Payroll as a Service: Key takeaways from running an award-winning accounting firm

Words by

Ben Steele

April 12, 2024

Ben Steele here 👋 I recently shared my firm's insights on payroll challenges and opportunities in 2024 during Telleroo's payroll webinar (recording here). And we thought it might be handy to put them into actionable takeaways for you! So let's dig in...

Contents:

What are this year's key challenges for payroll service providers?

And more importantly, how can you navigate these challenges? I see a 'Big 3' for 2024, that applies applies to most areas within accountancies, but that are particularly problematic for payroll:

Challenge 1: Payroll Talent

It's no secret that there is a talent gap in the industry. So maybe unsurprisingly, we have found payroll specifically difficult to recruit for.

Last year, our firm was actively recruiting for a Payroll Manager to cover maternity leave. In the end we stopped recruitment, and brought the team together to divide and conquer payroll for the leave duration.

This pivot was necessary due to a struggle in finding a candidate that:

Had proven experience
Was willing to walk in and handle a big workload

Because that's essentially what payroll is. It's a big, never-ending workload. So it can be quite a daunting area. It's something we brainstormed in the webinar, and reviewed the following points:

It's about expectations: As an industry, we need to establish with junior members entering the workforce that every area of accounting, including payroll, includes 'donkey work' and that it's not a bad thing. It's a core part of the service we're offering clients, and automation can't do it all.
It's time to refine processes: That being said about automation, there is still a need to review your payroll processes and leverage software. Understand where automation and tools can alleviate some of the quick repetitive tasks and actually improve the outcome. For example, making payroll payments in Telleroo allows you to save time. Plus, you have the improvement in the process - such as eliminating the need to access clients' bank accounts, improved security including confirmation of payee etc.
It's keeping staff engaged: With the point above, you can automate the slow and mundane tasks. But there's a lot more to keeping staff engaged - and that comes down to expectations, your firm's culture and designation of tasks across the team.

Additional supporting resources:

Challenge 2: Software Costs

Some software vendors, both for payroll management and more general tools, are consistently increasing prices. Increased software costs can bring about important considerations:

Do we switch software providers? If yes, you'll have a big change management project for the team and need to educate and support clients through the transition.
How can I cover the increased costs? If you stick to your guns with the existing software, you'll need to cover or price services to account for the increased costs.

At this point, I think a lot of firms consider outsourcing versus maintaining service delivery in-house. But how can you make an informed decision? Here are some articles that can help:‍

At my firm, our standard payroll management system costs are built into our fees. It's not charged as an add-on, as it's part of our internal software. However, for extras such as employee portals where we pay additional fees, we pass on the charges to clients. As these portals are not a necessity, we offer it as a choice. Clients are then making the decision to pay extra, and it becomes an easier conversation. We apply the same logic to making payroll payments through Telleroo.

Challenge 3: Clients considering DIY

A lot of software providers such as Xero and Quickbooks now have their own built-in payroll software. As a result, an increasing issue is where clients want to try themselves because it's 'just a few buttons to click'.

And so, an increasing requirement is to explain to clients how majorly wrong payroll can go if they manage themselves. It becomes a piece around building client relationships, communicating your value and deciding which clients to take on.

Supporting resources:

How can firms use payroll as an opportunity?

When we hear from clients, probably 90% of the time it is related to payroll. At Streets Steele, we are really big on client communication, regular check-ins, and actually just knowing what's happening on the ground day-to-day with clients. We found payroll is the best opportunity for that.

Thanks to payroll, you know that you have sometimes weekly, but at a minimum monthly, contact with that client.

And for most clients, no matter how small or big, it's usually the owner who still likes to control payroll. How amazing! It means you have an opportunity for direct contact on a regular basis with the owner. I see it as a way to maintain that really close relationship with clients.

