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PAYROLL SERVICES:A NEW WAY TO GROW REUTERS / Beawiharta
PAYROLL SERVICES: A NEW WAY TO GROWYou already know that the tax and accounting profession is changing more quickly than ever. The payroll spaceis also evolving rapidly, becoming one of the fastest-growing opportunities in the profession. This is due to a varietyof factors, including:FEWER BARRIERS TO ENTRYCloud-based software solutionshave changed the rules in the payrollspace, dramatically reducing the costof entry and allowing even smalleraccounting firms to compete withthe large service bureaus.Firms can now get professional-grade,production-oriented payroll softwarewith an initial technology investmentof as little as 5,000 to 10,000. Withthis level of investment, firms can offerservice that rivals or even surpassesthe big service bureaus. Perhaps evenmore importantly, they can often beprofitable in their first year.NEW STAFFING OPTIONSCloud-based software has givenfirms new ways to meet thestaffing demands of in-housepayroll processing. Remote workarrangements and anytime-anywheresoftware have made it much easierto ensure that staff is availablewhen needed.AN ESTABLISHED CLIENT BASEWhen it comes to attracting payrollcustomers, accounting firms havean important advantage over servicebureaus: An existing client base withdeep, established relationships.Many of your clients may havealready expressed interest in payroll,and even the ones that haven’t maybe interested.A GROWING SEGMENTIn a profession that’s becomingincreasingly commoditized, payrollis a rare bright spot for small tomid-sized accounting firms. Demandfor professional payroll servicescontinues to grow for a variety ofreasons, including: Increasing government regulationthat makes payroll too complicatedfor many employers and contractorsto process in-house. Poor customer service from manynational and regional payrollservice companies. Increasing productivity that has leftmany accounting firms with excesscapacity. That capacity can often beput to use processing payroll.NEW OPPORTUNITIESIN TRADITIONAL AREASJust as your existing customer baseis a source of new payroll clients, youcan often cross-sell new payroll clientson your other tax and accountingservices. Clients see real value ingetting a wider variety of servicesunder one roof, and offering a morecomplete suite of services will attractnew prospects who might not haveconsidered your firm before.2 PAYROLL SERVICES: A NEW WAY TO GROWSTRONGER BUSINESSESPayroll services offer a varietyof unique advantages that cansignificantly improve your business.They include increased cross-sellingopportunities, a more consistent flowof revenue from month to month,better utilization of your staff’s workcapacity, and improved cash flow.A thriving payroll service can alsoincrease the value of your businessshould you decide to sell or transitionit in the future. Payroll services aretraditionally sold at higher multiplesthan traditional accounting andtax services.STRONGER CLIENT RELATIONSHIPSPayroll is a powerful tool for increasingclient loyalty. It offers you a widevariety of opportunities to interactwith customers and demonstrate yourvalue. This makes it less likely thatclients will look outside your firm, notjust for payroll, but for other servicesas well.And because of the complexity ofpayroll, clients tend to stick withthe same payroll provider for a longtime. When you bundle your payrollofferings with other services, clientloyalty for those services tends toincrease as well.
