From XU Magazine, 
Issue 38

Stop overlooking Payroll, it’s about time!

Exploring the potential of payroll services in enhancing client satisfaction and driving profitability in accounting practices.
This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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Did you know 40% of people who are paid incorrectly, consider resigning. Yet, payroll services are still undervalued and seen by some smaller practices to be a ‘necessary evil’ to maintain a happy client and make a profit from other accounting services.

It’s time we stopped overlooking payroll, and truly understand the value that we can give to clients by ensuring that not only this service is done well, but also running a payroll division profitably.

Payroll as a Service

Over the past three years, I’ve spent countless hours attending accounting conferences around the world, with very little mention of payroll. Payroll, many of you would say is not within an accountant’s remit.

In fact, other professional bodies take care of payroll, such as the CIPP in the UK, and Payroll Org in the US. The Bookkeeping Institute also covers payroll for its members.

Yet, a client’s first point of contact for payroll will likely be their accountant. After all, our accountant deals with numbers and taxes, payroll is also numbers and taxes hence it must be in their remit.

Faced with this challenge many accountants take on payroll, to maintain a client with their firm.

Payroll Complexity

Payroll was once a simple process of paying employees. At one point it may have well been that, however, today this has very much changed.

Payroll teams can easily highlight numerous legislations that have made their job harder. Bringing some examples from the UK, the simple notion of paying time taken off, known as Holiday Pay, is nothing but simple.

Most accountants I know have been trying to shift this responsibility back to the business, simply because they do not have the necessary underlying data to be able to do this accurately.

For those of you not familiar with the legislation, it requires someone to collect 52 representative weeks where the employee was working, in which there were no days off, or sick. Someone may have to look back up to 2 years, to identify these, then work out an average weekly pay, based on which holiday is then calculated.

Based on conversations with leading influencers in the bureau space, what seems to have happened is that as these legislations came through, your payroll teams have kept providing their service, with added complexity, without raising prices, putting payroll under duress.

It’s not all lost

In the 5 years I’ve been involved in payroll, I’ve been noticing a shift. Payrollers are starting to talk about these challenges more frequently. As a result, we are seeing change, that is aligning with a technological shift within payroll. However, the biggest change that we can see is recognition.

Maria Mason, is a prime example, being made a Partner at BDO. Being one of the very few partners at accounting and audit firms, that are not an accountant or an auditor. Speaking at ACE23, the annual event organised by CIPP, she reiterated that her payroll division is one of the most profitable within BDO.

In a piece published by Alternative Insights, she shared how leveraging technology they were able to go from 500 to 1,000 payslips per person and shifted the extra resources towards advisory around payroll. One would say a key strategy in order to drive profitability

Cloud Payroll; round two.

Cloud accounting has over the past decade taken the industry by storm, and shifted plenty of firms from traditional accounting giants and ERP systems into the likes of Xero and other accounting players.

Payroll software, at least in the UK has somewhat lagged behind. The biggest players in the space have in so far been legacy desktop products. A few years ago the first wave of cloud payroll solutions hit the market.

Maybe the market wasn’t ripe; maybe they didn’t understand the customer base or simply ran out of cash. Most of these solutions, have, been acquired by larger businesses. Sometimes to augment a pre-existing HR solution that’s meant for larger businesses, and at times to simply knock out competition and add to a collection of shelved payroll systems.

Hence a big question that comes up for any new payroll product in the UK, is what’s your exit strategy?

This caution and need for longevity from this second wave of cloud payroll products is understood. Choosing a sustainable business that doesn’t need to sell out, is critical given the risks, costs and efforts that come with a payroll migration.

The Future of Payroll is Profitable

With employers ever-keener to retain existing staff to avoid hiring and re-training costs payroll should be a key strategic partner in driving retention, especially when you consider that 79% of payroll errors are found by employees.

A key challenge many accounting firms encounter when looking at investing in cloud payroll is the sheer price jump.

Cloud Accounting solutions, come with a fixed per-entity cost, whereas payroll tends to be charged on a per-employee basis, easily ballooning costs for larger clients. With margins on payroll traditionally low; moving to the cloud means a re-pricing conversation. Something many are not yet attuned to.

Based on our previous experience in Malta we found that decoupling the payroll license, from people related per-employee services that employers value achieves the best balance to ensure that your relationship with the client and their employees prospers.

Embrace the future of payroll – where strategic insight and technology meet to elevate your practice and client satisfaction.

Why leave it there?

Discover the power of Cloud Payroll designed for Accounting Firms

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