CPAs Leverage Opportunities As Payroll, HR Solutions Providers

Experts reveal strategies for cementing long-term relationships with clients.

September 10, 2007
by Hank Berkowitz

Additional comments from this roundtable discussion can be found in your September 2007 issue of Journal of Accountancy.

To help CPAs deconstruct the benefits of managing payroll and human resource administration functions for their clients, we invited top thought influencers and solutions providers from the marketplace to share their insights on the opportunities, considerations and caveats facing CPAs who are considering this fast-growing practice-building niche.

Joining us for our third annual special focus report on payroll and HR solutions (listed alphabetically) are: Michael Alter, president of SurePayroll, Inc.; Jon Baron, president of Professional Software & Services, Thomson Tax & Accounting; Dr. Chandra Bhansali, president & co-founder of AccountantsWorld, LLC; Jim Heeger, CEO of PayCycle, Inc.; Don McLoughlin, vice president of Marketing, ADP Small Business Services; Vincent Mottola, senior vice president, Ceridian Small Business; and Walter Turek, senior vice president — sales & marketing, Paychex, Inc.

Gentlemen, what are the biggest changes you’ve seen in the Payroll & HR solutions business since we started this report in 2005?

CHANDRA BHANSALI: Interest in web-based payroll solutions has increased tremendously. Accountants and businesses are recognizing the advantages of web-based payroll solutions over traditional service bureaus or desktop payroll solutions.

DON MCLOUGHLIN: One big change has been the increased interest in payroll solutions among accountants. Not too long ago, managing a client’s payroll was regarded as a lower-value administrative burden that might just not be worth the time. With the host of solutions available today, payroll is now more frequently seen as a potential value-added service that accountants can offer to extend the client relationship.

Thanks to advances in technology, there are various options for CPA firms to administer payroll based on individual preferences. Here are a few ways accountants are getting involved in payroll:

  • Software — With the proliferation of Web-based accounting and payroll software, there are many payroll solutions now available for accountants that can be purchased with the click of the mouse. In most cases, the accountant is provided with the tools, tax tables and federal forms needed to manage payroll. Payroll software also normally allows users to transfer timesheet data into the payroll application, and the payroll and tax information into the general ledger, reducing the chance of errors.
  • Outsourcing — Accountants can customize their level of involvement in managing clients’ payroll by partnering with a third-party service provider. Some outsourcing providers offer a “wholesale” solution, which enables accountants to maintain the relationship with the client, while the service provider assumes the liability and back-office administrative tasks associated with payroll processing. Outsourcing is an ideal solution for accountants who want to have a role in their clients’ payroll, without the burden of performing back-office tasks. The outsourcing partnership can be arranged so that the accountant maintains the relationship with the client, or the accountant can set-up the outsourcing agreement so that the client can work directly with the service provider.

Accountants that don’t want to get directly involved in payroll, but would like their clients to adopt a managed payroll program, also have options. They can refer clients to a partnered service provider and maintain their role as a trusted advisor, or sell the business outright, usually in exchange for a referral or finder’s fee.

JIM HEEGER: The biggest change is the rate at which CPAs and accountants are adding payroll to their service mix. According to the 2006 PCPS/TSCPA National MAP survey, 61 percent of accounting firms are offering payroll. We expect this percentage to increase as CPAs learn how profitable and easy online payroll can actually be.

MICHAEL ALTER: Online solutions now command a much larger share of market than they did in 2005. Our research suggests that businesses now prefer to use web-based software solutions for payroll and HR, rather than use desktop software or use traditional outsourcers that leverage phone and fax to communicate. Whereas it was mostly early adopters in 2005 that were embracing the Web, it's now mainstream businesses that are purchasing hosted payroll outsourcing and other hosted solutions.

JON BARON: The emerging technology tools are becoming mainstream. Today it is possible to have a completely paperless payroll process, from initial data entry through delivery of the pay stubs. Private, secure portals enable clients to enter the initial payroll information and receive a PDF copy of the paychecks, that they can print themselves. And with direct deposit, and the ability for the employees to access copies of their pay stubs in their own private portals, even the printing of the pay stubs can be eliminated.

What factors should CPAs consider when deciding whether to refer a service or offer payroll as a service to their clients?

Bhansali: The unspoken truth about payroll services is they aren’t for every CPA. But those who have learned the ropes have turned payroll into a highly rewarding client service.

From our experience with accountants who use Payroll Relief, we have found most users don’t go past five to 10 payroll clients, while those in the top 25 percentile have developed a very successful and profitable payroll practice. The former group started with a “let me try it” attitude, while those who have a thriving payroll practice always approached it with the zeal and commitment to make it a successful venture. Invariably, too, these accountants have excellent client relationships.

Our candid advice: if you have a genuine commitment to grow your practice and have excellent client relationships, using the right payroll solution designed specifically for accountants will help you turn payroll into a highly rewarding client service. Otherwise leave payroll processing to the payroll service bureaus!

McLoughlin: In deciding whether to refer clients or offer payroll, the decision comes down to two things. The first is time: Does the CPA have the time and resources to dedicate to processing payroll? And the second is best use of expertise: Some accountants don’t really want to work with payroll issues, leaving them to believe that clients may be better served working with a payroll service provider who can offer industry best practices.