ALIGNING YOUR FIRM FOR SUCCESS IN PAYROLLWHAT’S YOUR PAYROLL STRATEGY?Nearly every firm that offers payroll has one goal in common: to be ableto confidently offer comprehensive payroll services to any current or prospectiveclient. But the strategies by which they achieve that goal can vary widely.Some firms choose to process every payroll in-house, some firms choose tooutsource every payroll to an outside service, and many firms choose somethingin between.When it comes to payroll strategy, most firms tend to fall into one of threebroad categories:IN-HOUSE APPROACHThe majority of this guide is dedicatedto in-house payroll processing.In-house processing affords firmsthe highest degree of control overthe process and it can also be moreprofitable than other approaches if it’shandled correctly. But it does requirea high level of technical knowledgeand at least one staff member who isdedicated to payroll full-time.Firms that choose an in-houseapproach may still refer some payrollsto an outside service. For example, afew client payrolls may be too largeor complex to be profitable. In thesecases, an outside payroll partnerenables the firm to provide payrollwithout processing it.Firms may also have clients whowant to process their own payroll.In these cases, hosted accountingsoftware solutions can give clientsthe tools they need to process theirown payroll in a way that’s integratedwith the firm.OUTSOURCED APPROACHFirms in this category choose tooutsource most of their payrollbusiness to an outside service. Thisenables firms to benefit from theclient loyalty and steady cash flow thatcome from offering payroll, withoutthe staffing requirements or technicalknowledge required to process itin-house. Outsourced payroll is alsoeasier and faster to implement thanin-house processing.HYBRID APPROACHMany firms choose a hybrid approach,processing some payrolls in-house andoutsourcing others to a payroll service.Often, they do this by creating a tightlydefined business model, definingcertain client types and sizes that theycan efficiently process in-house. Theythen refer payrolls that don’t fit thismodel to an outside payroll service.This approach enables them tomaximize profit on a client-by-clientbasis, tailor their payroll business totheir desired staff size and goals, andconfidently offer payroll services toevery current and prospective client.WHAT’S YOUR STRATEGY?Does your firm fit one of the categories above? If you’re not sure, we’ve createda payroll strategy tool that may help you determine the payroll strategy andlevel of involvement that’s right for your firm. You’ll find it, along with a varietyof other helpful resources, at CS.ThomsonReuters.com/PayrollCentral.3 PAYROLL SERVICES: A NEW WAY TO GROW
REUTERS / Yuriko NakaoTECHNOLOGY COMPONENTS:SOFTWARE & HARDWAREIn the past, firms that were new to payroll selected a software solution first,then made a heavy investment in hardware to meet the requirements of thatsoftware. Although this is still sometimes the case, there are far fewer concernswith hardware today than in the past. This is largely because hosted softwaresolutions and cloud-based delivery have reduced the hardware footprint neededto support payroll services.WHY THE CLOUD ISMORE THAN JUST HYPE.Cloud-based payroll systems enableyou to begin offering payroll with asmaller initial investment in hardware;in fact, your current hardware andnetwork may be more than adequateto support cloud-based payrollsoftware. The cloud also eliminatesa variety of indirect costs, includingsoftware updates and otherIT maintenance.CLIENT PORTALSAny payroll system you considershould offer client portals for payrolltime collection and payroll delivery.Portals are an exciting new option forsmall to mid-sized accounting firmsthat can improve the accuracy of yourdata entry, elevate client service, andultimately increase margins.OTHER CRITICALSOFTWARE FEATURES:Today’s solutions must have someflexibility to operate in both a PCand iOS (or Apple ) environment.Hand-held and tablet products aregoing to continue to be an importantcomponent for software solutions notonly for the firms, but also for clientsand the clients’ employees.As a final note, it’s important to baseyour software selection on real-worldcapabilities, not just a name. Therules have changed in the softwarespace, and the companies that wereat the top of the list 10 years ago maynot have what it takes to compete intoday’s environment.4 PAYROLL SERVICES: A NEW WAY TO GROW
