Payroll services based on new internet technologies have become profitable for many accounting firms, contribute to efficiency at tax time, and provide a hook to pension plan services, making payroll service a much better source of revenue than it was five years ago, according to the Journal of Accountancy. Small businesses are cheering this news, says Jim Heeger, writing for accountingsoftware.com, because according to a recent survey by the National Payment Corporation, 90 percent of small businesses want their accountants to handle their payroll.

Today’s systems are reasonably priced and with dual access, allow seamless collaboration with the client. The client can log on to do data entry, for example, and the professional can check in to review tax filings without having to call the client, Heeger says. The best systems are updated in real time, with no need to make updates in multiple files.

“Payroll services are about 3 percent of my practice, but offering them is a part of being a full-service accounting firm,” says Daniel M. Ukestadt, a Carmel, California, sole proprietor, the Journal of Accountancy reports. Ukestadt provides “after the fact” payroll services for a dozen small business clients and also prepares domestic staff payroll for older individuals with household help. He provides tax and consulting services for these clients, but not audits.

Joseph Maloney, principal in Maloney, Reed, Scarpitti & Co. of Erie, Pennsylvania, said that his firm handles the whole process for most payroll clients. But he cautioned that certified public accounting firms need to consider independence issues when offering payroll services.

“Our involvement in our clients’ payroll is great," Maloney said, according to the Journal, "but when we have signature authorization over the client’s checking account or are involved in the management of employee payroll information, we have had to disclose the fact we are not independent in some cases.”

CPAs looking at the many new Web-based packages will find that the start-up and training costs for payroll are minimal compared with software packages, Heeger says. In addition to comparing monthly subscription costs, he recommends that practitioners:

• look for “hidden fees” that might be associated with direct deposit, tax return filing or customer service,
• investigate one-time only fees for set-up,
• choose packages that have free trial periods so that the user can make sure that the packages are easy to use and meets his or her requirements,
• confirm company references,
• check the Web-based company’s security policy, and review the company’s cancellation policy.

Reliability is the number one concern of every payroll services client, the Journal says, and it is critical that accounting firms who provide this service:

• cross train their staff so that at least two people have experience with every client,
• get the checks right,
• where clients perform data entry tasks, charge for late entries,
• keep strict internal controls.

When the client is a large company, and uses one of the large payroll service companies like Paychex or ADP, the client should confirm that the provider has had an SAS 70 audit performed by a reputable CPA firm, bizjournals.com says.

Noting the growing interest on the part of small businesses in combining accounting functions with payroll, bizjournal.com looks to the needs of small businesses and says, “If you’re a small, growing company, . . . you might prefer to go with a smaller payroll service that offers other accounting services that will be helpful to you as you grow.”

The smaller payroll service, and other services that will support the company’s growth, might well be provided by their CPA firm.