From Payroll to PEO: Expanding Your Accounting Firm’s Capabilities

According to STRADA’s 2023 Global Payroll Complexity Index, the United States is the 14th most complex country for payroll processing in the world. This complexity of payroll is a business opportunity for accounting firms. The burden and risk from processing payroll in-house leads companies to seek experts to handle this administrative burden. By providing comprehensive payroll services, you can open additional revenue streams and expand current engagements. 

If you’re new to offering payroll services, there are a few important things to consider, like who to partner with and how to leverage payroll to grow your practice.

Traditional Payroll vs PEO 

Today, processing payroll follows one of two routes: using traditional payroll processors or using a professional employer organization (PEO). A reliable payroll partner is essential in optimizing your firm’s everyday tasks and helps maintain your firm’s credibility when even minor tax or compliance errors can be costly.

Traditional Payroll Processors 

If you’re thinking of providing payroll services to clients, a traditional payroll processor is probably what you have in mind. A traditional payroll processor handles basic payroll functions, like calculating wages and deductions and managing local tax withholdings and filings. Most offer direct deposits of salaries to employees’ bank accounts and provide payroll reports. 

Along with the charge for monthly services and add-ons, traditional payroll processors may also charge for one-time or annual fees, including:

• Set up or implementation fees

• Year-end tax form creation

• Quarterly tax payments and payroll tax reporting 

Traditional payroll providers generally have limits on customization since their systems are designed to fit a wide range of businesses. And customer support may be slower due to their large customer base. 

PEOs 

PEOs take a more holistic approach to human resource management. PEOs are more than partners. They are co-employers, know the company inside out, and handle nearly all aspects of your client’s HR operations. 

While a traditional payroll processor focuses only on payroll processing, a PEO will handle payroll processing, performance management, regulatory compliance, onboarding and offboarding support. They may even provide safety and risk management. 

For example, Justworks PEO, which Business.com ranks as the PEO with the best online platform, gives clients access to a variety of health insurance plans from top national carriers along with offering DEI and sexual harassment training.

With a PEO, a client benefits from round-the-clock support, industry expertise, and comprehensive HR services. Some PEOs go a step further by reporting clients’ payroll tax filings under their own EIN since the employees are technical employees of the PEO, not your client.

So how do PEOs charge clients? It varies. In some instances, you’ll find a PEO that charges a percentage based on the client’s payroll value. Alternatively, some PEOs stick to a flat, per-employee-per-year fee. 

Factors to Consider When Choosing a Payroll Partner

There are several variables to consider when choosing a payroll partner, ensuring you’re making the best choice for you and your business by weighing the following.  

Robust Reporting Options

Robust reporting options should be a key decisive factor when deciding whether to use a traditional payroll processor or partnering with a PEO. The more helpful information you can provide your client on labor costs, benefits allocations, and tax liabilities, the more invaluable your firm becomes to your client.

Traditional processors generally have user-friendly dashboards that allow you to run specialized reports about individual pay periods or summary quarterly or annual reports. Since their focus is strictly on payroll, they frequently provide pre-built industry-specific report templates, like construction costs or tip management for restaurants.

Since PEOs offer a wider range of services than traditional processors, their reporting will be tailored to your business and include insights into benefits usage, compliance measures, and turnover trends. 

PEOs have come a long way in enhancing their integration capabilities, as many have a variety of integrations with tools to boost productivity and unlock seamless workflows.

Tax Compliance

Did you know the IRS penalizes nearly 1 in 3 businesses for payroll mistakes every year? And a 2023 study co-authored by a tax professor at the American University’s Kogod School of Business (KSB) reveals that 25% of small businesses do not know how to file their taxes. 

How should your payroll partner step up to these compliance challenges?

Your payroll partner must have a payroll system that is accurate and regularly updated to capture changes in payroll laws, such as state-by-state minimum wage updates. It’s also important to consider partners with features that make life easier, such as notifying clients of pending or upcoming due dates of payment, benefit submissions, and tax filings.

Onboarding Process

The onboarding process can be the make or break for expanding your payroll services.

Creating a positive onboarding experience requires clear communication and transparent expectations. This is the time to establish roles and responsibilities between your firm and your payroll partner. 

During the onboarding process, discuss the unique needs of your clients, such as compliance nuances across multiple states or customized reporting requirements. Early collaboration will mitigate the potential misunderstandings or costly hiccups down the road. 

Payroll as the Catalyst for Growth

Payroll can serve as a stepping stone for an accounting firm’s successful expansion. 

High Long-term Value of Payroll Clients

It may not seem like it brings a lot of cash, especially compared with tax and advisory services, but the secret with payroll clients is their long-term value. The key is knowing that completing payroll for clients services fosters closer ties and helps build long-term loyalty. 

And unlike tax and audit, which are typically seasonal, payroll services will remain steady throughout the year. This dependable year-round subscription-based service makes it easier to forecast revenue, manage cash flow, and plan investments for your firm’s growth.

Established Happy Clients and New Service Offerings

Clients often consider payroll tedious, and most don't want to switch payroll providers regularly. The transition can be nerve-wracking and error prone. By handling a critical function like payroll, you become an indispensable part of your client’s operations.

Happy clients strengthen retention rates and also open the door for higher-margin services like outsourced CFO or tax planning services. Payroll acts as a gateway to a broader range of engagements that move beyond basic compliance work and into more profitable advisory roles.

Seamlessly Run Your Payroll Business with a Trusted PEO

There are many PEOs out there. Justworks helps small businesses pay their teams and save time through automated payments, tax calculations, and withholdings. With 24/7 full-service support, access to experienced HR consultants, and a smooth onboarding process, it's a no brainer. 

Ready to see for yourself?  Get Started with Justworks today.