrow—often year-end—and the career risk of a botched switch is non-trivial. That’s why mid-market specialists like Paycom spend so much energy onboarding employees directly to the app and training them to self-serve; once populations are trained and data lives in a unified model, CFOs are reluctant to uproot it.

The third pillar is float. Because payroll providers collect client funds days before disbursement and tax remittance, they invest those balances in conservative securities. When policy rates rose, that financial tailwind became a gale. ADP reported interest on client funds of roughly $1.2 billion for fiscal 2025, up double digits; Paychex disclosed a similar dynamic at smaller scale, with “interest on funds held for clients” growing as balances and yields rose. As rates normalize, that booster fades, but the lesson is durable: in tight spreads, operators with scale and balance-sheet discipline are cushioned in a way smaller upstarts are not.

Competition is no longer just the company down the street pitching a lower per-check rate. Embedded payroll from platform companies now targets merchants and very small businesses where simplicity outranks configurability. Square’s payroll, welded to its POS and time-tracking, is priced with radical transparency, and the setup lives where SMB owners already run their day. Intuit’s QuickBooks Payroll plays a similar hand inside the accounting system that dominates small-business ledgers. Neither is an immediate threat to the multi-state, 300-employee manufacturer with a union shop and complex benefits, but together they siphon off the smallest customers and raise the bar on ease-of-use expectations.

At the higher end of the insurgent spectrum, privately held Rippling has turned heads by fusing HR, IT and finance into one control plane, arguing that the “system of record” should track both people and the devices and permissions they use at work. Fresh financing this spring, at a valuation near $17 billion, gives it firepower to expand modules and push further into payroll and PEO. It is not yet public, but it already shapes the product roadmap debates at the listed peers.

Security is the moat’s soft underbelly. The UKG/Kronos ransomware attack in late 2021 knocked out scheduling and time-keeping for swaths of employers and ended in a class-action settlement—an expensive reminder that time data is payroll’s fuel and that a cloud outage can cascade into missed paychecks and costly manual workarounds. Big providers have since doubled down on redundancy and incident response, but the reputational cost of a high-profile breach is hard to quantify and longer-tailed than most operating risks.

Two other risks deserve attention. The first is policy churn. Overtime rules, paid-leave mandates, and contractor classifications can swing abruptly with political cycles. Providers are paid to keep up, but the complexity can push customers to outsource more—good for revenue—or to simplify their workforce structures in ways that reduce billable modules. The second is macro exposure via headcount. Even with high retention, payroll revenue has a unit lever tied to the number of employees on a client’s books. PEOs like Insperity and TriNet add another layer: they act as co-employers and pass through benefits, so spreads on healthcare and workers’ comp can make results more cyclical than pure software. For investors, the filings are clear about that model’s strengths and sensitivities.

Where does this leave the listed set as a portfolio? ADP remains the reference wide-moat—global scale, deep compliance content, and a financial model that converts revenue to cash with startling regularity. Paychex, now larger and more rounded after absorbing Paycor, looks like the sector’s most interesting compounder for the middle market, provided integration synergies land and cross-sell doesn’t dilute service levels. Paycom and Paylocity have room to run by defending high-quality growth in their lanes and continuing to turn modules into durable ARPU expansion; each benefits from the “one database” virtue that reduces downstream friction. Dayforce’s pending take-private removes one more pure-play from public comps, but it adds a comparable offstage barometer for how much private capital thinks these assets can be optimized. And the perimeter pressures from Intuit and Square will keep everyone honest on usability and price at the low end, even as Rippling keeps aiming up-market with a connective-tissue narrative incumbents will have to answer.

The conclusion for a quality-investing lens is straightforward. The best moats here are not just lines of code; they are living rulebooks, long-trained user populations, distribution webs with accountants and brokers, and balance sheets that benefit from the tide of rates. Those advantages aren’t easily cloned. The threats—security lapses, policy whiplash, embedded competitors redefining “easy”—are real, but they primarily trim the edges rather than erode the core. In payroll, the paycheck still has to go out on time, every time. The names that do that at scale, quietly and predictably, will keep earning their premium.