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The ACD Blog > Is Your Payroll Service a Loss Leader or a Profit Center?

Payroll services are often one of those things we find ourselves providing not because we want to, but because our clients need it. I’ve seen this scenario often: Get them in with the payroll, then add on the services that are profitable. And this can work as a loss leader, if you’re into that sort of thing.

But with the variety of ways to process payroll now, it doesn’t have to be the only way. Payroll services can be a profit center, and this is generally considered a good thing.

The first step we face when signing up a client who needs payroll services is determining their requirements:

  • How many employees?
  • What state will they be in? Any multi-state payroll? Any employees who work in one state and live in another?
  • How often do they run payroll? How many days are there between the end of the payroll period and the pay date?
  • Do they want to do their own input of hours and have the taxes taken care of?
  • Do you want the entire payroll done for them?
  • How have they done payroll in the past? Did that work for them? Why or why not?
  • Will their employees want direct deposit?
  • Do they have any issues with unpaid payroll taxes?
  • How is their Worker’s Comp handled?
  • What are they using for accounting software, and does payroll need to be integrated with it?
  • Is job costing needed?

There may be more questions that crop up as we do an intake, because one thing we can be sure of: each client will have their own idiosyncrasies.

Once you’ve done an intake, you can determine which payroll solution will best fit their needs. If you’re only using one and trying to fit all your clients into that paradigm, you may want to diversify a bit, since using different options will give you better possibilities for making payroll profitable.

For example, you can offer Do-It-Yourself Payroll for those clients who want to enter time and run checks themselves, but don’t want to be responsible for taxes. Intuit Online Payroll for Accountants is a good fit for this if the client is using QuickBooks for their software, because payroll can be imported easily. If they’re using Xero, Zen Payroll might be a better fit. The DIY option means you won’t be tied down, waiting for hours to appear every other week, and there are clients who love being hands on. Zen Payroll has a base charge plus a charge per employee, so it’s easy to figure out what your costs will be and then calculate what you need to make on that service.

For Intuit Online Payroll for Accountants, the first client costs quite a bit per month, but once you have more than one on it, the price drops per client, and even the per employee charge drops. This option also makes it easy to build in a profit margin that works for you.

If the client is currently using QuickBooks Online, it’s best to use the payroll that integrates directly with QBO. This is different that Intuit Online Payroll, and it also gives you the option of letting the client enter payroll themselves. This may not give you as much of a margin for payroll however.

If the client needs job costing and is using QuickBooks Desktop, use Enhanced Payroll. The Accountant’s Enhanced Payroll lets you have up to 50 client EIN’s, which can make for a lot of payroll. However, the file must be in your office and used in your computer, or hosted. Otherwise, the client needs their own subscription.

If the client really needs job costing and is using QuickBooks Online, you’ll want to look at switching them to the desktop version. QBO does not yet have the capability for heavy job costing with payroll, and neither does Intuit Online Payroll (for Accountants, or not). I haven’t found an outsourced solution that deals as well with job costing as QB Desktop payroll, and this could be the one issue that is the deciding factor.

With Intuit Online Payroll, you’ll receive reminders when taxes are due, and it’s done with the push of a button. With Zen, last time I worked with it, they impounded the taxes when payroll was processed, which may be something to get used to, but if your client has a history of not being able to fund payroll taxes on time, this would put an end to that.

There are many outsourced payroll options, both big and small, but if you can give your clients personalized attention while using Zen or Intuit (and there are others) and build in a profit margin, it’s definitely something to look at.

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