Dayforce and Workday

A few announcements:

1. MBI and I discussed APi Group in last month’s Never Sell episode (Spotify, Apple, YouTube, RSS Feed)

2. You can find a short NotebookLM-generated discussion about this post on Spotify, Apple, and many other podcast players (search for “scuttleblurb”).

3. I planned on writing up ADP and Paychex next, but I’m going to pass. Maybe another time. I have more interesting research projects at the moment.

AI-generated summary: This analysis examines the competitive landscape of Human Capital Management (HCM) software, focusing on Dayforce and Workday as key players. It traces Dayforce’s unique growth through a “reverse merger” with Ceridian, leveraging the latter’s tax and compliance infrastructure to build a unified cloud-based HCM suite with real-time payroll calculation as a core differentiator. The text then introduces Workday as the leading HCM solution for large enterprises, highlighting its “Power of One” philosophy and expansion into financial management (FINS) as a crucial growth area. Finally, the discussion evaluates the broader industry trends of AI integration and the shift towards profitability within the Software-as-a-Service (SaaS) sector, questioning the long-term sustainability of historical growth-at-all-costs strategies and the true impact of AI on enterprise software.

Related posts:

A tour through HR and payroll processing software: part 1 (Paycor, PAYC, PCTY) (5/27/25)

A tour through HR and payroll processing software: part 2 (Rippling, Deel, UKG) (6/18/25)

I.

I concluded Part 2 with the woeful tale of Ultimate Software, whose legendary employee-first service culture came unglued after it was acquired by private equity and merged into Kronos. Today, we start with the happier story of Dayforce, which was created through a merger that shared a similar strategic logic to Ultimate/Kronos but avoided the latter’s missteps under the leadership of founder and serial entrepreneur, David Ossip. A few years after completing the sale of his last venture, Workbrain, a workforce management vendor, to Infor in 2007, David returned to the HCM scene with Dayforce, another workforce management system. But whereas Workbrain’s WFN solution was on-premise and never expanded beyond a standalone point solution, Dayforce’s was built in the cloud and served as the prelude to a far more ambitious act.

Whatever components Dayforce’s HCM suite might ultimately include, its foundational pillars had to satisfy three of David’s core criteria: they needed to be universally adopted, hard to engineer, and even harder to dislodge. Workforce management was one obvious contender, especially given David’s past experience. Every significant wage-based workforce needs one and, in certain industries, the presence of unions, jurisdictional complexities, and layered labor rules turns time & scheduling into a high-stakes compliance puzzle. From part 2:

Employers with large wage-based workforces are required to navigate ridiculously complex compliance rules. Collective bargaining agreements can stipulate different overtime rates for evening vs. overnight shifts or limit the assignment of workers to certain tasks or locations. Some state labor laws mandate that workers be notified of schedules a certain number of days in advance or specify the cadence and length of meal breaks. Manufacturers run idiosyncratic shift requirements and assign roles based on skill profiles; hospitals dynamically adjust labor schedules based on real time occupancy forecasts.

By the same criteria, payroll was the most obvious next adjacency, all the more so because it acts as a natural complement to Workforce Management. In an ideal system, clock-in/out events captured by time & attendance systems should automatically flow through to payroll, preventing mismatches between hours worked and hours paid that can occur when time data is batched and ported to a third party engine. Also, jurisdiction-specific tax rules need to be taken into account, tax forms and payments sent on time to the proper agencies.

More so than the calculation logic, it’s the tax and compliance policy aspect of payroll – keeping abreast of tax rules and labor requirements across thousands of US jurisdictions – that’s so difficult to build and maintain. In its early push to develop a native payroll solution, Dayforce lacked this critical capability. So it turned to Ceridian, a robust but ancient tax and payroll service bureau, founded in 1932, that at the time was grappling with declining revenues, an antiquated tech stack, and a monstrous $3.5bn debt load¹ stemming from its $5.3bn leveraged buyout by Fidelity National Financial and Thomas H. Lee Partners in 2007.

