Payroll is often considered a value-added service for accountants. Accounting firms are looking for ways to keep in touch with their clients often and to advise them as much as they can, and payroll is a high-touch service that can accomplish this. For accountants looking to break into advisory services, payroll can be the entry point.
The pandemic demonstrated how much business owners need accountants who can do more than taxes. Paycheck Protection Program loans, a tight labor market, the hybrid workplace and changing tax laws all combined to put incredible pressure on businesses. Clients turned to their accountants to help them navigate these fast-moving waters.
Why get involved in payroll?
Payroll might seem like an unusual bridge to help accountants get into more advisory services. Many see it as labor-intensive, with a relatively thin margin. But the benefits of creating closer relationships with clients will quickly make up for the effort of adding payroll services into an accountant's practice.
Additionally, firms that prefer to directly manage a client's payroll (usually via a third-party vendor) believe that it creates a "sticky" relationship with the client where they talk more often, and thus makes it more difficult for the client to leave.
Firms also find that partnering with a full-service payroll provider can resolve issues around the time investment in running a client's payroll. Whether the firm enters a wholesale relationship with the provider or refers clients to the provider, it makes life easier for both the client and the accountant. It then gives accountants visibility into the client's world and provides opportunities to use that insight to help the client's business.
Payroll creates possibilities
Accounting firms are looking for ways to go beyond tax returns and help their clients with business issues. That's why they are looking to find opportunities to continue to build relationships. Payroll creates that opportunity and is an opening to a conversation that goes beyond paychecks.
Using a full-service payroll provider also gives accountants other products and services that can make the business owner's life easier by giving them precious time back in their days. This can range from an integrated worker's compensation solution, a retirement plan, an employee handbook or a timekeeping solution to make sure their payroll is tight and accurate.
If it's a process that involves payroll, the accounting firm already has access to the client's information, enabling them to have in-depth conversations about the business and services they can handle. By partnering with a company that can provide those insights, accountants are able to have educated conversations proactively with the client.
With continued market uncertainty, cash flow is a concern for many businesses. Tax credits are one way to help business owners hold on. Your payroll vendor should include the latest legislative changes so that you can help your clients do more and remain competitive. There are many tax credits available to employers, such as the Work Opportunity Tax Credit, the Employee Retention Tax Credit and R&D Tax Credit.
In addition to tax credits, smaller companies can now offer benefits like retirement plans at a reasonable cost, thanks to legislation such as the SECURE 2.0 Act that was passed by Congress last December. SECURE 2.0 has more than 90 provisions, with the overall goal of making it less expensive for small businesses to offer retirement benefits.
For example, currently employers with fewer than 100 employees may be eligible for a three-year start-up tax credit of up to 50% of administrative costs, with an annual limit of $5,000. The act increases this credit to 100% of qualified startup costs for employers with up to 50 employees, and also allows for automatic enrollment in retirement plans, withdrawals for certain emergency expenses and treatment of student loan payments as elective deferrals for purposes of matching contributions.
Two ways to incorporate payroll into your practice
Whether you want to do payroll in-house or recommend a third-party vendor to your clients, a comprehensive payroll provider should offer these two options.
- Wholesale: In this scenario, the accounting firm forms a relationship with the vendor to access the platform at a discount in order to process payroll directly for their clients. This relationship can also allow them to offer additional services to clients through their relationship with their vendor.
- Referral: The accounting firm can also refer the client directly to the payroll vendor. In this case, the firm receives a referral fee from the vendor. The client negotiates the price with the provider. But even here the firm can advise the client. If the accounting firm has a partnership with the vendor, they can weigh into the negotiations and help make sure the client gets the best deal possible. The firm can also act as a liaison with the payroll provider, expediting clients' requests and resolving issues faster.
Here are some examples of how these options can play out. A firm may process the payroll internally if it's easy and predictable like salary. But if it's more complicated — let's say with employees in multiple states and jurisdictions with hourly wages that are paid weekly or every other week — it may be better served to refer the client to a payroll provider with comprehensive compliance solutions for multijurisdictional pay. When you partner with the right payroll vendor, there are ways to meet the expectation of the firm and their clients wherever they might be.
If accountants want to expand their advisory services, payroll can be the door to those opportunities.
