by Seth Fineberg

There was a time when, if an accountant or small-to-midsized client needed payroll done, they could only turn to a large, outsourced service -- or do it themselves.

This is no longer the case, as there are now more payroll service options available than ever, providing additional revenue opportunities for accountants and overall choic­es for their clients.

Granted, the payroll services space remains dominated by long-established players, such as Automatic Data Processing Inc. and Paychex Inc. But over the past few years, numerous on-site and hosted software vendors have thrown their hats into the ring, offering both choice and, in some cases, affordability.

And given the size of the payroll services market in relation to potential demand, it is no wonder that so many vendors are looking for a piece of the accountant and SMB pie.

Chicago-based wealth management and equity researcher Robert W. Baird & Co. stated that the payroll services space is currently an $8 billion market for SMBs, based on 50 million employees working at small businesses at $160 per employee for the services. There are also 6 million companies with 100 employees or less, and Paychex and ADP handle 70 percent of those that outsource their payroll.

Clearly, there is still some room for other payroll services and software vendors, many of whom also sell accounting and business applications to accountants and their clients. Even so, some analysts don’t necessarily agree that software vendors and comparatively newer services are the best choice.

“The cost of establishing a local market presence is steep, whereas you have someone like Paychex in 100 markets. SMBs and CPAs care about that,” said Robert W. Baird analyst Randy Mehl. “The other issue is reputation. Paychex, ADP and even Intuit can sell to CPAs as long as they have the size and prove they will get it right 100 percent of the time. As for clients, the only time you lose one is when you have service issues. They need to know someone has been around. Most of the players outside of the big outsourcers just don’t have the experience.”

Indeed, ADP, which targets both small and large clients, has done a fair share of the work of targeting SMBs and accountants who want to offer payroll services without the hassle of actually doing them. And with more users trusting the Internet for their payroll needs, it has opened up even more opportunities to sell services.

In 1999, ADP introduced EasyPay Net, a program where ADP hosts and maintains data that users can access over the Web to process their payrolls. The program allows users’ accountants to access and process client payrolls, as well. EasyPay is also slated to have general ledger integration by this spring, beginning with QuickBooks.

“The Web has really facilitated the payroll industry, as it has been able provide this data at a low cost to the small business market. As for our competition [mainly software vendors], it’s easy to have all the tools, but it’s another thing to do it correctly,” said Rich Watson, vice president of product management and accountant services with ADP’s small business services group. “Accountants are looking at a number of ways to grow their businesses and need to make the decision of developing in-house, outsourcing, or using a third party. We do all the stuff no one else likes to do, be it a small business or an accountant doing payroll for small business.”

Watson claimed that ADP has also gained acceptance among accountants and small businesses by providing them with choices of accessing and supplying payroll data, be it by phone, fax or the Internet.

Intuit is not as well established in the payroll services space, but the company believes that its brand name and long history with accountants have contributed to the more than 13,500 concurrent licenses of Complete Payroll. This Internet-based payroll outsourcing program was only released in 2002 and, as you would expect, updates data into QuickBooks. Starting at $63 per month for up to five employees, it also automates W-2 federal, state and local tax preparation, filing and payment, as well as third-party payments including garnishments and 401(k) contributions.

Peter Ross, director of sales in Intuit’s outsourced payroll group, is well aware that his company and products don’t have a history in the payroll services space, but feels that Intuit makes up for it in “knowing what accountants want.”

In fact, in its own client study, Intuit found that accountants are investing more in their own practices in order to succeed and improve client service. The study show­ed that 76 percent of accountants surveyed have made changes within their practice in order to maintain their success, with 19 percent adding new services to their list of client offerings, and 17 percent investing in new technology.

“We all are seeing growth in payroll services because, in small businesses, accountants like to outsource what they can. Payroll is something you don’t always make money doing, so accountants end up spending time running payroll and not doing what their business is meant to do,” Ross said. “Accountants say they want to be in payroll, but not really. They want clients to view them as an overall service provider, and we are a part of that process.”

Ross also noted that accountants can have 150 small businesses and provide financial statements monthly, but since the majority of users are already on QuickBooks it makes it easier to produce information, allowing them more time for consulting, rather than just running reports and keying in data.

Long Beach, Calif.-based Colston Enterprise consults with accountants and businesses on QuickBooks use. The firm began recommending Complete Payroll not long after its 2002 release, and believes that it is a vendor’s customer attention, not their overall experience in the space, that keeps clients.

“Intuit has been very diligent about set-up, correcting errors, and they stay with you until all issues are resolved,” said firm president Betty Colston. “My experience with the larger outsourcing services is that you are never going to get same person — you go through your whole story again, it takes so long to get anything corrected and they don’t take an interest in the client. I provide a service business and I need them to care about my clients.”

But experience still counts for some things, especially when it comes to working with accountants, something Creative Solutions Inc. — like Intuit — believes gives them an edge on the competition. CSI is a Thomson business.

CSI’s Payroll Solution was released in 1998. Its many support areas include multi-dep­artment, multi-state, tipped employees, user-defined payrolls, deduction and withholding items, unlimited checks per employee and over 30 configurable reports.

Right now, payroll is CSI’s fastest growing service, mostly because accountants are realizing that it does not need to be as tedious and time-consuming as it once was due to the current state of technology, according to Jack LaRue, CSI’s vice president of marketing.

“Payroll processing had a reputation of being labor intensive, but because of technology and integration it’s now a smooth, easy process that allows clients to enter information from anywhere they are, grab it electronically, and populate the payroll software. Accountants can then do a quick turnaround, without keying in any information,” he said. “Most acc­­ount­ants will also demand direct deposit, which we have. There have been occasions where accountants have met with complexities in dealing with direct deposit and banks because banks simply just don’t want to work with accountants for payroll.”

LaRue also no­ted that accountants are finding that offering payroll services can lead to other revenue streams. The Waco, Texas, CPA firm of Jaynes, Reitmeier, Boyd & Therrell is well aware of the benefits. The firm started a basic bookkeeping service eight years ago, eventually evolving it into a separate payroll service, and has used CSI’s Payroll Solution for the past two years. According to CPA and business support manager Paula Moerbe, “Payroll ties people to you.”

Dr. Chandra Bhansali, the founder of accountant-focused Web services company AccountantsWorld, also believes that accounting firms that can offer payroll services are opening up the door to new revenue streams. As such, his company provides PayrollRelief and the recently launched PayrollRelief AC — a hosted, accountant-only payroll service

“Most accountants don’t offer payroll services to their clients, but payroll service businesses are quite profitable and reaping the profits,” Bhansali said. “We offer a comprehensive, full-service bureau and give accountants access to it. All clients do is enter data and we do everything else, so now accountants can offer payroll services profitably to their clients.” Bhansali said that his service does everything from printing checks and direct deposit to compliance work and W-2 processing.

“We recently had a potential client for our payroll service that also saw we were a CPA firm and wanted to use us for financial statements and tax work,” Moerbe said. “We have some clients where we do accounts payable work, financial statements, audit, tax and payroll. They just want to get it out of the office. This is the way everything is going and they want to do it.”

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