REUTERS / Luke MacGregorSTAFFING FOR PAYROLL SERVICESChoosing the right staff and deploying it properly is absolutely critical to yourpayroll offering.There are a variety of important roles to consider, including:Bookkeeping Staff – At firms thatare new to payroll, it’s common toassign the bookkeeping staffto payroll services. This can be agood way to operate, particularlyin the early stages. But as yourpayroll business grows, you maywant to consider transferring someor all of the business to one or morepayroll specialists.Payroll Specialist – Payroll specialistsprovide a strong backbone for yourpayroll clients. Some firms assigneach client to a specific payrollspecialist, who will be their primarypoint of contact, while othersdistribute payroll workload on anad-hoc basis as it comes in.Obviously, an understanding of payrolland payroll taxes is an importanttrait to look for in a payroll specialist.But there are also other, less obviousfactors to consider. Do they have goodcustomer service skills and a desire tohandle that part of the business? Arethey good at math? Do they have theskills to manage their time and copewith the constant deadlines of thepayroll business? Payroll requires farmore customer interaction than mostother accounting services, so these areall important questions to ask.Managers – As you grow, you’ll needto consider the roles of managersin your firm. Remember, the besttechnician does not always makethe best manager. The managementposition can be a challenging oneto fill, but the right one can greatlyimprove your chances of success.Special Scheduling Considerations–Payroll is time-sensitive. It hasfrequent deadlines and requiresin-depth government reporting.You need a diverse and qualified staff,not only to meet the expectationsof the client, but also to meet thecomplicated scheduling requirementsof a payroll business.The level of staffing required can varywidely, even from one week to thenext. So it’s important to find a staffthat can stay flexible and adapt to thefluid nature of the payroll business.BETTER STAFF, BETTER RESULTSA qualified staff member can oftenmanage as many as 80 payroll clients,while the best staff members canmanage 100-120 clients or more.With this in mind, it’s easy to see howfinding the best staff members canhave a strong impact on profitability.5 PAYROLL SERVICES: A NEW WAY TO GROWKNOW YOUR CUSTOMER:WHAT DOES A PAYROLLCLIENT LOOK LIKE?Before you enter the payroll business,it’s important to create a profile of thetype of clients you prefer to serve. Youcan then gear your services to theseclients, and possibly refer the smallnumber of clients who do not fit theprofile to an outside service—preferablya trusted partner who supports andunderstands your company and will notcompete with it.It’s often useful to group potential payrollclients by size, according to the numberof employees they have. This scale may bea useful guide:SMALL - Less than 25 employeesMEDIUM - 25 to 50 employeesLARGE - More than 50 employeesServing clients of similar size can helpstreamline your processes and driveoverall efficiency. With that in mind,what’s your firm’s sweet spot? It’simportant to recognize it and allocateyour resources accordingly.
REUTERS / Navesh ChitrakarMARKETING AND BRANDING PAYROLL SERVICESThose of us in the tax and accounting profession aren’t always comfortable orskilled with marketing and branding. But they are far too powerful to ignore.Taking the time to arm yourself with the right marketing and branding toolswill give you the greatest opportunity for success.BRANDING YOUR PAYROLL SERVICEOnce your payroll service gets off theground, you may want to considerbranding it separately from your otheraccounting services. This can do a lotto increase awareness of your payrollservices in the market, to increase yourperceived level of expertise, and togain visibility with a larger audience.SELLING YOUR PAYROLL SERVICEFirst, the good news: it’s much easierto sell payroll services than tax andaccounting services. Businesses thatwant to change their payroll providergenerally do so quickly, and thetransition process can happen quicklyas well. But when you begin sellingyour payroll service, it’s important torecognize that you’re selling to twovery distinct audiences: current clientsand prospects.TAKEAWAYSMarketing – Savvy marketing willgenerate a pipeline of leads, whichyour sales department can then turninto new clients.Sales – Payroll is a valuable tool forwinning new clients. But you’ll need tomake sure your sales and marketingstaff has the tools they need to sell it.You might even consider taking on anemployee who’s dedicated solely tonew client acquisition.6 PAYROLL SERVICES: A NEW WAY TO GROW