I'd be remiss not to mention the biggest risk areas with this is that no matter how well you do their accounts and tax and bookkeeping, if payroll goes wrong, or if they're not happy about payroll, it's usually the biggest reason a client will move accountants. But this is again an opportunity, to make sure you're providing a great service and meeting client expectations.

But there is always a balance...

Avoid yourself and/or team members spending hours on the phone with payroll clients by considering:

Readiness: Have the right systems in place so that at the touch of a button, you have all the information you need for client calls. For example, being able to run a report on employee numbers for clients.
Awareness: This isn't something that an owner of a firm can do by themselves. We all like to hold onto tasks, and can be quite protective of billing and fees to ensure control. But actually, I've found that it's empowering and more effective to actually give this to the team. The payroll team has an awareness of scope and fees. They are armed with the knowledge that actually the client is paying per employee, and therefore we need to keep track of that. So what I give the team is a buffer to work on, and if it's within that buffer, I don't need to know. If it goes outside of that buffer, they raise it to me. As a firm, we review that quarterly across the board. How many employees are clients paying for? How many are we actually processing? That's how we effectively ensure the team is working towards the same goals we are, and it's also being communicated to clients.

How can you highlight the value of payroll services?

You have a similar conversation to ones that you have with clients around why they shouldn't do their own VAT returns.

It's about risk management and how much risk the client is willing to take on. If you're involved in payroll, you will have seen cases with HMRC where PAYE goes wrong. Certainly in the last six to eight months, HMRC has been a nightmare of getting things wrong on their system, and then dealing with it becomes even worse.

So it's just making the clients aware of the risks that can happen, detailing the consequences and explaining to them that actually there's a lot more to it than pressing a few buttons.

Clients are not stupid, and you will always have two types of clients. You will always have those who, no matter what you say, will always want to give it a go and you can't talk them out of it. And then you'll have clients who actually understand once you've explained, and these are the ones you want to take on.

If at this point you're talking to a client who still wants to do it themselves, you're never going to change their mind. Then your decision is whether you sit back, pick up the pieces when it does go wrong, or whether say to that client that you're not the best fit for them and they'll need to look to other providers.

We say no to taking these clients on, and although it may sound extreme - it's because of the fallout. That is the biggest headache. It's the biggest place where fees and profits can be lost, and to avoid that completely from the beginning is what we have found is the best option.

Can payroll be profitable?

I think it's easy to be scared of losing clients by charging what you should be. It's why many are consciously taking a hit, and as a result have a negative perception around payroll.

The lesson I've learned over the years is that clients actually respond less negatively to price increases than you think.

For example, we did a price increase last year across every client. We sent the messages, the letters, the emails, the phone calls, and I wanted to get under my desk whilst we waited for the feedback. And yet across hundreds of clients, we didn't have a single client leave.

It really shocked me, as I have always been one of those that is afraid to do price increases. Luckily, my business partner is the opposite.

It's made me realise that actually, the key is just to provide a great service. As long as you are providing a great service, clients will pay for it.

There are always going to be people that moan, and question additional fees. Just talk to them and explain, and I'd be surprised if they leave.

If they do leave, the harsh reality is that it's probably because of the service that they're getting and not necessarily the fee that you're charging.

You can have a profitable service when you:

Get the right fee per head.
Have a sliding scale so you can accommodate for both smaller and larger payrolls.
Make sure you are charging for the extras. That's where losses can occur! So don't forget, you're usually taking care of things like courts of enrolment. So you need to make sure you are including that in the fee.
Tools such as a client portal for employees to get pay slips, you're probably paying for that. So make sure you're charging that on.
Paying employees after payroll has been finalised and filed. Again, that's a service and that is time that you're taking and a risk.

Our payroll fees are split into three sections. First we have the actual payroll, which is charged per employee (either variable or fixed, and either weekly or monthly). Next we have the auto-enrolment part of the fee, and finally we have whether we're making the wage and PAYE payments.

Many firms list one line for payroll. We actually now break that down into a lot more detail, and that's when the client understands, because they can see what it is they're paying for.

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