Accounting professionals had traditionally avoided offering payroll as a service because the labor involved in payroll processing often took away from more profitable engagements. However, as the economy changed and payroll systems continued to improve, accounting firms have been re-evaluating their options regarding payroll - whether to offer it as a client service or refer it to a payroll specialist.

As with any area of business, there are pros and cons to offering payroll versus referring payroll.

Let's take a look.



The pros:

* Create a new profit center by offering payroll. According to Dhananjay Agarwal, director of marketing for online applications provider AccountantsWorld, accountants can earn as much as $30,000 to $50,000 per year without adding any staff.

* Meet your clients' payroll needs while offering the same level of service that the client expects from you.

* Increase your client contact and retain your clients. Whether you are offering payroll services or using a vendor's services that you resell to your clients, such as MPay's Payroll Partner, AccountantsWorld's Payroll Relief or SurePayroll's solution, you are establishing a client insurance policy. Teresa Pittman, public relations manager at MPay, said, "If an accountant has a problem, they call us. If the payroll client is aware of a problem, they call the accountant and the accountant retains ownership of their clients."

* Promote your business and increase your firm's brand. "Your clients see your name with every payroll," said Michael Alter, president of SurePayroll.

* Smart software and hosted programs are streamlining data-entry processes and automating many reporting and compliance tasks.

The cons:

* Hiring additional staff to handle the incremental work.

* Payroll needs to be looked at frequently and takes up a lot of time.

* The set-up of internal payroll processes is often perceived as time-consuming.



The pros:

* Able to focus on higher-revenue activities if you are not interested in offering payroll services.

* Avoid spending time supporting payroll, such as fielding customer support questions and dealing with tax notices.

* Assist your clients by referring a service provider whom you are comfortable with.

The cons:

* Loss of a possible profit center. Agarwal said, "The Internet has put technology used by large payroll service bureaus such as ADP within reach for accountants. Accountants can now private-label payroll service, control 100 percent of their client relationship and have an additional revenue source."

* Compromise your trusted client relationship.



When it comes to recommending a payroll service or reselling a service, SurePayroll's Alter believes accountants need to question how each option will work for their clients. Will the service make them look good by providing a dependable, accurate service that takes work off the client's plate? Does the service offer easy ways for the client to submit payroll and access information?

Kurt Rickhoff, owner and president of O'Fallon, Ill.-based Payroll Central, asked these questions a few years back. "We were processing approximately 30 to 40 payrolls and we were not really making any money at it. Then we decided to jump in full force," he recalled. The firm created its Payroll Central unit, separating the payroll business from the accounting and tax firm.

Since that time, their payroll revenue has increased between 500 and 600 percent, and they have a dedicated salesperson with the goal of reaching 175 clients by the end of 2009. "Our payroll business continues to enjoy double-digit revenue growth through these difficult economic times, without any additional staff," Rickhoff revealed.

As far as referring business to a payroll provider, Rickhoff sees potential issues with that scenario: "We work hard as accountants every day to serve our clients and build a lasting relationship. I don't want to risk upsetting my clients by referring them to someone who cannot provide the level of service they are accustomed to at our firm."

Meanwhile, Michael Hoffman, of New Jersey-based CPA and business advisory firm WithumSmith+Brown, is recommending more and more that payroll be outsourced to a payroll provider. "The primary reason is they are very difficult for us to make money on. Second, depending on what the client wants us to do, a payroll needs to be looked at quite frequently, some as often as weekly. Using an outside payroll company will allow the full process to be handled from check cutting to calculations to tax filings," he said. Hoffman feels the key is to work hand in hand with the client and the payroll company. He added, "We have relationships with the major payroll companies, so our clients do not feel that they are working with lots of different companies. Ideally, we can create a scenario that the client is most comfortable with."



When it comes to payroll, the bottom line is it depends on the accountant and the client's needs. A December 2007 survey conducted by Intuit of 239 accounting professionals showed that:

* One third are interested in offering payroll and making money on the service.

* One third offer payroll to clients but only as a service to clients.

* One third were not interested in getting involved with payroll.

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