Online solutions are making payroll a lucrative venture for small businesses.
By Selena Chavis
“Payroll for Dummies.” That’s what some online payroll solution vendors are calling the latest wave of technology geared towards small businesses. Whatever they choose to call it, it’s all good news for small accounting firms seeking to provide payroll services to their clients in a cost- and time-efficient way.
The business of payroll services, until recently, created something of a quandary for many small accounting firms. The frustrations, headaches and manpower needed to provide the service sent many running in the opposite direction.
“Unfortunately, to stay competitive, clients were dictating otherwise,” says Anu Sanghvi, director of the Accounting Professional Program with PayCycle, adding that payroll is often one of the first things clients request from an accounting firm. “They wanted a one-stop shop for all their needs.”
Based on PayCycle research, Sanghvi explains that three primary concerns have prevented small businesses from offering payroll services in the past. Of the small businesses surveyed, 31 percent said payroll was simply not a profitable venture, 28 percent noted that it took too much time, and 25 percent just wanted to avoid the hassle. Now, with the advent of new technologies, recent data reveals that 74 percent of accountants are offering some form of payroll service, and more than 50 percent want to take on as much payroll work as possible.
“I think it’s a way to improve the overall service offering to your clients; it makes you more competitive,” says Jason Copeland, accounting community manager with Illinois-based SurePayroll. “It also helps with retention because it’s harder for clients to leave if you are providing such an important, recurring service.”
Recognizing the opportunity for an economical payroll solution, many vendors have entered the small-business market over the past few years. Some providers sell their products via a reseller, allowing accounting firms to brand the offering under their own name with no upfront investment in software.
“You have a choice—for each client you can be as involved as you want to be,” says Sanghvi. Most solutions will provide an online step-by-step service for all payroll tasks, including tax and deduction calculations, and the ability to pay by direct deposit or check. Some solutions provide email reminders of important tax deadlines, while others obtain powers of attorney in order to move client money directly to the appropriate agencies.
However, “Tax filing is not something that should be entered into lightly or on a small scale,” warns Steve Sarowitz, president of payroll and HR solutions provider Paylocity. “It is an expensive venture to do it correctly, and doing it wrong can be very risky.
“While online solutions are usually beneficial for accounting firms, they come in many different flavors,” explains Sarowitz. “Some firms like to use online solutions to do payroll themselves. Others like to partner with a reputable payroll service to process payroll for their clients. In either case, an online solution can be superior to previous technology.”
Still, some accountants prefer to turn payroll work away. “It is a low-margin business and presents a tremendous amount of risk to both them and their clients,” says Sarowitz, who is also president of the Independent Payroll Providers Association (IPPA). “It’s always risky to enter a business that’s not your core area of expertise, and most small accountants are not experts in payroll processing...You risk losing all of the client’s work if you make a mistake in payroll, which can be very onerous when payroll processing comprises a small proportion of your total fees,” he adds.
For this reason, accounting professionals need to weigh the risks involved in entering and maintaining payroll services against the option of working with an outside payroll processor who will process the work and take on the risk, says Sarowitz.
“Working with a reputable payroll processor and sharing in the profits would be far less risky and may often give clients a better experience. In most cases, accountants would still have access to a Web-based product that would enable them to access their clients’ data ,” he says.
For Linda Franco, owner of Chicago-based Franco Accounting and Consulting, bringing payroll back in-house via PayCycle’s online solution meant the opportunity to pass savings on to clients. “It’s been extremely efficient because it allows for a lot of streamlining,” she explains. “It has completely turned things around.”
With 40 clients currently using the online offering, Franco has gone from having four people connected to the payroll function to just one person plus herself as the reviewer. “Our profit margins are now so much higher than before,” she says.
For Terri Zeh Jacobson, owner of Minnesota-based Resources for Small Business, putting a dollar amount on the ROI she’s realized through SurePayroll’s online payroll solution is difficult, because many of the benefits are indirect. “Payroll is our bread and butter,” she says. “It’s billable dollars, but I could use my time more efficiently somewhere else...I actually produce more revenue because I can do more interesting work.”
“Payroll is not something you want your higher staff working on,” Sanghvi suggests.
Online payroll solutions allow Chicago-based independent CPA Charles Zamorski to provide better customer service, which equates to a higher percentage of client retention. “It lets me stay closer to the client,” he says.
By offering payroll services, Zamorski adds, he is better able to connect with clients on a weekly basis. “It gets me one step closer to becoming part of the client process in the company.”
And what’s good for the client, is good for the business.