Small Business

Everyday Superheroes

Accounting TodayApril 30, 2019

Want to be a superhero for your business clients? With payroll processing you can be.

That’s right. Payroll may not be the sexiest of offerings, but it can help alleviate major pain points for small-business clients and provide them the one-stop shop so many desire.

And, thanks to advancements in technology, successfully integrating payroll and turning the offering into a profit center is becoming a reality for a growing number of firms.

“[Accountants] are offering payroll as a complete package because it makes life easier for them and makes life easier for their clients also. So, we are seeing more and more people bundling payroll as part of accounting services,” said Chandra Bhansali, co-founder and CEO of AccountantsWorld, which offers a suite of solutions that includes cloud-based Payroll Relief.

“One of the big things we’re hearing from our accountants is that online services are changing the way that they market their services and offer their services. They’re realizing that to be competitive they need to be a one-stop shop, and payroll services are a key to that,” added Sandra Edwards, product leader for QuickBooks Online Payroll.

According to Accounting Today’s recently released 2019 Top 100 Firms report, 27 percent of firms said they are increasing their business with payroll services/consulting. The heightened focus on payroll comes as little surprise when you consider that payroll is a top challenge for small businesses (41 percent), according to a recent QuickBooks Payroll survey of 600 small-business owners, accountants and bookkeepers.

Furthermore, the National Small Business Association’s 2018 “Small Business Taxation Survey” found that, for tax year 2017, payroll taxes ranked second as the greatest administrative and financial burden for small businesses.

For too many employers, payroll-related challenges and noncompliance equate to additional costs in penalties and interest. The Internal Revenue Service estimates that 40 percent of small-to-midsized businesses end up paying a payroll penalty each year for failing to deposit withholdings, depositing the wrong amount of withholdings, or for incorrect filings.

Evolving regulations = added complexity

Given the evolving legislative and regulatory landscape, businesses will continue to face challenges, and, as of press time, the most recent quarterly Wells Fargo/Gallup “Small Business Index” revealed declining optimism among small-business owners.

“Today’s business owners are very in tune with changes in the economy, government policy, and many other factors that can affect their ventures,” said Andy Rowe, Wells Fargo’s head of customer segments, in a statement. “They are seeing these factors come into play and are predictably exercising measured caution as they plan for the coming year.”

For accounting professionals, this could mean a wealth of opportunities in helping clients navigate the complexities and ensure compliance.

“We’re noticing that these small businesses are really looking for an advisor to help them run their business. … Because they’re singularly focused on expanding and growing their business, they often neglect these back-office operations,” said Rick Chen, communications lead for payroll, benefits and HR solutions provider Gusto.

Continued Chen, “They’re starting to see CPAs and bookkeepers not as the folks that you talk to once a year to get your taxes done but really a continuous year-long business relationship, this business partnership that can really help them grow the fundamentals of their business.”

As outlined by Paychex, some of the major regulatory issues that are likely top of mind among employers in 2019 include:

Paid leave: Currently, more than 40 state and local jurisdictions have implemented paid leave laws and several more are scheduled to implement leave policies in early 2019.

Form W-4 changes: The release has been pushed back another year and the 2019 W-4 is similar to the current 2018 version. Many state tax agencies are waiting on the IRS to release the federal W-4 to determine if they will modify their withholding processes based on the federal changes.

State health-care reform: Recent changes to federal regulations and guidance that may affect health-insurance markets might lead to changes affecting employers’ support of health insurance. These changes, combined with the removal of the federal individual mandate penalty, have encouraged states to re-examine how they will support their health insurance markets in response to the new federal rules.

High-impact rulemaking from the Department of Labor: The U.S. Department of Labor’s fall 2018 regulatory agenda indicated that the Wage and Hour Division expects to release notices of proposed rulemaking on several regulations that will affect employers of all sizes. The proposal to revise the overtime regulations is the most anticipated event, but the agency is also expected to release proposals to clarify, update and define regular rate of pay.

According to Paychex, all of this might spur potential changes at the state level. “The regulatory environment has shifted from a significant volume at the federal level and has now moved to state and local levels, where city ordinances are popping up all over the place talking about paid family leave and other regulations. That’s adding to the complexity of payroll,” said Tom Hammond, vice president of corporate strategy and product management for Paychex.

Technology: A game changer

The complex regulatory landscape, coupled with payroll’s long-standing reputation as a high-risk, high-effort and unprofitable service has, in prior years, pushed some firms away from payroll processing. Today, advancements in technology are bringing about significant change.

The advent and proliferation of technologies like cloud-based solutions and greater automation is no doubt leveling the playing field for accountants and helping them transform their payroll offering into a profit-generating service that can be free of compliance headaches.

