'What today's CPAs seek in payroll and benefits solutions: most are 'satisfied' with their vendors, but many exploring alternatives. Opportunities particularly ripe for local firms to help clients.

As employee payroll, benefits and human resource functions become increasingly complex--and as workers continue to demand more of their employers" benefits administrative capabilities--CPAs are well-positioned to help clients streamline or offload selected HR chores quickly, securely and efficiently.

"Anything that would reduce the amount of time required to do this processing would be beneficial," says a senior partner of a midsize firm in Memphis, Tenn. "Even with outsourcing, too much time is spent picking up and putting down reports to make certain that all the information is correct when you have a variety of employee groups--salaried, contract, hourly--some direct deposit and some by check."

Assisting with client payroll and HR administration is a particularly ripe opportunity for CPAs in local-oriented firms according to a recent AICPA member poll. Nearly seven out of eight readers of the AICPA's CPA Insider[TM] weekly e-newsletter told us in a survey conducted by Bay Street Group, LLC that they think local CPA firms will be earning a "significant" portion of their revenue from payroll or benefits services to clients. By contrast, just 24 percent of respondents believe regional firms will be earning a significant portion of their revenue from payroll or benefits services and fewer than 6 percent of respondents think national firms will earn a hefty portion of revenue from this service line.

"Payroll processing is a growing service that will become an important revenue component for small- to midsize firms," notes one small-firm managing partner. "For too long this business has been given away to the national bureaus." Survey respondents were culled from a random cross-section of readers, representing all geographic regions and firm sizes.

Keep in mind that the notion of "help" comes in many sizes, flavors, complexities and price ranges when we're talking about payroll and HR solutions. The first decision CPAs must make is at the crossroads of "In-house" Street and "Outsource" Avenue.

In the in-house camp, you can stay with manual systems, you can install software to help you or you can turn to a Web-based solution. If you decide to seek help outside your client's organization, you can outsource the work to a payroll agency/service bureau, you can outsource it to another accounting firm or you can turn to a professional employer organization (PEO).

How your peers are tackling the challenge

Today, more than half (55%) of CPAs who help their clients with payroll and benefits solutions are using in-house software, according to the Ray Street research (see Figure 2). Nearly two in five respondents (39%) said that they outsource to payroll service bureaus, with the remainder turning to Web-based solutions, PEOs or other accounting firms. Surprisingly, nearly one in 10 respondents said that they still handle payroll manually, suggesting there is still a great deal of CPA outreach to be done by payroll solutions providers. "Our clientele is small companies that are not very Internet knowledgeable," says a small-firm partner, "so we still have a lot of payrolls submitted by paper, less than 96 hours before the day of payroll." NOTE. Survey percentages exceed 100 because many respondents use multiple solutions for their clients.

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Although survey results (Figure 1) suggest CPAs are generally satisfied with their current payroll and benefits solutions--rating a 3.6 satisfaction level out of a possible 5.0nearly two in five respondents overall (39.6%) say they are "likely" or "very likely" to be considering new solutions in the next 12 to 18 months. Respondents in public accounting had the highest satisfaction levels with their payroll/benefits solutions. Small firms had greater satisfaction with their current solutions than do CPAs from medium and larger firms, according to the Bay Street survey.

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"I would like to have complete integration with our practice management software and our general ledger" payroll and accounting package, notes the managing partner of a midsize firm in Charlotte, NC. CPAs in midsize organizations (44.8%) are the most likely to be considering a new payroll/benefits solution; CPAs in small organizations (39.8%) are the second most likely to be considering a switch and CPAs in large organizations (35.6%) are the least likely, according to our research.

When survey respondents were asked to identify which type of payroll/HR solution they would consider switching to, the landscape changed (see Figure 2). As expected, the most frequent response was in-house software (45%), but 35 percent of respondents expressed interest in in-house Web-based solutions, 34 percent said they would consider outsourcing to a payroll service bureau. An additional 10 percent said they would consider either a PEO, a manual solution or outsourcing to an accounting firm. Again, the percentages exceed 100 due to multiple responses.

Despite CPAs' reputation for being highly cost-conscious, price is not the most important criteria they use when evaluating payroll and benefits solutions. As Figure 3 shows, "Ease of use" (92%) and the ability to keep current on tax rates and payroll regulations (70%) are factors more important to CPAs who responded to the Bay Street survey than the operating cost of the payroll system (64%). Customer service (61%) followed closely behind operating cost as a key criterion. The ability to integrate employee benefits such as retirement plans, health savings accounts and flexible spending accounts also appears to be more important to CPAs than the vendors' technical capabilities, installation ease or security/fraud prevention.

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"Cost and the ability to integrate detailed data (hours/rates/etc.) into an accounting software package to develop labor efficiency reports," are the two most important criteria according to the CFO of a large East Coast company.

"Web-based solutions and outsourcing will be reviewed closer as companies move more toward cost containment," says a middle manager at a company with between 11 and 50 employees. "I'm happy with my payroll situation. I have remote access, which has enhanced accessibility while away from the office."

"I would like our payroll solution to have the ability to bridge back and forth from our accounting system," says a large-company CEO. See Figure 3 above to see how other CPAs rate the importance of payroll solutions criteria:

About the Study

This AICPA Custom Media Solutions report was undertaken to analyze how knowledgeable and satisfied AICPA members are with payroll and HR solutions for their companies and clients. Nearly 500 members responded to a flight of online surveys conducted by Bay Street Group LLC in conjunction with the AICPA's CPA Insider[TM] e-newsletters in July of 2005. Their responses represented a cross-section of the AICPA membership. Respondents were invited to provide additional comments and were assured of confidentiality. No advertisers or sponsors contributed to the survey questions, deployment mechanism or tabulation process. Respondents received no premium or other incentive to complete the surveys, other than the opportunity to receive an advance copy of the summary results prior to being published.

This report was prepared expressly for the Journal of Accountancy by AICPA Custom Media Solutions, which is solely responsible for its content. Copyright 2005 AICPA. All rights reserved, except where otherwise noted...

Hank Berkowitz is AICPA Director of Online Publishing & Business Development. [e-mail]

Figure 3

CPAs' most important issues in
payroll/benefits solutions *

Criteria                         % Consider
                                "Important"

Ease of use                             92%
Keeping abreast of tax rates
 and payroll regulations                70%
Operating cost                          64%
Customer service/tech support           61%
Integrating 401(k) plan data            45%
Managing flex-spend and
 health savings accounts                39%
Ease of installation                    38%
Security/fraud prevention               38%

Source: Bay Street Group LLC

* Totals exceed 100% due to multiple responses