Online Changes the Payroll Game

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Phil Christensen didn't want to handle a lot of the grunt work associated with payroll when he decided to add payroll to his tax and financial services about five years ago.

"I needed something that would give me a solid revenue stream," says Christensen (pictured), a CPA and owner of Christensen Consulting of Lacey, Wash. "I didn't want to be a typical firm with four or five people doing payroll."

His firm is hardly that. Christensen is a one-person shop and works from his home handling about 95 payrolls, with most of his customers either insurance agents or healthcare professionals.

Partner Insights

Among the things he doesn't do for those clients, who typically employ four people each, is print checks. Ninety-eight have direct deposit and most clients enter their own hours.

"There is no faxing and timecards," says Christensen.

He spends about 40 minutes setting up the company and employee information and walks the owner through a dry payroll run, including one with deliberate mistakes.

"After the first payroll, they really enjoy it," he says.

What enables Christensen to provide these services is PayCycle's online payroll system, which he began using when he decided to start offering payroll. Not only does it enable him to avoid performing low-level work himself, it lets him concentrate on quarterly payroll filings and tax preparation.

What Christensen is doing is hardly unusual and the way he has approached payroll is less and less unusual.

In fact, it may become the norm for payroll, which has had a much different norm throughout much of its history at accounting firms.

"We see a lot of back and forth, people building payroll practices and then getting out," says Don Weinstein, division vice president for small business services for ADP. But he noted, "Recently we've seen the prevailing trend toward the accountant keeping payroll in house. You want to maximize revenue from existing clients in the current economy."

While most payroll companies, whether the traditional service bureaus like ADP and Paychex, or the online-only companies, say they have their advantages, most are pointing toward the same model.

In that model, practitioners no longer have to choose between doing all the routine work, such as data entry, printing checks and filing taxes, or outsourcing it. They can pick how much of the process they want to be involved in.

The tag line on the Web page of MPAY says in one phrase what many companies are saying about their payroll service and products: "Payroll Any Way You Want It."

That means there are a lot of choices. And the thing that surprises Weinstein is how those choices are made in the use of the ADP Run system.

"When we first launched the solution, we thought some would want to file taxes and some wouldn't. I thought some would happen on an accountant-by- accountant basis," he says. Instead, "Many accountants make that choice on a client-by-client basis."

In some cases, the accountant will perform the tax filing. In others, the task is handed off to ADP.

So the question of whether accountants are getting into payroll or getting out of it is a different one than it has ever been. Few want to do everything in the payroll process. But a lot want part of the revenue.

A Taxing Job

What most don't want to do is handle the tax filings, says Kathey Palmer, senior vice president of business development for CompuPay, a Miramar, Fla.-based company that offers a variety of traditional payroll service bureau offerings and online systems.

"More and more of the accountants we are talking to who have a handful of clients they are processing payroll for, they want to get out of the payroll tax business," says Palmer. "They want to use our Internet application to process payroll for their clients, where they still have the control-we are doing all the tax processing, we assume all the tax processing liabilities."

CompuPay, which has grown rapidly by a combination of organic growth and acquisition, has purchased operations in different parts of the payroll process. It acquired PowerPayroll a few years ago with the purchase of the former PayMaxx. During the last year, it purchased payroll service from Sage, including Peachtree Managed Payroll. It offers the phone/fax payroll service to end-users and PC transfer of data, along with a variety of Internet-based applications.

The Xpress Payroll offering includes Xpress Payroll for Accountants.

Xpress "is ideal for accountants who have very small businesses," says Palmer. The online product has subscription pricing.

Add to that PowerPayroll, which can handle up to 250 employees, but which is more generally for organizations employing 15 to 20 people. The more full-featured CompuPay can handle more than 1,000 workers.

A sample pricing for PowerPayroll is $54.80 for 10 employees paid biweekly.

For the same number of employees and payroll frequency, the services of Payroll Online are $57.50 per payroll.

Self-Service

It's the self-service element of online payroll that is increasingly freeing accounting professionals to concentrate on the higher-level part of the process, according to Julie Lubetkin, PayCycle's marketing director.

"More and more accountants are giving their clients access to payroll," she says. "Clients can have access to some of the payroll so the accountant doesn't have to do everything." And in some cases accountants are letting the clients do everything, stepping in only if they have questions.

This kind of efficiency enables practitioners to expand their practices and PayCycle has found that firms are increasingly expanding their businesses outside of their home states.

Since all payroll products have the same goals, producing the right pay for employees and the right deductions for taxes and other obligations, the question of what distinguishes the competing providers from each other centers around scale, the ability to handle larger numbers of payroll and breadth of product line.

Geoffrey Duke, CEO of  Waltham, Mass.-based MPAY, thinks that most CPA firms are not in the business as an active way to grow revenue.

"Most CPA firms are doing payroll as a courtesy or as a defensive mechanism," he says.

MPAY has a range of products from the phone-or-fax-it-in outsourcing, through its MPAY services business to its MPAY Software operations which markets the client-server Millennium product and the online payentry.com.

MPAY costs $29.95 per payroll plus $1.40 per check, which includes all portal fees, federal tax filing, plus one state filing, direct deposit and electronic journal entry for Thomson's CS Professional Suite or QuickBooks.

Duke differentiates his business from ADP and Paychex via what he says is a different relationship that MPAY has with the accountant and the accountant's clients.

The clients are referred to the competitor with those operations, says Duke, who continues that, "the vendor can expand the scope of services being offered beyond what the CPA wants to do. They don't risk that with us. We are not selling products to clients, unless they [accountants] ask us to include that in the package. They service the clients."

Like most of the providers, MPAY offers a wholesale pricing to accountants so that they can market up services to the client. Wholesale pricing ranges from $1.25 to $1.75 per check, which is a discount from average retail pricing of $2.50 to $3.00 per check.

More than Payroll

The national service bureaus push the one-stop-shop approach, which is certainly the case with Rochester, N.Y.-based Paychex, which says it is seeing an increasing demand for information about the client.

"CPAs are becoming more like the CFO of a small business. They want access to information, including immediate reporting online," says Paychex senior vice president Walter Turek.

That demand for information produces increasing demand for Paychex's other services, such as 401(k), insurance and workman's comp, which help the accountant play a more consultative role, not just one that results in paychecks.

Michael Alter, CEO of Chicago-based SurePayroll.com, also sees payroll generally becoming part of a broader line of services handled by accountants.

"Online payroll is moving to online full-service payroll," he comments. That includes services such as new- hire reporting, which SurePayroll will perform for the company. And with the expectation that regulation is going to increase, it will be increasingly useful for accountants to deal with services that can handle new demands.

Alter believes that one of the important parts of self-service payroll is that it dramatically reduces the possibility that the accountant will have to answer questions from clients' employees, which is a drain on profitability.

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