Chief Strategist Rootworks
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Why CPAs Can Perform and Outsource Payroll

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Because payroll required specific software and explicit knowledge of multi-state and locality tax rules and regulations, multiple peak seasons per year, and a lot of manual work, offering payroll processing wasn’t necessarily a valuable service for firms to provide. This is no longer the case.

Dec 15th 2021
Chief Strategist Rootworks
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With advancements in technology and accountant-specific services, having a payroll service model for your firm has become a no-brainer.

It’s no longer, “Do I offer payroll or not?” It’s, “Why not both?” If you’ve thought, “Payroll isn’t really for my firm,” you may have been right…in the past. But that’s not the case anymore.

Let’s talk about some common misconceptions that cause firms to shy away from payroll services today.

1.  The Technology is Complicated

Several years ago, this statement was true. Firms not only had to invest in the right technology for processing payroll, but they were also required to keep that technology updated––most often through a manual installation process––to stay current with multiple state and locality tax rules and regulations.

With cloud-based applications like RUN Powered by ADP® Payroll for Partners (RUN for Partners), gone are the days of manual installations. Today’s products provide seamless, behind-the-scenes updates to keep your firm current on complicated tax rules and regulations. Not only does RUN for Partners provide peace of mind, but it also adds valuable time back to your day.

2. There’s No Value in It

If your firm completely outsources payroll, then this statement might be true. However, payroll is one of the most valuable business segments your firm can provide. Here’s how payroll creates that value for your firm…

Payroll is typically processed every two weeks. That equates to two interactions per month with your clients (hence the “sticky” factor), which gives you the opportunity to introduce clients to more of your services. That leads to more revenue (hello there, MRR—monthly recurring revenue), which increases the value of your firm. And all of this will be a huge selling point down the line when it’s time to plan your exit strategy.

3. Processing Requirements Are Too Intense

It used to be that in order to process payroll, a firm needed someone on staff who was not only technically competent with complicated software, but who also had expertise in payroll and payroll tax laws. Plus, firms needed to be sure they were fully staffed for tax season…and for the heavy year-round workloads required for payroll (e.g., quarterly payroll taxes, filing W-2s, etc.).

With today’s payroll solutions, the hard work is taken off the firm’s plate. Payroll is automated, you have multiple flexible payment options, and tax filing and compliance are built-in standard features. Best of all, these features are usually available 24/7 through simple-to-use browser-based platforms with around-the-clock support.

Four Options for Offering Payroll

As previously noted, firms used to have two options for handling payroll: doing it themselves or outsourcing it. Today, firms have several models to choose from, and here’s what each one of those looks like.

1. Outsourced model. In this traditional model, the firm completely outsources payroll to a third-party vendor. Easy, but the firm misses out on the value and recurring revenue of processing payroll. Plus, when you’re ready to sell your firm, you’ll miss out on the rewards of the valuable payroll component.

2. In-house model. With this common model, firms handle all aspects of payroll directly. This means the firm maintains complete control over the process, has purchased the needed technology and manages all the payroll tasks entirely in house—from processing payroll and printing checks to handling direct deposits, filing W-2s, and processing quarterly payroll taxes.

The challenge here is the need for qualified staff to take on periods of intense work during peak times. While it’s feasible to do so, it requires a lot of effort from employees…and creates an opening for human error.

3. Hybrid model. This model combines both the in-house and outsourced models, but with better benefits to the firm thanks to advancements in technology. When a firm works with technology such as Accountant Connect and/or RUN for Partners, the platform does the work behind the scenes—but the firm remains the face of payroll processing. Even when you choose to outsource the payroll for certain clients, companies such as ADP® offer an enticing revenue share incentive program for those referrals.

With the hybrid model, you don’t have to worry about the complexities of payroll—multiple localities and state tax laws, tax returns, direct deposits, W-2 filings. Instead, you can focus on building the value of payroll for your firm.

4. Holistic model. The holistic model takes the hybrid model and adds more human capital management components, like time and attendance, 401(k) and workers’ compensation (in addition to payroll).

The holistic model allows your firm to expand services and satisfy your clients’ needs, all while leveraging multiple integrated applications—and exponentially increasing the value of your firm.

Choosing the Best Model for Your Modern Firm

So, which of the four payroll models will work best for your firm? To help firms make the right decision, In my practice, we advise our members to keep in mind two major trends currently affecting the profession: the rapid growth in staffing challenges and the ever-increasing complexities of payroll.

How do firms work around these trends, which seem likely to continue snowballing? By automating routine tasks. Due to its repetitive nature, payroll is the perfect contender for automation

Instead of choosing between offering payroll or not offering payroll, marry the best of both worlds with the hybrid or holistic model. Leave the repetitive payroll tasks to the platform, and take back your time by leveraging a streamlined, robust and user-friendly cloud-based software. Doing so will allow you to spend your valuable time creating additional service offerings and increasing the value of your firm.

ADP® partners with forward-thinking accounting professionals who value being essential to their clients' success. We offer the most flexible partner models, powered by quick & easy insights from the most complete set of payroll, HR & benefits solutions – all backed by dedicated expert support. Our Accountant ConnectSM Certification Course provides an in-depth working knowledge of the tools & resources inside Accountant Connect to help modernize your payroll process, improve firm efficiency and strengthen your advisory services.

 

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