by John M. Covaleski
The payroll services industry is racing to Internet-based delivery of information, but much of the accounting industry is not ready to join them on the ride.
Virtually all of the major payroll service providers and payroll software developers now use the Internet to accept or distribute users’ payroll information. At the same time, most are aggressively recruiting accounting professionals as users or referral sources.
However, industry observers and practitioners themselves believe that many accountants and their small business customers aren’t ready to place their payroll information online even at this late date in the World Wide Web’s history.
"There’s no question that payroll services are moving to Internet-based delivery, but not all CPAs will embrace it," said Gary Boomer, president of practice management advisors Boomer Consulting, in Manhattan, Kan. "Some accountants will want to keep as much as possible in-house so they can keep in closer touch with their clients, and besides, a lot of smaller payroll clients are not ready for the Internet."
The vendors themselves acknowledge that many very small businesses are still not ready to plunge online with their payrolls, but they’re moving in that direction anyway.
Vendors with recently launched Internet payroll initiatives include:
- Intuit Inc., which late last year launched Complete Payroll, a full-service outsource payroll program that allows customers to go online to file data and access payroll reports. The program also can use the Internet to download payroll information to users’ QuickBooks accounting software.
- CPA2Biz, the Web portal provider of services and products from the American Institute of CPAs, in October launched an online payroll service it proclaimed would be the "beach head" for many other Internet services for CPAs and their clients.
- PayCycle, a 4-year-old, venture-capital-backed online payroll service, last month formed a marketing alliance enabling it to distribute its services to accountants through the Web site of accounting industry software developer AccountantsWorld.
- Payroll Associates enhanced its desktop payroll processing software, PayCycle, with the ability to automatically input payroll data sent electronically.
These vendors are all looking to increase their competition with the market-leading payroll outsource service providers, Paychex and Automated Data Processing, which have also, naturally, already made Internet moves. Both vendors enable customers to transmit payroll information via the Net. And Paychex has separate Web programs that give accountants online access to clients’ payroll reports and use the Internet to post report information to the clients’ accounting software.These are just a few of the more recent Net-based payroll initiatives. Other such moves were also made earlier, such as that by Creative Solutions Inc., a Thomson business, which made a hosted payroll service available to its practitioner clients in early 2002.
Despite the vendor moves, business and accountants have not been rushing to online payroll. A recent membership survey by the American Payroll Association, comprised of 21,000 members, found that only 25 percent use the Internet for processing functions.
Paychex reports that less than 10 percent of its 440,000 customers are using the company’s option to input their payroll information online. The non-online users, which are exclusively smaller businesses with less than 20 employees, are instead using the traditional methods for relaying information -- via fax or telephone.
"There’s a growing group of people who are very comfortable going online, but payroll is a unique service in that there will be always be a large portion [of people] who will require being able to talk to someone," said Walter L. Turek, senior vice president of sales and marketing for Rochester, N.Y.-based Paychex. Other observers note that very small businesses are less inclined to do business online, and many lack computers altogether.
Meanwhile, only about 50,000 of the approximately 140,000 accounting professionals in Paychex’s database have used its practitioner-focused Internet programs. Paychex is a service bureau that provides all aspects of payroll services directly to its customers, but it
relies heavily on accounting professionals for customer referrals. It estimates that accountants generate roughly a third of its total business.
While Paychex and ADP primarily work with accountants for referrals, the new batch of online payroll vendors are positioning their offerings as tools that CPAs can use to build their own businesses. "One of our goals is to help CPAs become even more important to their clients," said Erik Asgeirsson, chief executive of CPA2Biz.
CPA2Biz’s Pro Payroll program gives practitioners access to a complete outsourced payroll service provided by InterPay, a payroll service affiliate of financial services company FleetBoston Financial. CPA participants have the option to make the program available via a privately labeled link on their Web sites, which requires CPAs to go to the sites to do payroll.
