Payroll and human resource administration is one of the fast-growing practice niches for CPAs and a key client retention tool. However, as technology continues to make its imprint on the vendor landscape, the variety of solutions on the market — not to mention the risks of making the wrong choice — have never been more pronounced. To help CPAs understand the benefits and caveats of managing payroll and HR administration solutions for their clients, the AICPA CPA Insider™ team invited top thought influencers and solution providers from the marketplace to share their insights. In my last column, our experts determined where Payroll and HR administration was headed over the next three to five years and the most important issues for CPAs to consider before offering Payroll and HR solutions to their clients.

Joining us this year (listed alphabetically) are: Michael Alter, president of SurePayroll, Inc.; Dr. Chandra Bhansali, president and co-founder of AccountantsWorld, LLC; Robert Digby, CEO of PayChoice, Inc.; Jim Heeger, CEO of PayCycle, Inc.; James Paille, director, payroll business strategy & development of myPay Solutions (Thomson Reuters); Walter Turek, senior vice president, sales & marketing, Paychex, Inc.; and Don Weinstein, division vice president, strategy and marketing, ADP Small Business Services.

Panelists, what are some benchmarks/criteria that CPAs can use to demonstrate the ROI of offering payroll solutions to their clients?

Dr. Chandra Bhansali (AccountantsWorld): A major advantage of payroll processing is that unlike most services, day-to-day payroll processing can be performed by a paraprofessional with minimal supervision from a manager or CPA. The best benchmark would be how much in fees the firm generates per hour of a manager’s/CPA’s time. This is derived by dividing gross payroll revenues by the supervisory time the manager/CPA spends.

Robert Digby (PayChoice): If we’re looking at the ROI for a CPA to enter the payroll business, the math is pretty straightforward. You can get two or three hundred dollars for a payroll referral with the knowledge that someone will be looking over your client’s shoulder when it comes to payroll and taxes. That’s fine if you don’t want to enter the business. However, if you want to start your own payroll and HR practice, you can enter a wholesale relationship with a self-service provider and for $15 to $25 per employee identification number (EIN) per month, you can process payroll for your clients and retail the payroll for four to five times that amount. If a CPA really wants to build a large payroll service bureau with hundreds of clients, they can spend $50,000 to $60,000 for cutting-edge payroll software and hire the necessary staff. These businesses traditionally produce 20 percent to 30 percent operating margins. Finally, a CPA can exit from the business altogether and sell the payroll book for up to two times gross annual revenues.

Jim Heeger (PayCycle): From a survey we conducted to 28,000 accounting professionals in 2007, we learned that accountants using online payroll earned almost $90 per hour from this service. Using an online service, such as PayCycle, is so easy that client payroll takes just a few minutes each month. When considered in these terms, the ROI from payroll makes sense.

Michael Alter (SurePayroll): That's an easy one. Have your client retention rates improved after you started offering a payroll solution? When executed properly, payroll has a stickiness factor that will keep clients around. Another important question — Are you able to get new clients more easily when you offer them help handling payroll? And finally, are you more profitable overall because you offer a payroll solution?

James Paille (myPay Solutions/Thomson Reuters): There are several benchmarks/criteria to consider, including an increase in client retention, total revenue per client and realization rates. Accountants should also assess if they are attracting more clients or higher revenue clients based on the addition of payroll services.

As more firms automate Payroll and HR functions, do you see a trend towards “paperless” with companies opting for online pay stubs, employee reviews, e-filing of I-9s, use of p-cards for T&E expense and more?

Don Weinstein (ADP): There’s been a lot of discussion recently about businesses large and small “going green.” Given the amount of records CPAs preserve and the level of accountability that clients demand, many CPAs continue to see the paperless office as a challenge.

However, accountants who go paperless can actually cut costs related to printing and distribution while helping the environment. Going paperless also helps provide a reliable data trail. At the end of the year or during tax season, accountants won’t be stressed trying to find the necessary paperwork.

The right software or outsourced, hosted application can make sure that a well-run paperless office is more streamlined and efficient than one that relies on paper forms and photocopied documents. While there is no shortage of options available, accountants should make sure to find a solution that incorporates the following paperless features:
 

• Archives of historical data — keep at least 12 months’ worth of historical data saved, just in case a client
  is audited.
• Round-the-clock remote access — access to client data from anywhere in the world means accountants won’t have to print out records to make an office visit.
• Direct data import — importing data directly into QuickBooks or Microsoft Accounting eliminates the need to re-key into multiple programs. Access for multiple entrants also means clients can import their own data.

View and download current reports eliminates the need to print out and send payroll reports.

Bhansali: Certainly. An increasing number of employers are opting for online pay stubs. Many companies already have online employee reviews and T&E expenses. Adoption of p-cards is slow because of state regulations.

Digby: Absolutely. The trend toward paperless solutions was initially strongest among larger employers who offered online tools for their employees supporting paperless functions. As more sophisticated payroll and HR functionality moves downstream to smaller businesses, online pay stubs and similar features are becoming commonplace. It lessens stress on the payroll and HR managers, as well as giving the employees faster access to their payroll and HR information. The inflationary pressures on the cost of paper, people and delivery are also hitting an inflection point that is driving paperless concepts far deeper than before.

Heeger: Paperwork tends to be manual work so it’s no surprise that CPAs would lean towards paperless systems that allow them to file I-9s electronically and offer client self-service for pay stubs. Paperless payroll or online payroll, aims to reduce or eliminate work. Tasks such as paying federal and state payroll taxes and filing forms can be done electronically in a few clicks. Neither CPAs nor their clients should be bothered with writing and mailing checks and printing forms.

Alter: I agree. When we began to offer on-demand software as a service in the payroll arena in 2000, we did so in large part because we knew that business owners prefer to do things online to minimize hassles and burdensome paperwork. From the start, our customers have enjoyed paperless payroll management. All of their reports are online. And their employees benefit too with online employee self-service accounts. They are emailed payroll notifications and can access their pay stubs and W2s online. Every year, we add new features that allow our customers to be paperless. For example, last year we added online, pre-populated business forms. So, yes, we are big supporters of this trend. However, using less paper isn't the key driver here. It's all about running your business more efficiently.

Paille: Absolutely. Just as electronic document management has become the norm for internal operations within many firms, paperless payroll processing will become the norm for Payroll and HR services. Paperless and online services are more convenient for the client. They are also more efficient and less costly for the firm, resulting in a higher level of service for clients and increased productivity and profitability for firms.

Next week our panelists divulge whether company payrolls have been affected by the recent spike in energy and commuting costs and how the November election might impact payroll taxes, Medicare and unemployment benefits.

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