How to profit from payroll services
Payroll accounting is changing, as software simplifies the process. Accounting firms can turn this to their advantage.
Taking a fresh look at payroll
Few accounting firms go out of their way to actively market payroll services. There’s always been several good reasons for that. For example:
- It can be time-consuming and tedious
- Errors are easily made and expensive to fix
- Legislation changes often, so it can be hard for firms to keep up to date
But the situation is changing. The above statements are no longer true – at least not for every accounting firm.
New tools are making it much easier to process payroll information. Joined-up government services are helping too, by making it easier to file online.
In fact if you haven’t looked at payroll systems for a year or two, you might be surprised. Things have moved on, and modern firms are taking advantage of new technology. Payroll is coming back in-house.
Driving the change
There’s one main reason for accounting firms to offer payroll services – profit. The second reason is being able to offer a full suite of financial services to their clients. From being a drain on resources, perhaps even a business headache, payroll is changing into something else.
What’s driving this change is the new breed of software. These tools have connectivity and data sharing built in from the ground up.
They are based in the cloud. This means that the data is stored securely on remote servers, and the software is accessed online through an app or web browser.
It sounds like a small difference compared to conventional tools, but the effect is dramatic. Connected systems that share data are transforming payroll and the way that accountants work with their clients.
The power of cloud-based software
One of the best ways to explain the change is to compare the old ways with the new. Here are some examples of what payroll used to involve, compared with today.
- Calculations were carried out manually: Now cloud software can process most calculations automatically.
- Accountants had to worry about tax rate changes and different rules from different levels of government: Most of the rules for these changes are now automatically updated in the software.
- Manual tracking of employee hours, for example using punch cards: Hours are tracked electronically or entered online by employees. This information is imported automatically into cloud payroll software dramatically reducing the time it takes to run payroll.
- Tax forms and payments were completed and filed by hand: Now online forms are pre-filled by the software. They just need to be checked and submitted with a click – no need to print or write anything. And payments are processed automatically.
- Each pay run required a significant amount of manual work: Once payroll software has been set up, the payment process itself is simple and mostly automatic.
- The different pay run frequencies and tax deadlines of each client had to be tracked manually: Differences in payment frequency and tax requirements between clients are irrelevant. The software tracks everything automatically and notifies the users when deadlines are near.
All of this helps to simplify the payroll process considerably. And that’s making it even more appealing to offer payroll services.
Lowering your risk
There’s always a risk of error with manual data entry. This is because paying employees has traditionally involved a lot of manual work.
When mistakes are made, they can affect a company’s financial records and tax returns. Persistent or large errors can even lead to an audit. If you’re an accountant, and make data entry mistakes, then the tax agency may hold you responsible. This could lead to tax penalties and other fines.
Data entry mistakes also cause businesses to over or under pay their employees. If you overpay someone your client could lose money. If you occasionally underpay an employee, it is a duplicated effort to correct the error. Regular underpayments could result in prosecutions and fines. Just like tax penalties, you can be held financially responsible if the mistake was due to your negligence.
With traditional payroll services, the potential of making a data entry error is high. With automated data entry, much of the risk goes away. There’s far less manual work, so less scope for error. That means less time correcting mistakes and less chance of an audit, prosecution or fine. So cloud software helps lower your risk when offering payroll services.
Making payroll profitable
A payroll service is profitable if you can sell it for more than it costs you to do the work. Cloud software helps here, by reducing the time and effort involved in managing payroll. This will have major consequences:
- Clients will eventually expect their accountant to offer payroll services.
- Firms that don’t adapt to the new way of working will be left in the dust by their competitors. And these competitors will be reaping the rewards of using modern payroll.
- Accounting firms that adapt to new technology will generate comparable revenue to traditional firms. But modern firms will have the enormous added bonus of hours and hours of extra time up their sleeve.
Selling payroll services to your clients
Your larger clients are probably using dedicated payroll companies at the moment. Cloud payroll accounting software gives you the chance to take a slice of that pie.
Since you’re already a trusted partner, you have an "in" with your clients. Explain to them the benefits of taking payroll back in house. For example:
- Your firm can manage almost 100% of your client’s payroll
- The client still has to approve payments, but data entry is vastly reduced
- There’s one less supplier to manage
- You can probably charge your client less than the payroll company would
- The client can go on holiday and not worry about pay runs
Strengthening client relationships
The more of your client’s financial work you manage, the closer your relationship with that client will be. You will:
- interact with your client more frequently
- be trusted with a greater proportion of your client’s financial affairs
- be able to pitch new services as your client’s trust grows
All of this involves greater responsibility, of course. But the software will handle the heavy lifting for you. Automation means that one staff member could handle perhaps 30-50 payroll clients. And most of the work can be carried out by admin or part-qualified staff.
Don't be left behind as technology evolves
We're approaching a tipping point in the way firms offer services to their clients. Technology is changing so fast that it's affecting all areas of business – and accountancy is not immune.
As payroll services become easier to manage, they become harder to ignore. If your firm isn't already offering these services to your clients using cloud software, now is the time to look into doing so.
If you don't, you could find yourself losing customers. Your clients are likely to be won over by cheaper, simpler payroll from other firms.
So it makes sense to act now. Take another look at what cloud payroll software can do for your business. Then you can use new technology to win new clients – and make more from your existing ones.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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