CPA Practice Advisor - 21

FROM THE TRENCHES
DO YOUR BEST

PAYROLL

IN THE GIG economy, how important is payroll? Just as much as ever! While many firms make the
majority of their profits from compliance work in tax and audit, the firms providing Client Advisory
RANDY JOHNSTON

EVP & Partner
K2 Enterprises &
CEO of Network Management Group, Inc.
randy.johnston@cpapracticeadvisor.com
@RPJohnston

Services (CAS) have discovered that payroll can be a profitable component of an attractive service
offering. Traditionally, CPA firms have outsourced payroll to providers like ADP, Paychex and Ceridian,
as a strategy to reduce liability, ensure that payroll taxes, 941's and W2's were handled in a timely
fashion and that employees were paid on time. Further, requirements of various jurisdictions
required software, tax tables and deductions to be updated frequently, usually before every payroll.

Then, something significant happened. It became notably easier to
update software and to make employee
information more accessible because
of the internet. Downloading updates
to local installations or simply using
centralized cloud resources meant that
software and other items that had to be
updated could be taken care of in a single
location. Self-service employee portals
became more common, and timekeeping
was enabled from web browsers and
mobile devices. While I could not easily
locate the number of payrolls currently
run in the United States, consider that
payroll runs occur weekly, bi-weekly,
semi-monthly, and monthly. The number
of people involved per payroll varies
widely from one to tens of thousands.
Most CPA firms handle payrolls of one to
thousands of employees for their clients.
Further, contractors are frequently paid
for their work and receive 1099's annually, but my recent research tells me that
contractors are frequently treated like
employees and workers are misclassified
for a variety of reasons. One thing is
for sure, millions of people in the U.S.
receive a paycheck that is generated by
a variety of systems.

SO, HOW DO WE RECOMMEND AND PICK THE RIGHT
PAYROLL STRATEGY?
Philosophically, most CPA firms have
recommended outsourcing payroll.
That is part of how ADP, Paychex and
Ceridian built the size and scale of
their current businesses. Other CPA
firms decided to run payroll service

bureaus, use or run professional
employer organizations (PEOs) and
used a variety of products:
Payroll Service Bureau Software
■ Apex - Pay roll Ser v ice Bureau
Management
■ Arcoro - Infinity HR
■ CyberPay - AdaptaSoft
■ CYMA - Payroll Service Bureau Software
■ Execupay Payroll Suite - Execupay
■ HK Payroll Services
■ Polaris Payroll
■ Sage People - HR and Payroll Services
■ Thomson Reuters - myPay
■ UBCC - Payroll Service Bureau
While it is never our intent to tell you
which products to use or consider, we
do like to recommend products that are
working well. Realistically, with payroll
software for smaller businesses, there
are dozens of choices and as a buyer it is
hard to discern which one will work the
best although we have additional choices
here. However, two approaches are clear:
hosted (cloud) vs. in-house.
Hosted
■ AccountantsWorld.com - Payroll Relief
■ ADP - ADP Payroll
■ ADP Accountant Community - ADP
Small Business Services
■ ADP RUN
■ Intuit - Intuit Online Payroll
■ myPay Solutions - Thomson Reuters
■ OnPay Payroll - OnPay, Inc.
■ Optimum Suite - Optimum Solutions
■ Patriot Software - Online Payroll
■ PayChex - Paychex, Inc.
■ Paycom Payroll Services - Paycom
■ Paycor Payroll Services - Paycor
■ Payroll Services - Intuit

■ Paylocity WebPay - Paylocity
■ Sage HRMS - Sage
■ Sage Payroll Center - Sage
■ SurePayroll (owned by Paychex)
In-House
■ 1099 Etc. A-T-F Payroll - AMS Payroll
■ Accounting CS Payroll - Thomson
Reuters
■ CenterPoint Payroll - Red Wing Software
■ CYMA Payroll & Human Resources
- CYMA
■ Payroll for Windows & Mac - CheckMark Payroll Software
■ QuickBooks Desktop Payroll - Intuit
■ Sage 50cloud (formerly Peachtree
Accounting) - Sage
■ Payroll modules from accounting
products such as Dynamics (GP=Great
Plains, NAV=Navision), Open Systems
TRAVERSE, etc.
More Commonly Used in CPA Firms
■ AccountantsWorld.com - Payroll Relief
■ ADP - run
■ Intuit - Intuit Online Payroll
■ myPay Solutions - Thomson Reuters
■ OnPay Payroll - OnPay, Inc.
■ Payroll CS - Thomson Reuters
■ QuickBooks Desktop Payroll - Intuit
■ SurePayroll (acquired by Paychex)
- SurePayroll
While payroll is only one additional
service offering, note that many of these
software publishers also offer a human
resources (HR) system, too. By the time
most businesses reach 75 people, an
HR system is helpful for compliance.
Smaller businesses benefit from having
integrated HR functions, too. Therefore,
if you are looking at payroll as a client
service offering, remember to consider if

OCTOBER 2019 ■

you ever expect to add HR and consider
products that have additional HR functionality for future adoption.

ARE THERE DOWNSIDES
AND UPSIDES TO OFFERING
A PAYROLL SERVICE?
Absolutely! Clearly there are compliance risks and deadlines that must be
met. You can't do payroll for a few clients and be successful. We suggest that
your vision should be to have at least
ten clients, but realistically, having
one hundred or more clients on payroll
would be ideal. Remember to use lower
cost people to provide the service, not
more expensive CPAs. While the work
of many people producing payrolls can
be monitored by a few professionals,
it is hard to make appropriate levels
of profitability if a CPA professional is
doing the payroll work.
Providing payroll services has some
upsides, too. Clients tend to be very
sticky when you are running payroll for
them. Payroll produces year-round recurring revenue. Payroll services allow you
to expand into other offerings including
HR, expense reporting and management,
bill pay, accounting and employee benefits. Further, a professional practice that
includes payroll services can be sold at a
3.5-4.5 multiple, which is far higher than
a typical firm produces today. While we'd
prefer that you stay in business, if you
are planning an exit strategy, including
payroll services can increase the price
paid for your firm. ■

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