I was prompted to think more about this by a report that a few weeks out from the deadline for the adoption of Single Touch Payroll 50% of businesses are yet to register!
Some firms have been providing payroll services to clients for many years. Some have concluded it is not their thing or is too risky. The latter observation may have come more recently after a court ruled an accountant had some liability in respect of employees in a client business where the accountant was processing pays as advised by the client. I’m not familiar with the facts of this case but I’d be surprised if an appropriately worded engagement letter didn’t address this risk.
For many of the firms currently providing payroll services to clients it is provided out of the bookkeeping team. That makes sense to me.
What are some pros and cons of providing payroll services to clients? Here is my list.
- It is another service for a client (another “touchpoint”) that contributes to client loyalty
The more services being provided the less likely they are to leave you
- It is an area that requires precision and an eye for detail and some clients just don’t have the people on their team for this
They will pay you and thank you for handling this
- It is another source of revenue for the firm – and if managed well should also be another source of profits (yes you should be able to deliver at a profit!)
- It is something that a competent bookkeeper can be trained to do and adds another string to their bow – they can feel they are developing as a professional
- If you are not offering this it is possible that another firm is and it could be the foot in the door they are looking for to disrupt your client relationship
- Anecdotally it is reported to me that clients often get this wrong so you are doing them a favour by taking it over for them
- Risk – notwithstanding the legal issue referred to above, paying people incorrectly is a sure fire way to annoy them! So if you get it wrong there could be some damage to the client relationship. My view is that the risks can be managed through thorough training of the person or people doing the work and robust procedures.
- It may not be very profitable – Given some of the pros, this may not actually be an issue. So long as it is returning breakeven or better you may decide it is worth it. Obviously you can’t have all you services at a breakeven and I think if you get the training and procedures in place I referred to above then that should contribute to maintaining a decent margin.
How then to price this service? I am a fan of a fixed price agreed up front for an agreed scope. In the case of payroll this might mean a fixed amount per pay cycle per person. Or it could mean a fixed amount per pay cycle for a range – for example it might be $X per month for 3 to 5 people and $Y for 6 to 10 and so on.
On balance I think providing payroll services to clients makes sense, particularly if you have bookkeeping within your firm. As with any service you offer, get really clear on the scope for each client and then fix a fee for that agreed scope.
Single Touch Payroll has presented a great opportunity to engage with clients on payroll. And regardless of whether you end up providing payroll services or not I hope you’ve been educating affected clients on the requirements of STP.