Asgeirsson, who took over CPA2Biz after a major shakeup in management late last year, is confident that ProPayroll has adequate momentum, as he expects to have 100 CPAs signed up for the program, and at least 100 business end users by February. Those 100 prospective sign-ups compare to an AICPA membership of more than 300,000.
The CPA2Biz-InterPay program provides a full range of payroll services, including producing checks, maintaining reports and W-2s, paying all federal and state taxes, direct deposit services and handling most other additional reporting requirements, such as new hires, labor distribution, retirements and reconciliation.
The program pays referral fees to participating CPAs. For full details on the fees and costs to end users, log on to the www.CPA2Biz.com Web site.
Like the other online distributors, CPA2Biz officials boast that accountants can bolster client relationships by adding payroll to their service offerings. "Payroll is an additional service, and the more services you offer, the more loyal the client becomes, and you protect against the potential for them to move to competitors," said channel development director Stephen Winters.
Chandra Bhansali, president of AccountantsWorld, said that the alliance with PayCycle is part of his company’s plan to provide its accounting practitioner clients with "tools, resources and services to advance their practice growth."
AccountantsWorld, formerly known as MicroVision Inc., is mainly known as the developer of software for tax preparation, practice management and key accounting firm services.
"Until now, payroll processing has been a neglected revenue source for much of the accounting community because it was viewed as a hindrance, not an asset," Bhansali added. Its PayCycle alliance is similar to Interpay-CPA2Biz in that it allows practitioners to build privately labeled Web site links that access clients to the payroll processing service.
However, the costs for the different programs vary greatly. PayCycle, which bills itself as the lowest-cost provider, said that it charges $10 a month for a package of services, while the national payroll providers charge as much as $60. Practitioners can mark up their $10 cost when billing clients.
For Mountain View, Calif.-based PayCycle, the latest alliance is big potential market gain because AccountantsWorld delivers its services and products to some 60,000 accounting professionals. PayCycle chief executive Rene Lacerte said that he plans to pursue other accounting industry alliances, including other software developers.
He also said this is a particularly good time to recruit. "With the economy being so slow, accountants are looking for additional revenue sources," he said. "Payroll services give that and an opportunity for them to distinguish themselves from the competition."
Bert Doerhoff, a Jefferson, City, Mo., CPA, won’t argue that payroll is an exciting business, but he’s not rushing to the Internet, either. Doerhoff describes his AccuPay payroll business, which he runs entirely in-house with desktop software, as "a traditional payroll service bureau."
AccuPay has some 300 clients -- 80 percent of whom fax their payroll information, while the other 20 percent call it in. His customers, located mainly in Missouri and neighboring Illinois, typically have 10 or less employees and include many fast-food restaurants.
"We don’t see online versus traditional payroll as being any different," Doerhoff said. "The national service bureaus say they’re growing in online sales, but to compete with us, they’re cutting prices 35 percent, and in this business, client retention really depends on customer service."
"Customers are interested in personalized services and the issues that will never get answered by a voice mail," he added. "They want to talk to a warm body and to references."
Doerhoff said that he expects to add Web components to his practice someday, but his payroll software does not provide for Internet-based data transfer. That software is the desktop program from the former CBS Payroll, which was acquired by Intuit last year.
Jerry Sutkiewicz, president of Midwest Accounting Service in Wales, Wis., recently added Internet capability to his payroll practice. The company, which has been processing payroll with the PayChoice software by PayRoll Associates of Moorestown, N.J., has added a new enhancement that enables the software to seamlessly accept client data sent via e-mail.
He said that adding the new delivery capability should help him realize his five-year plan to expand the business to 1,000 clients from its current 300. However, he expects that in the first few months less than 10 percent of his clients will opt for the online delivery.
"We will offer it to all our customers because you never know -- the clients you least expect may be the ones that want to do things online," Sutkiewicz said. "We want to be ready for them."
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