Paychex, Inc. (NYSE: PAYX) processes payroll, handles employee benefits, and offers related human resources services for its over 554,000 clients.^[1] Most of its clients are either small or medium-sized businesses with fewer than 100 employees; such firms make up 98% of its customer base.^[2] Rochester, NY-based Paychex does nearly all of its business in the U.S., although it also serves 900 clients in Germany through offices in Hamburg, Berlin, Munich and Dusseldorf.^[3]

Paychex's market exists because developing and administering a payroll processing system is too expensive or time-consuming for many small and medium-sized businesses to do themselves, but Paychex's scale advantage and specialized expertise let it carry out these functions much more efficiently. While the firm's Core Payroll segment accounts for most of its payroll processing business, it also has a Major Market Services (MMS) segment for its larger clients. MMS offers payroll processing in the format of software-as-a-service - i.e., clients pay a fee to use Paychex's software on their own servers and administer the system through an in-house human resources department.^[4]

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