WALTER TUREK: While there are many opportunities for CPAs to become involved in payroll processing — including with Paychex — we believe that CPAs have a unique opportunity to add even more value to their client relationships in more consultative ways. For example, we often encounter businesses whose CPAs are doing the payroll. However, these businesses often don’t have a retirement strategy, streamlined Workers’ Compensation cash flow, pretax benefits, a favorable state unemployment rate, etc. So while the CPA is busy cutting payroll checks, they’re foregoing the opportunity to be more diagnostic and to save their clients costs or taxes. We are finding that far more CPAs recognize the wisdom in moving away from direct payroll processing to instead embarking on higher value and higher profit client consultation. Many entities can compete with CPAs providing payroll, but none can compete with the CPA who has established a level of value and trust with the client.

Heeger: The deciding factors are time and money. If more CPAs knew how little time was required to do online payroll, especially with the convenience of electronic tax payments and form filings, they would not pass up the revenue that they do every year. Some CPAs have realized that online payroll can be profitable and provides value to clients — now is the time for more to realize this excellent opportunity.

Alter: There are two main factors to consider when making this decision:

  1. Staff time commitment necessary to deliver a high level of service

  2. The cost of the payroll service charged to their clients in order for the CPA to make a profit, and still offer a good value for the client

At SurePayroll, we’ve a created an accountant program that allows CPAs to choose to either refer our service, or offer our payroll as a service to their clients under their brand. In each case, the CPA reaps all the benefits of utilizing a full-service payroll provider without having to bear the brunt of any of the payroll’s tedious tasks.

If CPAs choose to refer their clients to us, we’re 100 percent committed to providing them with tools and resources they need to feel in control of their clients’ payroll data. That’s why we offer referring CPAs a free, online account that allows them to easily access their clients’ payroll reports at any time. They shouldn’t have to give up anything if they choose to refer.

If CPAs choose to resell our service, we’ve built in as much flexibility as possible. CPAs can run payroll behind the scenes for their clients. Or, the CPA can have the client run payroll from a CPA-branded site. They can set their own pricing. They can bill the client or have SurePayroll bill the client. And whether the CPA runs payroll or their clients do it themselves, the entire payroll process takes less than five minutes, because SurePayroll handles all the tax filings, deposits, payments and reports.

Baron: Payroll is a very “sticky” service. Once a CPA firm starts providing payroll service for a client, the client will almost never leave. When referring the client to a payroll service, the CPA firm should consider the service level and the type of relationship that the payroll service will establish with the client. At Thomson Tax & Accounting we offer both — software for the accounting firm to process payrolls for clients, and a service bureau payroll offering called myPay Solutions, in which we actually process the client’s payroll for the accountant. When the accountant refers a client to myPay Solutions, we offer a revenue share with the accounting firm, and provide them with data that can be integrated into their CS accounting software.

What are the broadest misconceptions that CPAs may have today about offering payroll management solutions to their clients (and doing so profitably)?

Bhansali: In regards to payroll services, most CPAs today are still living with yesterday’s reality. Until recently payroll management was indeed a “no gain, all pain” ordeal. But in the last few years, the situation has changed completely with the introduction of a new breed of web-based accountant-centric payroll solutions that perform virtually all payroll processing tasks behind the scene for CPAs. These payroll solutions even let the accountant’s clients enter payroll data and print paychecks, thus generating significant revenues for CPAs who assume a supervisory role.

Heeger: The biggest misconception is that with payroll, you will be tied down to your desk on a regular basis-running payroll for your clients every week or every other week. Using an online system, like PayCycle, you do not need to be in the office. You can work “anywhere, anytime” using the Internet. You can even give your clients access over the web so they can perform many of the payroll tasks themselves.

Alter: We work with a lot of CPAs who used to handle payroll in-house, without the assistance of a full-service provider. The most frequent misconceptions we hear are:

  1. Software, or software-type services, will make payroll easy

  2. Offering payroll is a simple way to increase the firm’s revenue

We think offering a payroll management solution means everything from processing to tax deposits and filings is handled by the solution provider. Software and email reminder services that prompt the client to fulfill payroll responsibilities can lead to serious problems, as well as IRS penalties.

Additionally, just because CPAs can bring in revenue by offering payroll services, doesn’t mean it’s always worth it for them. Payroll is emotional — employees get emotional if their paycheck isn’t correct. Small business owners get emotional when their employees’ morale is affected by incorrect payroll. Anyone who takes on payroll takes on all of the customer service issues that arise from mistakes in payroll calculations or not getting payroll out on time.

Payroll is tedious — keeping up with local, state and federal tax regulation is tedious and time-consuming. And if you don’t keep up, you’ll have payroll mistakes, which cause more time spent on customer service issues.

Payroll demands that you are readily available to take care of customer service issues — What happens if there are payroll questions on payday? A client can’t wait until the next day to have them answered. CPAs need to be fully staffed so they can take care of payroll customer service issues at any time, or be able to stop other types of work to handle questions and concerns.

Next week we'll take a closer look at key factors that CPAs should consider before selecting a Payroll & HR Solutions partner and which payroll and HR solutions can help CPAs make more money and solidify client relationships.

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Hank Berkowitz is the Publisher of AICPA’s Insider™ electronic newsletter group.

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