ATF: Life After Payroll

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After-the fact payroll isn't one of the hottest areas in software. Many firms offer it only as a convenience to clients, not as an active practice area. In fact, it's something of a program for companies that don't need to hire a professonal to process payroll, but who do want someone to check their work, says Bruce Andersen, owner of BTA Consulting & Training of Woodland Hills, Calif.

Quick Takeaways for ATF

Has your firm received a request from several clients to offer after-the-fact payroll? If so, industry observers have offered some quick tips that will prove helpful.

Partner Insights

* Be sure that the program can handle the type of clients the firm is seeking.

* Take into consideration the number of clients the firm expects to be handling over the next few years, and have the hardware needed to grow.

* Be sure that program handles all state forms necessary as some may not handle multi-state payroll.

* Consider ease of use, technical support, and functionality of the product.

* Consider the efficiency the firm can get from doing ATF. Without an integrated solution, ATF can be fairly labor-intensive.

* Having one or two staffers who specialize in that area can help make the entering of the information more efficient.

* If the firm is already serving a client on a monthly basis (including monthly/quarterly financials and ATF), the profit margin for the additional fees collected for payroll check writing services for that client increases because the firm has already incurred the cost.

"We have businesses that pay the same people over and over again. They take their books out into the field and make payments and hope it is correct," he says. And then there are those who are truly competent to handle their own payroll.

"We have two pharmacies who, over the years, thought they know how to do payroll and they do fine," he continues. BTA, which uses TaxTools from CFS Tax Software, checks the numbers as part of the its bookkeeping service and makes deposits for these clients.

It's certainly not all that exciting, even in the often not terribly exciting word of professional tax and accounting. But it's an important enough in a field that has been a fairly static area, because Intuit has decided to bring out its own after-the-fact product.

"ATF payroll is driven primarily by customer demand," says David Park, senior product manager for QuickBooks Payroll. "I think it is an important part of an accountant's practice because most accountants have clients who do require [ATF]."

Looking to learn more about accountants who do payroll and ATF (entering data from paychecks that clients have prepared themselves), Intuit conducted research on the topic in early 2006 and found the results to be a bit surprising. Of the 637 respondents who use QuickBooks and/or accountants who support small business clients who use QuickBooks, 81 percent say they provide payroll services to their clients, and, of those who provide payroll services, nearly half (48 percent) say they provide ATF payroll to at least one of their clients.

Paying to Stop at One Shop

While firms do not look to get specifically into after-the-fact payroll, many are looking to get into payroll services as businesses increasingly look to their accounting firm as a one-stop shop. In fact, a payroll research report described it as "one of the hottest businesses in America today."

"There are a number of people entering back into the payroll business. If you look back a decade ago, no one really wanted to do payroll. People were turning away work and saying, 'Do it yourself,' or, 'Here is the number for ADP or Paychex,'" says Teresa Mackintosh, vice president of strategic marketing for Creative Solutions. "While we were all doing that, Paychex and ADP came up with multi-billion dollar businesses. Now, technology has enabled us to re-enter that and take back that business and make it a very efficient and profitable part of our practice."

For those firms already providing ATF payroll to clients, the transition into the payroll services business is that much easier and the opportunity for a higher profit margin is that much greater.

According to a report by Don Uhl, president of Don Uhl & Associates, entitled "The Great American Payroll Opportunity," the payroll business has in recent years been dominated by ADP and Paycheck, but those accountants who aim to take that business back stand to benefit. Don Uhl & Associates, based in Williamstown, N.J., is a practice development firm specializing in the development of payroll departments.

ADP, which has more than 570,000 clients worldwide, reported 11 percent revenue growth to $8.9 billion from continuing operations for the fiscal year ended June 30, 2006. Paychex, which posted a revenue increase of 16 percent to $1.7 billion for the fiscal year ended May 31, 2006, noted that its payroll service revenue grew by 10 percent during the fiscal year due to the growth in clients' check volume and the use of payroll-related ancillary services. Paychex serves about 543,000 payroll clients nationwide.

Despite the impressive numbers, research shows that there still is tremendous opportunity for those firms in payroll. Research shows that while about 1.6 million businesses utilize a payroll service, there are about 8.4 million small businesses that do not outsource their payroll services-a key opportunity for firms looking to bolster profits. Furthermore, those 1.1 million businesses that are currently using either ADP or Paychex "are already convinced that having someone else do their payroll is a great idea, so they're pre-sold," the report stated. "All an accounting firm has to do is emphasize what their brand of payroll service offers that others in their market cannot, and the sale is within reach."

The report further states there are five key reasons to offer payroll services, one of which is that if a firm has a client being serviced on a monthly basis-including ATF payroll and monthly/quarterly financials-the profit margin for the additional fees collected for payroll check writing for that same client increases substantially.

"This happens because the bookkeeper in charge of that client has already been handling after-the-fact payroll responsibilities, and the firm already incurred the cost," the report stated.

Additional reasons to offer payroll services, as explained in the report, include:

* Payroll, as a profit center for an accounting firm, can yield hourly rates of $100 per hour and more. This can be achieved through delegation to a properly trained bookkeeper-level staff person.

* By comparing the monthly/quarterly/yearly statistics of firms nationwide, where some did payroll in-house and others did not, the firms that handled payroll check writing for clients consistently boosted their gross revenues by 30 percent and up.

* Using payroll as a profit-producing door opener also gets accounting firms exposed to more-established and larger clients.

* Marketing payroll as a stand-alone services leads to thousands of dollars of other services to those same businesses. In fact, the report found that for every $1,000 of payroll fees paid to an accounting firm, another $3,000 in accounting fees can be realized.

Noted Brian Steinert, product manager of ProSystem fx Write-Up, Engagement and Trial Balance at CCH, "A lot of firms use their payroll services to be a springboard into higher worth services ... sometimes it is a way to get in the door with customers."

In terms of the technology requirements, the most important consideration, the report states, should be a streamlined process. Key factors to consider before selecting a particular technology: The types of clients a firm will be servicing; the number of clients a firm expects to be handling in the next few years; and the back-up system and disaster plan that is best to use.

Also, payroll software that can be integrated with a firm's write-up accounting software will save a firm time and money.

"As you build your payroll practice and implement technology to accommodate your clients' needs, keep in mind that, ultimately, your clients expect reliability, flexibility and customer service," the report stated.

The result is that Intuit is releasing ATF as an add-on for QuickBooks for $299.

Based on the feedback from a team of accountants, Intuit included a spreadsheet-style data entry, auto adjustments, and customizable columns.

The QuickBooks Enhanced Payroll for Accountants features a new ATF spreadsheet-style data-entry tool aimed to simplify what can otherwise be a time-consuming and tedious task. From one window, users can enter all paychecks for all employees.

Second, users also can take advantage of auto adjustments. QuickBooks already performs calculations of such items as Social Security and Medicare and automatically identifies errors. Users can then make adjustments to withholdings with the click of a button, explains Park.

There are also customizable columns, enabling users to decide which columns are displayed on screen and the order in which they appear. This enables the data-entry screen to match the layout of the paycheck so users don't have to worry about transposing or skipping columns as they enter data.

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