Payroll software solutions


24th July, 2019

How to adjust payroll services pricing to reflect payday filing

Payday filing may be looked at as an opportunity for growth in the payroll services space, but it must be priced in first writes Scot Meek.

Payday filing has been live now for several months. While some businesses have managed to learn and implement the changes required to be compliant, many are still struggling with it.

Accountants have been telling us about the numerous conversations they have had with clients having difficulty with navigating around myIR or who simply don’t have the time to meet the payday filing deadlines. With fines around the corner, there has been another increase in the number of clients approaching their accountant looking for a solution. Those that currently offer payroll services are starting to hear from clients they don’t already process for, while practices that don’t offer payroll services are receiving requests to do so.

This continues to represent an opportunity to either start or grow the payroll services side of your practice.

But among all that potential growth has been the time spent getting to grips with new filing procedures. And, in some cases, for those who’ve moved online with Essentials Payroll, the time saved by becoming more efficient through automation also plays a factor.

Consider your options when adjusting pricing structures

With all the compliance changes recently, it’s become easy to forget one of the most important aspects of offering payroll: pricing.

Many who currently offer payroll services have still not adjusted their pricing to reflect the increased workload that payday filing has created for them. Payroll throughout New Zealand is already drastically undercharged and it’s crucial that you use payday filing as the catalyst to change that.

READ: Is your payroll services offering ready for payday filing?

Ultimately, how you charge your services is up to you to decide and may even require a staggered roll out to test the waters. But at the end of the day, you’re likely to consider the following models.

1. Fixed price fee

One of the biggest mistakes I see from practices occurs when they go down the path of offering payroll on a flat, monthly fee basis.

Payroll can be complex and practices can often find themselves either making minimum revenue or losing money when going down the fixed-fee route. It removes the ability to account for the times it will take you significantly longer than planned.

Businesses regularly change. What could initially be a two-employee operation can easily change to one with ten-plus employees and a large casual pool.

2. Charged on time

This is easily the most popular way of charging for payroll.

In this pricing model, clients are charged based on how long it takes you to complete their payroll.

Practices that are doing payroll at scale often find this is best way to maximise revenue.

Because of this pricing method, practices tend to make the most out of the clients that have the most employees. This is fantastic when you are processing payroll for clients with 50 or more employees, but the reality is that most businesses employ less than 10 staff.

By charging on time taken, you would lose revenue on clients that only have a handful of employees and be reliant on ones with large staff numbers to balance it out.

Other considerations for pricing payroll services

It may not just be the pricing structure that you need to look at when chasing growth through payroll services and advisory. There’s a whole suite of incidental administrative tweaks you may also need to consider.

READ: 5 opportunities in payday filing for payroll management services

Start by considering the following two questions before thinking laterally about other tweaks to the way you work in the payroll space.

1. Do clients know what they are paying?

Many of you will be invoicing clients on a monthly or annual basis, but how many practices have payroll as a separate item on that invoice?

If you currently have payroll bundled into your other services, then your client will never associate a dollar figure value with payroll. This makes the conversation around price increases even harder.

Make sure your clients know exactly what they are paying you to complete their payroll.

2. What exactly are clients paying for?

This initially seems like an easy question to answer. After all, clients pay you to process their payroll.

For many, this can seem like a low value service to offer and for clients it represents something they can outsource cheaply.

But the reality is that payroll and, more importantly, getting payroll done correctly, is an extremely important service to offer and one that clients could be paying more for.

What they are paying is a fee to ensure they remain compliant and don’t get fined.

Compliance is becoming an increasingly vital part of operating a business.

One only needs to look at the news to find stories of the MBIE fining business both big and small on a regular basis for basics like keeping wage records, tracking annual leave entitlements, and having signed employment agreements.

And the number of these stories are only likely to increase as the labour inspectors increase in numbers around the country.

Slowly, but surely, more and more of your clients will be reviewed. This is the biggest reason why there needs to be a shift in how payroll is charged.