In 2011, Ceridian took a minority equity stake in Dayforce, who began building a cloud payroll solution for Ceridian and delivering its time & attendance solution to Ceridian’s customer base. That relationship culminated in a merger less than two years later. As has been amply demonstrated by Ultimate/Kronos, such M&A engagements typically end with the older, bigger acquirer sucking the life force out of its smaller, younger target. What made the Dayforce acquisition so unique is that the power dynamics were deliberately reversed from the start. Ceridian, the far larger of the two, technically acquired Dayforce, but Dayforce called the shots. And unlike ADP, which had spent years trying to upgrade its tech and position itself as a modern SaaS, with mixed results, Dayforce never set out to transform Ceridian into a cloud-native HCM platform. Instead, it took the cleaner route of building its own suite from scratch and reverse merged into Ceridian to tap into the latter’s tax and compliance infrastructure, a rich asset that would have taken Dayforce years to replicate on its own. David Ossip was named CEO of the combined company and charged with reinvigorating the culture, simplifying operations, and scaling the Dayforce cloud HCM. With its crushing debt load and waning commercial prospects, Ceridian was in no position to argue otherwise. It could either embrace Dayforce’s agenda or risk extinction. The Ceridian name was officially retired last year and replaced with Dayforce, reflecting the company’s center of gravity.

From the very start, Dayforce’s core premise – and stop me if you’ve heard this one – was to replace a disjointed collection of point solutions with a modern, integrated cloud-based HCM suite. The twelve HR systems used by an average enterprise, each with its own database and interface, can be reduced to a single Dayforce suite, with all constituent modules tethered to the same database, data flowing between them like butter on a heated pan.

Paycom, in fact, delivers the same exact pitch and, in its dogmatic insistence that every one of its product be built organically, arguably shines as a purer expression of it. But Paycom also plays much further downmarket, where requirements are less demanding. Dayforce is the only enterprise player² who offers a unified architecture…or, to quibble, is the closest an enterprise player gets to doing so. In truth, no one with a big international footprint can claim to be native down to the studs everywhere. Nor should they. It makes little sense to keep ongoing track of tax code and labor law changes in low volume regions. Instead, Dayforce takes a hybrid approach. In the 10 or so countries where enough clients have a significant presence, it offers a native payroll engine. In 12 other countries, Dayforce acquired local payroll players, mostly low-tech, non-cloud operations that have been harmonized with the rest of its platform through a unifying integration layer. It works through partnerships everywhere else. The complexity of this heterogeneous setup is abstracted away from the customer, who signs a single contract and interacts with Dayforce through a unified interface.

Workforce management and payroll were the twin engines that thrust Dayforce into contention for enterprise deals. Their joint development on a single database enabled what lay at the heart of Dayforce’s right to win: continuous payroll calculation, in which time and attendance is synchronized with the payroll engine in real time, rather than batch-processed at the end of each pay period. With those key pillars in place, Dayforce began layering on secondary modules – recruiting, onboarding, performance management, learning management – that lacked the gravitas of payroll and WFM but were nonetheless strategically essential to a unified HCM stack and financially important as drivers of incremental PEPM. Investments in these adjacent domains were supercharged by the 2020 appointment of Joe Korngiebel – former CTO of Workday, where he had spent 14 years – as Chief Product Officer. To aid its push into the enterprise, Dayforce also leaned increasingly on partners, including system integrators like Accenture and Deloitte, who in 2024 “influenced” 40% of its deals, up from ~single digits in 2019.

Its strength in payroll also set the foundation for two other solutions running on top.

The first is a managed service offering, where Dayforce runs payroll on behalf of customers. Management claims that the compliance intricacies of payroll render it too complicated a task for the relatively low-skill, high turnover clerks that most enterprises have staffed in payroll departments. This is especially true in industries like retail, hospitality, logistics, manufacturing, and healthcare, which together account for roughly 65% of the employees managed on Dayforce’s platform and are marked by especially complex compliance demands: wage differentials tied to shift work and project type (e.g., government vs. commercial), reciprocal tax agreements across states, and a host of other intricacies. Why run payroll in-house at all when it can be outsourced to a third party staffed with attorneys and compliance specialists dedicated solely to this singular function? Dayforce initially approached the opportunity with caution, wary of its impact on profitability. But after layering in automation and offshoring certain functions to lower-cost markets like the Philippines, its managed services gross margin reached parity with software. With profitability no longer in question, management pushed forth. Last quarter, Dayforce disclosed that payroll services bookings, now 10% of the total, grew 70% year-over-year.