Why More CPA Firms are Offering HR and Payroll Services

By Adam Walters | 08/08/2023 | 5 min read

In today's ever-evolving, often volatile business environment, CPA firms face increasing pressure to diversify their service offerings and provide comprehensive solutions to their clients. A major driving force is the fact that employer clients are looking to consolidate and streamline business functions and cut costs in ways that won’t compromise quality. One way CPA firms are accomplishing just that for clients is by adding HR and payroll services to their offerings. It’s a proven option to not only generate additional revenue but also strengthen client relationships to boost “stickiness” and enhance overall value proposition.

Meeting demand

The first and most obvious reason for CPA firms to offer HR and payroll services is to meet the growing and changing demands of employer clients. And there is plenty of business to go around! According to the US Census Bureau data of Employer Identification Numbers (EIN), a record-setting 4.3 million new businesses launched in 2022; 24.67% year-over-year growth over the comparatively meager 0.44% growth from 2018-2019. Last year saw 5.3 million new ventures and it is projected that 2023 will see a dizzying 17 million launches. While many are expected to be “solopreneurships”, some 5.6 million of these fledgling companies will hire employees.

These factors point to two primary problem-solving opportunities for CPAs and accounting firms. First, cash-strapped existing employers seek new ways to streamline operations in order to cut costs. Second, the vast majority of new businesses are small and mid-sized firms founded by relatively green entrepreneurs who may yet have no idea of the massive learning curve ahead of them. After all, a newbie doesn't know what he doesn't know – and those unknowns can lead to hefty non-compliance penalties, legal fees and reputational hits.

Among the new or intensified compliance issues that many smaller businesses need help navigating are:

Affordable Care Act cost sharing
State minimum wage increases
Paid leave expansion
Payroll taxes
CARES Act
401K state mandates
Predictive Scheduling Laws
Equal Employment Opportunity Reporting
Employee training from sexual harassment to safety protocols

Savvy CPA firms can cash in on these opportunities by helping established clients to consolidate financial functions with their payroll, HR and workforce management needs to reduce cost and administrative burdens; and assure new employers that their dealings in each of these areas will be accurate and legally compliant. This positions CPAs as trusted partners who provide comprehensive financial and operational support, and with the continued move to cloud-based payroll and HR software solutions, at a level once reserved for larger businesses with deep pockets.

Diversifying revenue

Expanding into HR and payroll services can significantly diversify a CPA firm's revenue streams. These services generate recurring revenue, often through long-term contracts, providing stability and predictability to the firm's cash flow all year round. That’s critical considering that CPA and accounting firms’ revenue cycles are incredibly cyclical during the year.

Prime time for them is between January and April when tax returns are getting prepared and filed and audits are being performed for the prior year. Once that's completed, many firms, particularly smaller ones, drive significantly less monthly revenue through the balance of the year. But payroll and HR are year-round constants.

Offering HR and payroll services allows a firm to smooth out the revenue spike and seasonality, assuring more consistent, reliable revenue every single week and month of the year. That’s why some 60 percent of the nation's accounting firms already offer payroll.

Boosting client stickiness

Offering payroll and HR services in your CPA firm deepens client relationships, as you provide support that is integral to their day-to-day operations.

This increased involvement by your CPA firm enhances client loyalty and trust, fostering long-term partnerships. As you gain a better understanding of your clients' businesses through payroll and HR processes, you can provide more personalized advice and strategic guidance. Your accountants are already top trusted advisors to the owner or chief finance officer of any company. They already work hand-in-hand with executives and are in a perfect position to influence decisions on payroll and related issues."

Expanding services to include payroll and HR also allows CPA firms to differentiate themselves in a competitive market. IRIS provides comprehensive and customizable HR and payroll software solutions sure to boost your CPA firm's client reach, retention and profitability.