From the Sept. 2009 Issue
It seems like everybody has a different definition of what a “small business” is, including us. For the purposes of our magazine and the professional tax and accounting market, we generally define small businesses as those who are using a public accountant for recurring services such as write-up, consulting and, yes, payroll. By the time a business has grown to need an in-house controller or financial officer, they are no longer seeking the same financial services from outside professionals. While this isn’t a finite revenue-based line such as many other organizations use, it provides a good measuring stick nonetheless because it evaluates the general workflow needs of these businesses.
The Small Business Administration, on the other hand, does offer a more quantifiable definition: To them, the threshold is “fewer than 500 employees.” Considering that the agency’s 2008 numbers show that there are more than 27 million total businesses and that small businesses account for 99.9 percent of all businesses, there is a large demand for public accounting services of all types. But to look at the need for payroll services, it’s probably best to trim this number a little.
To start with, the numbers show that of these businesses, about 21 million are “non-employer” entities, meaning of course, that they are businesses comprised only of shareholders or sole proprietors who do not draw a salary or wage. These businesses don’t need payroll. But it leaves 6 million “employer firms,” and these small businesses employ nearly half of all U.S. workers and have been credited with creating up to 80 percent of net new jobs annually. That’s a lot of paychecks to manage. And the constant fluctuation in employment numbers leads to the conclusion that small businesses also experience the greatest turnover in employment. Among the many challenges of managing business payroll is keeping track of employees, not just to make sure they’re paid on time, but also to make sure that taxes are properly withheld and paid, and that reporting is processed on time.
Because of the perceived complexity of the processes, especially management of third-party payments, government agency compliance and the potential penalties for mistakes, small businesses have long hated the chore of payroll. For a long time, many accounting professionals also avoided offering the service because the labor involved in payroll processing often took away from more profitable engagements.
But over the past decade, payroll systems have dramatically improved, making the tasks of processing and compliance much more efficient and profitable, especially for professionals managing multiple clients. The development of totally online payroll applications has also aided in the popularity of payroll services by professional firms, especially with the inclusion of electronic filing and payment, and tools such as client portals (which allow employers to enter most employee data) and employee portals (which allow workers to quickly bring up old pay stubs, see their payroll info and perform some HR tasks).
Payroll is profitable for tax and accounting firms, especially now that smart software and hosted programs are streamlining data-entry processes and automating many reporting and compliance tasks. And the renewed popularity of payroll as a service has resulted in a very large market as technology vendors seek to satisfy the need. There are nearly 20 professional-level payroll products reviewed here, and countless more that are designed for use directly by small businesses. Each has distinguishing capabilities and is geared for different firms, but all offer professionals the ability to efficiently manage payroll for their clients.