Online payroll processing technologies are rapidly changing the economics of payroll services and are providing profitable solutions designed for accountants whose small business clients want help managing the process.
"Offering payroll services leads to a higher retention level. The client has the need and can go somewhere else," says Phil Christensen CPA, sole proprietor and owner of Christensen Consulting LLC in Olympia, Washington. "Even though payroll can involve insurance, garnishments and other matters, in the mind of the business owner it is all about tax, and it is a service he wants from his accountant."
Walter Turek, Senior Vice President, Sales & Marketing at Paychex, Inc. acknowledges the client demand, and says that Paychex has found in surveys of accounting professionals that "most CPAs are involved with some type of payroll processing for some segment of their client base - in most cases, because of client demand."
"Payroll is right for some but not for every accounting firm. It depends on the nature of the business," says Michael Alter, of SurePayroll, an online payroll service provider. "One clear advantage," says Alter, "is that it is a 'sticky' service and binds the client to the firm."
Accountants who may be reluctant to get involved in payroll should consider the features of the fully automated web-based products, the costs of providing the service, best practices adopted by some practitioners, and some of the benefits that payroll services bring. Here are 10 factors to consider when preparing to offer payroll services.
1. Scope of service
An initial decision each firm must make is how involved they want to be in payroll processing - whether to actively process the payroll, to become involved in reviewing filings and quarterly payments, or to outsource payroll under the accounting firm's name, says Julie Lubetkin, marketing director, Accounting Professional Program at PayCycle. Most payroll solutions companies that offer products designed for accountants give a range of options. PayChex, a giant in the industry, is positioned to meet the accountant's needs regardless of the role they want to play, Turek says.
Before deciding the scope of service, "the accountant needs to consider cost," says Turek, "and not just the hard costs of the labor, software, hardware, supplies, etc. it will take to process payroll, but the opportunity cost as well. Are there more profitable, more consultative roles that their clients need them for, and expect them to be proactive with?"
Online payroll processing products designed for accountants by companies like PayCycle, SurePayroll and ADP Small Business can process 940's, 941's, W-2s and 1099 forms, federal and state tax returns and payments, and produce quarterly reports that accountants can access from their office or when traveling.
2. Access and data security
Accountants who decide to share the payroll responsibility with clients also need to decide whether the client should have full access to all of the features of the online payroll system. Christensen, who partners with PayCycle, recommends that accountants share access with the client, the business owner and/or the office manager so that the client enters time detail, eliminating the need for telephone calls and faxes and other administrative headaches for the accountant. The accountant will have access to all payroll data for quarterly filings and reports.
Clients may raise the issue of data security with accountants during a discussion of online payroll processing. "Payroll service companies have security levels commensurate with national banks," says Alter. "SurePayroll partners with national banks and is subject to all kinds of scrutiny."
3. Training costs
Christensen, a sole proprietor with 70 payroll services clients, sets up the client account as a service, trains the client, and makes changes to the account when required - adding new employees, or making changes in withholding or compensation, for example. He finds that his up-front cost for each client is approximately 40 minutes for setting up the account with social security numbers and other detail, and he schedules another 40 minutes to train the client to use the payroll package.
4. Personnel costs
Dave Awe of David Awe, CPA and Consultant, in Grand Prairie, TX, who partners with PayCycle, says that his clients are churches that have special needs and compliance issues that they may not even be aware of. Awe is able to set up the client's level of involvement and his own in the payroll process, depending on their needs. He has found that he can assign monthly administrative tasks to his staff.
But accountants who serve clients with more employees and complex payroll issues may find that resolving the issues themselves is too time-consuming and may decide to fully outsource payroll service.
5. Direct deposit and e-filing options
While most solutions providers will print pay checks, Christensen recommends using the direct deposit option for paychecks and tax payments. Online service providers who e-file will also prepare printed W-2s, 941's, 940's and 1099s that can be sent to the client.
6. Choosing an online partner
It is important to pay close attention to all of the features an online payroll product offers and then to take advantage of these features, Awe says, and partner with companies with extensive payroll knowledge. Monthly subscription costs vary, but they can reflect the kind of back office processing tasks the product performs and the time savings to the accountant. Online payroll companies should offer flexible support, training, and, in the best case, a free trial.
7. Start small
Accounting firms should start with a few clients and see how it goes as they figure out their systems, processes. "Sustainability is very quick," Christensen says. "Firms should try to scale the process."
8. Billing - flat fee or bundled with other services.
Some firms bill their clients a flat annual fee for the payroll service, asking for 50 percent up front, but others bill for time, depending on the service provided to the client.
9. Flexibility offered by web-based systems
Accountants are no longer tied to the office on payroll days. Awe completed a payroll in a cybercafé while on vacation in Africa.
10. Advantage of recurring revenue
Payroll services produce a steady reliable stream of revenue and can save in general operating costs, particularly for a tax practice. Expensive rework due to errors in data entry is minimized at the end of the year, because payroll data from online solutions providers can be downloaded directly to accounting software.
Payroll service partners are constantly upgrading their products to meet accountants' needs and to allow custom options, according to Julie Lubetkin of PayCycle. PayCycle is offering free payroll services to accounting firms for their own firm's use for 12 months.