Disclosure: Readers should assume that all software recommendations in this article are exclusively the author’s and in no way represents the views of the AICPA or the CPA Insider™.

Payroll systems have had more activity in the last five years than in the previous 10 years. The options for accounting and financial firms today are quite different than the options at the end of the last decade. Key providers are still in the market, but many new players have entered the market, and may do a better job for your firm and your clients than the alternative you are using today. Who are the key players?

For a comprehensive list view http://www.accountingsoftwareworld.com/industry/hr.htm as well as http://www.cpafirmtech.com/payroll.htm.   

Strategically, you should think about payroll from several directions, and I think there is more to consider than the traditional approach of “there is too much risk — outsource it and forget it.” Considerations include:

1. Integration to Human Resources (HR)
2. Activity/Project/Job Costing allocations
3. Web accessibility for Employee/client self-service
4. Multiple electronic deposits
5. Confidentiality of the information
6. Ability to handle different payroll conditions (bonuses, farm employees, 401K, cafeteria plans)
7. Cost per employee/company

New players in the market have innovated in areas that have forced the traditional players to consider matching the features. For example, the Web self-service feature in many of the products is often a mandatory feature in today’s market. ACH/electronic deposit was traditionally an additional cost and a fairly expensive option, which is widely included in today’s offerings.

Common Misconceptions About In-House Payroll Options

One misconception is that outsourcing payroll will take less time than processing payroll in-house. With today’s payroll systems providing electronic deposit and Web enablement, and with the option of providing employees with debit cards to receive the funds, many companies can avoid writing checks completely. If you are going to accumulate and enter the hours, the processing steps are not complex to complete the process, including the governmental filings and deposits. Some vendors, CYMA for example, have the ability to process a large number of employees or companies at a flat cost. If you are providing payroll as a service, you can often justify having your own in-house version of payroll software to generate large payrolls.

HR is another key system that should be integrated into payroll, but the offering by traditional payroll providers may be difficult to use, expensive, not comprehensive and not particularly effective. If you have 50 or more employees, you should look at using an HR system to accumulate key documentation on your people, and to enable you to follow the labor laws more easily. You may have greater success with an in-house system integrated to payroll. A good example of products in this class include: Sage Abra and Microsoft Dynamics GP for HR management.

An area of greater expense today, however, is a company with a few employees. The in-house entry-level payroll fees continue to increase. While commonly less than $250, these systems routinely had no on-going cost just a few years ago. Even with annual maintenance, compared to monthly costs of processing payroll, in-house processing can be a good option. However, small companies will have the most advantage of using a hosted solution like the offering from PayCycle or Sage Payroll Services.

Dominant players in the software industry like Sage and Intuit have made concerted efforts to improve the breadth and integration of the payroll. Sage, for example, has created a whole division to do outsourced payroll processing that works with both their own products or can be used standalone.

Of Interest to CPAs in Public Practice

Special side notes to those of you who are in public practice. Many CPA firms chose to get out of the payroll business because of the responsibility, costs and other issues. In my travels, I have noted that quite a number of firms are back in the payroll business, and are quite pleased to be there.

Advantages of offering payroll services to clients:

1. Client control
2. Recurring reason to have interaction with the client
3. You are taking care of a critical part of the client’s operation
4. Recurring revenue stream
5. Protection of the client for 401K services, and even a greater advantage if you are in the wealth management business

Other issues related to client payroll services:

1. Provider of payroll services can offer your client base more of their services
2. In the client’s mind you may assume some of the liability of processing payroll correctly and on time
3. Depending on the vendor you choose, you may have additional personnel requirements
4. Also depending on the vendor you choose, you may have additional software and hardware requirements internally as well as backup and business continuity. This is much less of an issue if you use hosted payroll services
5. Payroll companies are generally competitors for the CPA Firm’s clients, not their partner. You must choose your payroll services company carefully if you are going to refer your client base to them.

Perhaps now’s the time for you to take a hard look at your payroll procedure and save some money doing so.

Randolph Johnston is Executive Vice President of K2 Enterprises, a technology consultancy serving the accounting profession. He is a nationally recognized educator, consultant and writer with over 30 years’ experience in Strategic Technology Planning, Systems and Network Integration, Accounting Software Selection, Business Development and Management, Disaster Recovery and Contingency Planning, and Process Engineering.