“In the past, payroll was seen as something that could be time-consuming, that could be a big liability. But with technology and having these different types of SaaS [Software-as-a-Service] payroll providers and solutions, it really helps eliminate a lot of the time that needs to be spent on payroll, as well as the liability,” said Jorge Lopez, district sales manager for the reseller channel at SurePayroll, a Paychex company.

Echoing the sentiment, Beverly Lang, founder of Diversified Business Solutions in Owens Cross Roads, Alabama, said, “Nowadays, with technology and all of the third-party apps that are monitoring your regulations, monitoring your changes in [federal], state and local taxes, there’s no reason why you can’t be compliant and offer a service that is effective and efficient for the client that is going to make you money, without its being a headache.”

The advancements in technology show little signs of slowing as vendors look to bring the latest innovations to accounting firms and their business clients.

ADP, for instance, is now offering, through its Accountant Connect dashboard, the ability to access tax notices, payroll processing, client information, payroll trends, reporting functions, and practice management tools all on one platform. The platform is now integrated with both RUN Powered by ADP and ADP Workforce Now.

“What we’ve done in recent months is continue to enhance [Accountant Connect] with services that fall into the advisory arena. So, one of the big ones recently was our ability to allow accountants to tap into our [Compensation Benchmarking] data,” said Erron Stark, divisional vice president of channel strategies for ADP Small Business Services. This enables firms to access compensation insights from ADP’s payroll base to provide higher-value consulting and advisory services.

Bhansali of AccountantsWorld said that his company has automated the entire payroll enrollment process and further enhanced its dashboard to provide accountants greater visibility into client accounts.

Paychex is working to provide greater access to services through new offerings like its Affordable Care Act notice support. It is designed to help applicable large employers who received penalty notices for not offering adequate and affordable health insurance coverage to full-time employees and their dependents in accordance with the ACA’s employer shared responsibility provisions. Paychex ESR Services has a team of experts in ACA reporting to help employers understand and respond to assessment notices from the IRS.

“The accounting profession is beginning to take those phone calls from businesses who are getting penalty notices, some of which are incredibly high. To give you an idea, we’re seeing penalty notices that can be in the hundreds of thousands of dollars for medium-sized [employers],” said Hammond. “In many cases, they did exactly what they needed to do but you have to have the ability to translate the ACA rules and regulations and apply them to the data that was supplied to say, ‘No, this was filed accurately and let me show you how it was filed accurately.’ And that penalty goes away. So, that’s a service that Paychex brings to the table.”

Meanwhile, Intuit is looking into ways to use machine learning to make payroll set-up simple, quick and accurate. Said Edwards, “Machine learning is super hot right now. We’re doing everything we can to utilize machine learning and artificial intelligence to change the game of payroll. I’m specifically looking at it in the form of setting up payroll. If you think about payroll set-up, it takes like 60 questions, on average, to set a payroll company up. … Our vision is to make it less than five minutes to set up payroll.”

Building your firm’s approach

There’s no cookie-cutter approach to integrating payroll, and the strategies by which firms deliver payroll services can vary greatly. Some firms opt for in-house processing, while others prefer outsourcing their payroll business, or perhaps a hybrid of the two. Therefore, it is important for firms to first think about their goals.

Do you consider payroll to be primarily a revenue-generating opportunity for your firm? Is your firm already handling payroll but looking for ways to save time and boost efficiency? Are you looking to take on the burden of payroll for your business clients and act as their payroll functionary? Answering such questions can help you determine your firm’s strategy and what its payroll business model should be.

“When I look at firms that are actually interested in doing payroll, I see a couple of things,” said Hammond. “First, we have firms that are actually acting as that service bureau still. So, they’re leveraging like a white-label solution … and acting as that service arm. So, a customer is going into a SaaS-based application, entering their payroll on their own and the accounting firm is actually taking the activity of making sure that payroll ran, ensuring that they understand the cash requirements of the payroll, and acting as that payroll functionary, for lack of a better term. Then there’s other models where I’ve seen some firms that have employed people to actually run that payroll on behalf of that business. So, I see a little bit of both of those blends in the marketplace today.”

Added Hammond, “There’s a lot to this and I think that’s one of the elements that really needs to be thought through before you decide to open up a business and move payroll into it. It’s a great opportunity and certainly payroll is a foundational element of that employee/employer relationship. … When [you] take on responsibility for that, there’s a good chance that one of your clients is going to call with a very specific question. Do you have the expertise on staff or a software package that is very intuitive that you can interpret federal, state and local tax regulations and understand that you are giving great advice to one of your clients on how to set something up in the most efficient and effective way?”

Said Stark of ADP, “We’ve seen an increase in utilizing technology as the back engine for payroll, so that way it’s a complement to their current suite of solutions that they offer to their clients, but they’re not necessarily on the hook for having to facilitate the end-to-end components of payroll. … The accountant, at the end of the day, is really just responsible for verifying the information.” He added that, in order for firms to be profitable, it is recommended that they have at least one person dedicated to payroll for every 50 or so payroll clients they serve.