MARKETING TO CURRENT CLIENTSYour current clients are your best marketing prospects when it comes to payroll.You already have relationships with them, you know how they work, and you’refamiliar with their needs. When marketing your payroll services to them, it’simportant to find out how they’re currently handling their payroll needs. Someuse national firms like Paychex and ADP, while others use regional payroll firmsand still others handle their own payroll.Make sure your marketing efforts take into account your clients’ past experienceswith payroll, and the way they prefer to work. A combination of three to four ofthe following approaches is generally effective: T ax season appointments andannual tax planning meetings inthe summer and fall. Simplymention that your firm offers astreamlined, customer-focusedpayroll service system that can helpmake them more successful. Client education programs thatinclude client emails and blogsor newsletters. Staff education – programs toensure your staff understands yourgoals and help offer the opportunitywhen they recognize it. REUTERS / Chris HelgrenThe business environment is changing and all businesses are becoming morediverse in their offerings. Protect your clients–if you’re not serving them andadding value to your service, somebody else will.MARKETING TO NEW PROSPECTSANCILLARY SERVICESTo really take your payroll business to the next level, you will need to branchout to new prospects. And that requires a sales and marketing program andspecific staff members tasked with that role.While the actual payroll processing islikely to be your biggest source of revenue,payroll can provide a number of ancillaryincome streams as well. They include:Some additional areas to consider relating to sales and marketing as youcontemplate the opportunity include: Taking advantage of current staff who Canvassing – introducing yourhave the skills to manage the salesbusiness to other businesses inand marketing process.the community. Hiring and managing a sales personto facilitate your program. Telemarketing programs; these canbe internal or external. The key isfinding one that fits with your goals. Referral partner programs thatinvolve strategic alliances with otherservice professionals. Internet and web-based programs. Chambers and civic groups.As you analyze how you’re going to tackle the sales component of your firm,realize that marketing is different from sales. Marketing is the means by whichyou fill your pipeline with leads that turn into prospects. Sales is turning thoseprospects into clients. Some people are good at both, while others tend to bebetter in one area or the other.7 PAYROLL SERVICES: A NEW WAY TO GROW Time clock solutions Background and drug testing Workers’ compensation insurance Pay cards Human resources servicesThese services might start as nominalrevenue generators, but over time they cangrow into a significant income stream forthe payroll division and boost profits. Theyalso offer possible areas of specializationthat can help to differentiate your firm.
PRICING STRUCTURE:BUNDLED OR UNBUNDLED?BUNDLEDBundled pricing provides clients with a single, flat fee for all the services theyreceive from you. This makes it easier for clients to budget and more difficult forthem to haggle with you over individual services. Bundling can be an effectivesales tool when you’re trying to get a new payroll business off the ground. Priceis often the chief concern when you’re speaking with prospective clients, and it isoften advantageous for you to try to refocus the conversation on other attributesof your services like efficiency and customer service. Bundled pricing can do thisby offering a simple pricing structure that limits discussion about the prices ofindividual components.It’s often wise to use bundling as a tool for attracting new clients, then unbundleservices later once the client has seen the value of your services.UNBUNDLEDA variety of studies in payroll and other industries have shown that unbundledpricing can increase revenue by 20-50% compared to bundled pricing. Payrolloffers a variety of billable services beyond check writing that can be valuablerevenue sources when unbundled.Positioning unbundled fees that were previously bundled can be a challenge,but clients are often surprisingly receptive to it when it’s presented properly. Thekey is to be organized, efficient, and educated, and to commit to a direction onceyou’ve chosen it.Whichever model you choose, it’s important to do fee reviews on a regular basis,and to raise fees when possible. It’s also important to prepare a budget andclosely track revenue and expenditures related to your payroll business. You mustprice for profitability. Seeking consultation that can help direct you on payrollpricing is also an option.It’s true that pricing for profitability may cause the most price-sensitive prospectto look elsewhere, but that’s not necessarily a bad thing. Weeding these clientsout will allow you to serve other, more profitable clients instead. If you areconfident in your pricing, it will greatly increase your chances of success and landyou better clients.IS IT BILLABLE?Don’t forget to evaluate any additionalservices you begin to provide for yourclients as your relationship progresses.Should you be billing for those services?For example, workers’ compensation auditsand report generation for unemploymentclaims are two extras that payroll servicesoften provide as a “favor” to clients, but infact should be billable.Other services for which it often makessense to collect additional revenue include:Quarterly Processing – Regardless of thedecision to bundle or