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Businesses May See Payroll Costs Climb Due to Virus Complexities

Sept. 9, 2020, 8:45 AM

With each passing virus relief measure, accountants and payroll software providers have seen their workloads increase—a trend that may lead to businesses having to pay more for their services.

The government has employed a number of tactics to help struggling businesses and individuals cope with the economic fallout of the pandemic. These include payroll tax deferrals, forgivable loans, and refundable tax credits to reimburse employers for costs incurred providing paid sick and family leave to their employees because of Covid-19.

The changes have created a great deal of complexity for accountants and software providers that help businesses manage their payrolls and associated tax obligations, forcing some to raise their fees. It may take a few months for businesses to feel the impact of these hikes with the adjustments just beginning to take effect.

“We have so much more due diligence to do and many more things that we have to account for,” said Adam Markowitz, an enrolled agent and vice president at Howard L Markowitz PA CPA. He said he plans on increasing his fees for payroll and payroll tax services by at least 25% starting with the third quarter, which began July 1.

Those increases likely won’t be felt, however, until October when he bills for the work from that quarter, Markowitz said.

In addition to higher fees stemming from extra work, accountants are trying to find ways to recoup money from time spent working for free to help clients get loans under the new Paycheck Protection Program, said Eric Pierre, a CPA with offices in Austin, San Diego & Los Angeles.

Accountants, lawyers, and other consultants have recently filed lawsuits against big banks, such as JPMorgan Chase and Citibank, whom they argue were supposed to compensate them for helping businesses apply for the loans. Markowitz’s firm is a lead plaintiff in one of the cases, Unbehagen Tax and Accounting, Inc. v. JPMorgan Chase Bank, N.A.

More Automation

Pierre, who has had to raise his fees by about 10% to 15%, said the pandemic is likely to accelerate a trend toward accountants automating more of their payroll processing and tax compliance work so that they can avoid increasing their prices too much.

“Unfortunately, there’s a race to the bottom,” he said. “There are people who are willing to do things cheaper, even if it’s not better. So there is pressure, I think all around, for everybody to automate because of that.”

Greater automation has allowed Eric L. Hjerpe, a managing partner at Hjerpe & Tennison CPAs LLC, to avoid fee increases altogether.

Hjerpe said two years ago his firm switched from Intuit Inc.'s QuickBooks to using more automated products offered by Automatic Data Processing Inc., commonly known as ADP. With the former, the firm still had to enter and process payrolls, in addition to doing all of the quarterly returns and W-2s for clients, he said. That’s all automated now, reducing the firm’s workload by about 30%, he said.

If he hadn’t made the switch, Hjerpe said his firm would have had to at least double its fees because of all of the new coronavirus-related work.

Intuit didn’t return a request for comment.

Paul Loeffler, head of communications at the payroll software provider Gusto, warned, however, that “automation is not a catchall for solving all the different problems that exist.”

It makes sense to automate certain tasks, such as adjusting software for legislative changes, he said. But there’s also a role for advisory services, especially when it comes to helping businesses make HR and workforce-related decisions during the pandemic, Loeffler said.

Software Providers

Several software companies said so far they’ve been able to avoid raising the cost of their services and products, even though their workloads have increased.

The amount of legislation in 2020, on both the federal and state levels, “was probably an accumulation of close to 100 years of legislation happening within just a few months,” said Will Lopez, the head of accounting community at Gusto.

“That has been very difficult for everyone to absorb and digest,” Lopez said, noting that Gusto has rolled out more than 50 new features and product updates since the beginning of the pandemic to adjust for the legislative changes.

Like Gusto, ADP said it hasn’t increased its pricing, despite the extra maintenance and changes its had to make to its payroll programs.

“We’re responsible for making sure that our software keeps up with tax laws as they evolve” so the company isn’t passing those costs along to its customers, said Pete Isberg, vice president of government affairs for ADP.

With recent Covid-19 relief, including the CARES Act (Public Law 116-136) enacted in March, ADP has had to adapt its software in very short amounts of time, Isberg said.

He noted that the IRS gave payroll providers essentially one business day to react to guidance implementing the president’s deferral of employees’ Social Security payroll taxes before the policy went into effect Sept. 1.

“If you’re doing any software changes at all, normally you require a number of months to do appropriate testing,” he said.

In the meantime, the company is doing what it can to evolve in this rapidly-changing environment.

“It’s presented a huge workload change for us,” Isberg said. “We’ve had to adopt and adjust as best we can.”

To contact the reporter on this story: Allyson Versprille in Washington at aversprille@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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