When I started working in accounting in 2002, no firm would ever chase a client’s payroll business as an outsourced service. It had traditionally been the bookkeepers function, and for good reason. Back then, payroll meant a lot of manual data entry. An accountant would be eroding their precious charge out rate, and managing payroll couldn’t be done profitably.
These days 64% of accounting firms are now offering payroll services (2017 CCH Wolters Kluwer survey of member accounting firms). Payroll is now making up 6% of their total fees and this number is growing. Greater service offerings equals greater market resilience.
Reflecting on this personally, I “fell into” payroll when I opened my small practice back in 2011, based on sheer client demand. By 2015 my practice garnered 56% of its total fee base coming from outsourced payroll. This was run on a white labelled KeyPay platform, meaning we had our own logo and custom URL so clients had the familiar look and feel of working with our brand.
So what has changed over that time to make the demand for payroll services increase?
Six years ago accounting had a major disruption with the introduction of cloud based accounting applications, bringing with it cloud based payroll. Using a single, shared database with real time access between the client and accountant opened up opportunities to provide a whole new set of services. Financial dashboards, outsourced accounting and business advisory all became achievable without having to maintain a mini server farm and an IT department in every office.
For payroll, it meant for the first time that the employees could ‘own’ their data. Timesheets, leave requests and employee standing data such as emails and addresses could now be managed on mobile.
With 84% of Australians now owning a smartphone and 77% with 4G, it is now a very real opportunity to use smartphones for payroll transactions, and forget the need to use a paper timesheet. Because we are talking the same database being used by employee, employee manager and payroll administrator alike, technology has removed the need to re-enter the data. Suddenly an outsourced payroll services begins to look profitable for an accounting firm looking to diversify their offering.
Payroll is an ever changing beast when it comes to compliance. The introduction of the Fair Work Act in 2009 meant years of transitional provisions moving from state based to federal based modern awards. In some industries this will continue to 2020. It has been a very confusing time for the payroll administrator indeed.
Technology has once again provided the solution through pay condition rule engines, templates and pre-built awards. This sophistication is not as common in payroll platforms inside of accounting platforms, but is more common with dedicated cloud payroll platforms.
A dedicated set of logical rules means that you will get a consistent result every time. If we tell the system that the employee should get an extra 25% on the first three hours of the Saturday shift, then that is what they will get. It is not left up to manual interpretation, nor hang on the payroll admin being at work that day. Pay day, therefore, becomes a “sensibility check” where no data (or very little data) is originating on the day. As a result, it is now even more efficient for the accounting firm to offer payroll as a service and have certainty about the outcome.
We are increasingly seeing payroll services offered by accounting firms using a variety of business models:
The client performs rostering, time and attendance and the accountant processes pay runs on payday and issues payslips using the same app as the client, performing checks and balances as they do. These are charged at a fixed rate, a charge per employee, or a charge per pay run.
As above but this is only for a limited time of the year, perhaps if the business owner is on holidays. This is charged the same as complete outsourcing but tends to be charged at a premium
Implementations and support
Providing setup of payroll businesses for the DIY business owner, including the interpretation of awards and EBAs, importing employees from old systems etc. Ongoing help desk style support for clients as well. Implementations are generally charged at a fixed fee for service and support contracts as a monthly subscription based revenue stream.
Providing reviews of payroll compliance and “better off overall testing” for clients paying above award. This is particularly common for larger employers and franchise groups. These fees are normally based on fixed fee quotes and value based pricing, or rolled into a subscription.
All firms should be looking at payroll with a new set of eyes and not think of it as the bookkeepers domain. In a technologically advancing industry where some of our traditional sources of revenue are at risk of decline, payroll may just be the answer to a resilient firm and a diverse service offering. Get in touch with firstname.lastname@example.org and see how a white labelled payroll platform could work for your firm.