How to Start a Payroll Service
Source: Journal of Accountancy
CPA firms may be the preferred payroll service provider for clients who enjoy personalized service. Payroll services can be offered more easily by CPA firms today because of new software and Web-based solutions.
Payroll services are complementary to other services such as pension administration.
Some CPAs offer after-the-fact payroll services, some provide payroll services in conjunction with other providers, and some handle the complete payroll process. Talk to clients about what is best for them, and determine which payroll services your firm is, or can be, equipped to provide.
CPAs must be cognizant of Ethics Interpretation 101-3, and should determine whether payroll services for attest clients violate this rule. For information, see http://www.aicpa.org/members/div/ethics/intr_101-3.htm.
This article includes a case study of one firm that offers payroll services to about 130 clients, each one customized to the client’s specific requirements. The investment to launch the service included $10,000 for software and hardware. Establishing a banking relationship for direct deposits was essential.
The fees are about $4.00 per check for a client with five employees, declining to $1.35 for a client with 50 employees. These charges are in addition to a base processing fee. There are no charges for employee changes.
The firm stays current by sending supervisors to software vendors’ conferences, and gets information on changes in laws through the American Payroll Association.
The firm set up a separate entity to provide the payroll services. This entity is owned by the senior partners and the profits are used to meet their retirement payments. The firm expects half the retirement payments to come from these profits.
The article also includes a list of software vendors, Web-based payroll applications, and publications.
For details, see Journal of Accountancy, March 2005, “Payroll: A Tie That Binds,” which can be found at http://www.aicpa.org/pubs/jofa/mar2005/phelan.htm.