unbundle fees, youshould consider charging for quarterlyprocessing. This process is time consumingand important. It is an easy way to showthe client the work required to accuratelyreport the quarterly payroll taxes for thecost of the process. Additionally, manyclients require additional state and localagency reporting. These are reportingrequirements that take time, education,and effort.Annual Reporting – Similar to quarterlyprocessing, the annual year end reportingrequirements of W-2s and 1099s aregenerally additional, billable services.These are additional opportunities toproduce information that is valuable andappreciated.Other – There are a variety of other billableitems that are directly related to the payrollprocessing function. They include: Electronic copies of historical records Compliance posters Retirement plan reconciliation New hire reporting8 PAYROLL SERVICES: A NEW WAY TO GROW
RISKS INPAYROLL SERVICESProblem clients – Just like your otherbusiness areas, it’s important to beselective about the clients you choose towork with. Often, the warning signs of aproblem client are apparent from the firstmeeting. For example, if a client hagglesover every detail or is chronically lateproviding information, they may cost youmoney in the long run. Learning to weedout difficult clients at the beginning ofthe process can save a lot of concern inthe future.Banking – Payroll services often requiredirect deposit of employee paychecks.That most often requires an ACH accountwith a bank or an ACH service to providedirect deposit services. Consider a bankor service that gives you the best riskmitigation to keep an efficient operation.Tax Payments – You can reduce therisk of a late or incorrect tax paymentby keeping your systems and softwareworking efficiently. It is worth noting thatif your systems and software are not welldesigned and managed, late or missedtax payments can cause not only concernbut steep penalties and interest fromgovernment agencies. REUTERS / Ali JarekjiPRE-LAUNCH CHECKLISTCommit yourselfEducate staff and consider hiring needsConsider branding and marketingSelect, test, and implement your software systemsOperationally document systems and processesDocument sales and marketing systems and processesArm your firm with proper support systems BanksHuman resourcesTime clockPay cardsWork compensation options401K providersON-THE-GROUND INSIGHTEstablish internal service rolesFlexible Pricing Pays OffEvaluate marketing optionstime andresources in salesAs we developed our foothold inInvestthe Denvermarket,we realized that clients and prospectsInvest wantedtime anda resources in operations during growthsimplified method of pricing. So we created a salesConsiderdynamicsagreement that provided few optionsandofficewas easyforthe client to understand.Upgrade office space and any equipmentThis made our clients happier, and also simplified themarketing and sales processes. As we mature as a firm,we are experimenting with added unbundled services asclients request them.9 PAYROLL SERVICES: A NEW WAY TO GROW
COMMIT TO SUCCESSTo make payroll a viable option, you’llneed to assess your current skills andtime obligations along with those of yourstaff. It is possible to experiment withthe concept of providing payroll serviceswithout completely committing. But ifyour goal is to be successful and grow yourpayroll business, an all-out commitmentis much more effective. When you arecommitted, day-to-day challenges becomeless discouraging and your focus is onlong-term goals for your employees, yourbusiness, and yourself. This leads to a moreenjoyable journey to success and greatersatisfaction once you achieve it. REUTERS / Ognen TeofilovskiThis payroll guide was prepared with assistance from Jim Paille and R. Sean Manning.Director, OperationsmyPay Solutions, Thomson ReutersJim has been an executive manager in the payrollservice industry for over 30 years, specializing in managingmulti-location offices.JIM PAILLE, CPPJim is a member of the APA’s Board of Directors andNational Speakers Bureau, and chairs the CPP CertificationReview Panel. He holds a BS in Accounting from St. JohnFisher College in Rochester, New York.Owner and ManagerManning & Company, PC and Payroll VaultIn 2008, Sean Manning created Payroll Vault as a separateservice division based in Littleton, Colorado. Since then, ithas grown from 90 payroll clients to over 250.R. SEAN n believes that payroll services represent one of the mostimportant growth opportunities in the tax and accountingprofession, and is committed to sharing what he has learnedwith other tax and accounting professionals.
2 PAYROLL SERVICES: A NEW WAY TO GROW PAYROLL SERVICES: A NEW WAY TO GROW You already know that the tax and accounting profession is changing more quickly than ever. The payroll space is also evolving rapidly, becoming one of the fastest-growing opportunities in the profession. This is due to a variety of factors, including:
