Earlier this week, it was announced that my firm, Group 11, has become a major investor in Papaya Global, a leader in global Human Resources (‘HR’) & Payroll digitization. Papaya’s platform is transforming the entire global payroll process of manual paperwork, spreadsheets, and non-compliance risk into one automated interface. As part of this secondary investment, I will join Papaya as a board observer.
This investment echoes Group 11’s larger thesis around financial technology’s disruption of dated business models, and the larger macro-economic movement towards business automation.
Further intensified in today’s environment, executives are increasingly looking for additional ways to grow their business’ gross margins by decreasing operating costs vis-a-vis headcount reduction and implementation of additional automation through software throughout their company’s business units.
The HR business division is a fertile ground for business automation efforts as many HR processes and services are in dire need of becoming fully digitized in order to improve a company’s bottom line along with retention and high employee satisfaction
Papaya has built an online platform that facilitates this automation which results in major cost reductions, improved operational efficiencies, and ultimately a far more scalable HR management for their clients, supporting all type of workers globally: payroll employees, EOR, contingent employees, and contractors.
HUGE Market Opportunity
Papaya operates in two massive, overlapping markets. The first, HR Software (often referred to as Human Capital Management or HCM Software), is a $27BN annual, global market. The digitized services offered include: employee onboarding, benefits, workforce collaboration, expense management, paid time off (PTO), payroll, employer compliance, and employee data management.
The second is Professional Employer Organization(‘PEO’) or Employment of Record (‘EoR’) services. Papaya, or any PEO, is a company that operates as the outsourced HR service provider for other businesses. In 2019, the US PEO industry generated $217BNin gross revenues, with over 900 US-based PEOs servicing more than 175,000 businesses.
As both an HR software solution and a PEO service provider, Papaya targets both of these massive and overlapping markets.
Why Would Businesses Outsource Human Resources?
Most enterprises with more than 1,000 Full-Time Employees (‘FTEs’) have the working capital and infrastructure to maintain large HR departments that match their specific size and needs. In sharp contrast, many Small and Medium-Sized Businesses (‘SMBs’), with less than 1,000 FTEs, who also have global growth aspirations, are faced with the challenges of managing a global HR department without the resources and tools to do so.
They are required to facilitate global payroll, benefits, workers comp, healthcare, as well as attract new international hires with competitive compensation. Rather than allocating their limited resources to expand headcount in revenue generating departments (such as global Product or Sales), SMBs must also dedicate resources to increase internal HR headcount.
If that is not enough, now also factor in the geographic considerations those SMBs now need to account for, the different languages, currencies, national tax laws they need to adhere to, insurance they now need to obtain, data privacy compliance, local laws, etc. — the hurdles only add up. It’s a huge (and a rather costly) headache.
These additional costs quickly add up when businesses consider increasing global headcount. As a patchwork solution, SMBs often outsource each HR service to multiple vendors (e.g. a vendor for payroll, a vendor for healthcare benefits, etc.), then train their employees on the different systems and processes. That said, and for obvious reasons — This current model of HR services for globally-minded SMBs is fragmented, expensive, and inefficient.
Introducing Papaya’s One-Stop Platform To The Rescue
Papaya is a digital workforce management solution that handles all of a global company’s Human Resource services. Papaya serves as both the HR software platform and an HR service company. Their one-stop platform provides payroll (cross-border payments in desired currencies), local employer compliance, global employer taxes and labor guides, employee benefits (health insurance, retirement, etc.), business intelligence (BI) reports (PTO, punch cards), immigration documents, and GDPR compliancethrough their PEO, Payroll, and Payments service lines.
As a PEO for many of their hundreds of global SMB customers, Papaya serves as the outsourced, full-service Employer of Record (EOR), assuming responsibility for payroll, workforce management, benefits, compliance, and other HR functions.
This provides globally-minded companies the benefits of a global workforce and HR department, without the associated cost or added headcount of an expanded internal HR department.
Papaya’s PEO offering allows SMBs to globally scale headcount, onboarding or letting go of employees in hours rather than weeks. Through their Payroll service, Papaya manages clients’ entire payroll process, benefits, and local tax compliance based on geography. Lastly, Papaya’s Payments feature manages cross-border payments, ensuring that workers are paid in their desired currency and receive payslips in their native language.
No other HCM software or PEO provides all of these services in a single, digital, easy-to-use interface for globally-minded SMBs. Papaya eliminates the need for a patchwork of vendors with its cost-effective, one-stop SaaS platform, that requires no IT efforts from the customer side.
Papaya’s Stellar Team
To match their customer base, Papaya has built a truly global team of passionate HR, compliance, and technology specialists with offices in the US, Australia, China, Israel, and the UK.
As businesses increasingly adopt software automation to maximize efficiency, Papaya is leading the way in global human resources automation. As they’ve grown, Papaya has found that managing global workforce efficiently is not only an SMB pain, it goes all the way to the world’s largest brands. These large brands find themselves managing payroll and employees in dozens of different countries and thus must build multiple, specific workflows even if they use digitized HR software.
Regardless if their customers are an SMB or a large enterprise, Papaya’s platform streamlines and addresses their needs perfectly through automation of the payroll cycle and creating global control.
In line with Group 11’s investment thesis, Papaya is a software solution that is revolutionizing financial services and outdated business models through automation and digitization. Papaya solves a complicated and cost-intensive pain point for which there is a large, global demand. As such, Group 11 believes Papaya has all the ingredients needed to become a category-defining company and market leader.
2019 Deloitte Human Capital Trends Report. www2.deloitte.com/content/dam/Deloitte/global/Documents/Technology/gx-tech-di-hc-trends-2019.pdf
Top 10 HCM Software Vendors, Market Size and Market Forecast 2018–2023. www.appsruntheworld.com/top-10-hcm-software-vendors-and-market-forecast/
2019 KPMG: Certified Professional Employer Organizations. home.kpmg/us/en/home/insights/2019/05/tnf-final-regs-cpeo-employee-leasing-companies.html
IBISWorld Industry Report 56133, PEOs in the US March, 2019. netprofitgrowth.com/peo-industry-statistics-2019/
An Economic Analysis: The PEO Industry Footprint in 2018.Laurie Bassi and Dan McMurrer, McBassi & Company. September 2018. Sponsored by the National Association of Professional Employer Organizations. www.napeo.org/
GDPR checklist for data controllers. https://gdpr.eu/checklist/
Papaya Global About Us. papayaglobal.com/about/