When integrating payroll, Lang of Diversified Business Solutions recommends that firms start small before jumping in with both feet. “Take your top five accounting clients that you have and look at them and try to find a platform that fits the majority of clients that you’re servicing. Then offer to do payroll for one of those [clients], maybe for free or at a discounted rate, so that you can get on the platform, learn the platform, and learn the nuances of providing a payroll service to your clients,” said Lang. “If you offer a discounted rate or even do it for free for the first three months, you are really going to have a learning curve with a client that is going to be more genuine and more open to you having some pitfalls or some learning curves, so that you can design your process, roll it out, and grow it.”

Lang offers clients a range of services, including monthly bookkeeping service plans that include payroll processing. She implemented outsourced services and a revamped pricing structure about five years ago, and today views payroll as “the heartbeat” of her company.

To help clients navigate HR and benefits, she added a human resources specialist to her staff and, more recently, brought on board a payroll processor who is focused solely on payroll. “[Before], whatever bookkeeper was working on [the client’s] stuff did their payroll as well. Now, we have someone who is dedicated to the payroll portion that handles all of the payroll functionality,” said Lang. “Typically, with the customer, they have someone, like their office manager or their supervisor, that handles the payroll hours but they don’t necessarily handle the financial reporting. So, the bookkeeper works with the owner for financial purposes and then the [payroll processor] works with whoever is going to provide the payroll data.”

And with more and more companies looking to rely on the services of independent contractors, Lang said that she rolled out payment processing services for non-employees in January. It’s a service that more and more business clients may desire as the growth rate of independent contractors continues to outpace the growth rate for employee hiring among small businesses, according to a recent Paychex study. This is especially true among businesses with one to four employees, which tend to utilize the most independent contractors (6.7 per employer).

In terms of pricing payroll services, Lang said that she has a base fee and a per-employee fee. She does offer clients a discounted rate, but marks it up slightly to cover handling and processing costs. “I’ve figured out what my acquisition cost is for a client, what my processing cost is based on an employee, and how long it is going to take me per employee to do the payroll. So, I’ve come up with a pretty good equation where I can just plug in the number of payroll periods, the number of employees, and come up with a monthly fee,” Lang said.

It’s interesting to note that in the 2018 Intuit “Rate Survey,” the vendor found that fixed-fee pricing was the most popular method to bill clients for payroll (55 percent). This was followed by hourly billing at 34 percent.

Steve Heintz, president of Heintz + Clark in Plymouth, Minn., said that offering payroll processing for a fixed monthly fee not only works well for the firm, but also makes it easier for clients to budget and plan for the payroll expense.

“We kind of assess the situation with the client and we also look at what other services we’re providing them. If we’re doing monthly bookkeeping, we’re doing a business tax return, and one or two individual tax returns, then we can afford to charge less for that payroll service. So we kind of analyze it based on the specific client,” he said.

Ignite Spot, a Salt Lake City, Utah-based firm, offers service packages for its clients that can include payroll, bookkeeping, taxes and CFO services. Through Ignite Spot’s partnership with Gusto, the firm can tie into the software to help clients manage, report and reconcile their payroll transactions with the client’s accounting software.

“We assign our accountants time to prepare the payroll. So, our accountants will go into the client’s system to get time sheets [and] salary information every payroll period. We’ll prepare everything. We’ll go into Gusto and we’ll put it all in and then we’ll create kind of like a cash requirement report that says here’s how payroll is going to be,” said Ignite Spot CEO Eddy Hood. “Once the client approves it, we’ll click the button with Gusto and process it for them so they don’t have to do anything. But Gusto is the one that’s doing the actual paychecks, tax filings and those kinds of things. We are charging for our time to manage payroll and then Gusto charges for the time to process it.”

Offering a host of outsourced accounting services, including payroll, under one roof helps differentiate the firm and better meet the needs of its entrepreneur clients.

“We’re actually preparing all of the payroll and putting it into the system, so we have accurate numbers in the data, but then you can add onto your service with our CFO-level services. So, our CFO is looking at your staff. He or she is calculating the cost of staff, the full burden of your staff. The entrepreneur is asking, ‘When can I hire again? My business is growing, I want to hire.’ The CFO is helping you figure out the best time to do that,” Hood said. “To me, that’s the value-added side of payroll. It’s answering the questions the entrepreneur has.”

Clearly, payroll has come a long way in recent years. Today’s business clients are increasingly looking for a trusted advisor who can provide a one-stop-shop solution and, thanks to advancements in technology, integrating payroll into your practice can pay dividends.

“It really allows accountants to really future-proof their practices. Payroll is something that is going to be around forever. Everyone needs to get paid and it’s only going to get more and more complex as laws and regulations change or the Tax Code changes,” said Gusto’s Chen.

This article was written by Antoinette Alexander from Accounting Today and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to

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