In 2008, payroll is a more challenging service than ever before. There’s more competition in the marketplace, falling prices among some vendors, and a possible recession that’s spelling leaner times for the core market for these products, small to medium-sized enterprises. Starting just a few years ago, competition on the basis of features gave way to competition solely on price, a sure sign that consolidation and lower profitability lay ahead for vendors of payroll services. In the past year, this price-only competition has been compounded by the re-energized entry of Intuit with a QuickBooks-centric product and the entry of nearly every major bank in the country into the payroll business.

This leaves accounting firms that are performing payroll for their clients a choice of three major strategies for the years ahead:

Exit the business. This is not necessary, given the number of businesses that don’t want to deal with payroll themselves. But it is one that some firms will have to consider as prices fall and competition rises.

Do the limbo. This is the middle ground, in which accountants continue to offer payroll services at a profit by following those vendors who will take their prices to the lowest possible levels. It's a valid strategy, but care must be taken not to get stuck with a payroll services vendor that lowers prices by so much that it folds, goes so low that they fold.

Expand the business. This is the more likely choice for many firms. The addition of human resources services can enhance payroll-only services and build a platform for a more secure client relationship in the future. To achieve this and protect profitability, accounting firms will need to stay abreast of technological changes, such as the move to Web-based services, electronic filing and payment at the state level, and become more versed in the more legally-oriented HR processes.

While some prices are clearly dropping, other vendors are expanding into HR services. Overall, our review of eight top-shelf products in this market reveals strong choices in all three strategies.

Paychex Online

Paychex Online, a tightly-integrated suite of Web-based services, offers exceptional, live human support to its robust and easily navigated service.

The online site itself features multiple rates of pay, complex deductions, integrated 401(k) benefits support and workers’ compensation and offers integration with a host of other accounting applications, including an interface to post payroll data into general ledger programs, including Accpac, Creative Solutions, MYOB, Peachtree and QuickBooks.

In addition to stronger layers of security, recent enhancements have focused on the Paychex Online Message Center and Dashboard. Message Center users will see new sections and links such as “Tools for Managing Your Business,” “Resources,” and “Paychex News.” The dashboard has evolved, presenting customized content that ranges from secure access to data and forms to other information and services. Accountants will receive specialized content and links from Paychex while continuing to rely on the Message Center for client-specific information on products and services. Additionally, accountants may choose to direct their clients to the message center to access an array of information and services.

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