Updated December 7, 2001
Memo to : All PayChoice Users
From : Steve Morrison
RE : Year-End : Is it the Best of Times or the Worst of Times For You?
Year-end in the payroll business is always demanding. In addition to the normal workload associated with processing payrolls, you have to process quarterlies and year-end information such as W-2’s. You also have to take care of additional tax work, implement regulatory changes that affect you, and ideally to take care of a large influx of new additional business that you are adding at year-end.
We all do our best to be prepared. However, even if we succeed in minimizing the number of problems and avoid surprises, the work at year-end is always demanding, just by nature of the volume. How you feel about year-end and whether you view it as the best time of year or worst could depend on the answer to one simple question.
Do you charge for W-2’s and year-end processing or don’t you?
If you do and you charge a fair market rate for W-2’s and other year-end work you perform, then you will view each year-end as a very, very profitable time. In fact, you will find that it is the most profitable time of the year and when you make most of your profit for the entire year.
If you don’t charge for W-2’s, you view this time of year as nothing but a lot of work, aggravation, and not very rewarding. I expect you also experience some remorse and regret because most of your competitors, particularly the larger payroll companies, are charging for the same work that you are doing for free and they are making a lot of money.
While charging for W-2’s doesn’t change the work you have to do or make it any easier, it certainly gives you a whole different perspective on year-end when you get paid handsomely for it. In fact, that is why many owners of payroll companies come to see it as the best time of the year.
What should you do about it?
If you are not charging for W-2’s, you should immediately make plans to charge your clients this year-end. You are missing out on the most profitable aspect of the payroll business. Don’t wait.
If you are charging for W-2’s then you should evaluate your pricing plans and make sure that your fees are close to market value.
Recently, I learned that two PayChoice users did not charge for W-2’s. They both process payroll for 200 – 300 clients. I pointed out to them that by not charging for W-2’s they were each giving up at least $20,000 of pure profit each year-end. Over 10 years they were losing out on $300,000 of profits (taking into account growth and inflation).
That is a lot of money to overlook. Whether you have 50 clients or 500 clients, if you are not charging for W-2’s and year-end work, you are “missing the boat”.
Suggestion: Figure out what you should be charging for W-2’s (use the ADP rates that are noted later). Then multiply it by a factor of 10 to 15 times to estimate how much money you are going to miss out on over 10 years if you don’t charge for W-2’s.
I also pointed out that their business is worth less if and when they ever decide to sell.
How much should you charge?
To answer this you should first consider what the competition charges. According to one of our licensees, ADP and Paychex charge the following:
As of 5/2000
ADP “EasyPay” - $40 Base plus $2.25 per W-2 (plus delivery)
ADP “Auto-Pay” - $45 Base plus $2.75 per W-2 (last years 1998-99 pricing) (plus delivery)
$45 Base plus $2.90 per W-2 (this years 1999-00 pricing) (plus delivery)
As of 12/2001
Paychex - $10 Base plus $3.75 per W-2 (plus delivery)
$20 per state (after first 2 states) for out of states returns
Paychex does include W-2 envelopes for mailing to employees. (Not sure if they charge for this). Stuffing W-2’s in envelopes is included in the pricing for Paychex and ADP.
In the long run, I would suggest that you plan on charging prices similar to those listed. However, if you haven’t been charging for W-2’s in the past I would suggest that you don’t try to get there all at once. Consider a starting point such as a base of $25.00 plus $1.25 to $1.75 per W-2 (stuffing is additional) to start for this year-end. Then plan on increasing it to closer to market next year, and so on.
If you have been charging for W-2’s, but your prices are lower than the above list I would suggest you increase them.
Will you lose clients because of charging for W-2’s?
It is very unlikely and the profits that you’ll gain from everyone far outweighs the risk of a company having a problem. If you do encounter a customer complaint, then deal with the individual situation appropriately.
There is a reason that Paychex, ADP, Ceridian, and all of the large, successful payroll companies charge for W-2’s and in many cases charge for other types of year-end work. The work itself offers great value to the clients and is easy to justify to any client. Also, remember that back in the 80’s when ADP and the other large service bureaus charged for W-2’s, Paychex did not. However, in the early 90’s Paychex finally saw the light and began to charge for them.
How do you charge for W-2’s?
PayChoice will calculate the amount you want to charge automatically and generate an invoice for you. To instruct PayChoice on what to bill, you need to add to each price code you use the terms you want to charge. In particular, product description #53 will calculate the charge per W-2 and product code #58 is used to charge W-2 base charge.
When you process the W-2’s, PayChoice will ask you whether you want to generate a separate invoice at that time. If you don’t, it will include the amount as manual billing in the invoice generated with the next payroll processing (need to make sure you process another payroll).
What other charges or services should you consider for year-end?
1099’s: If your clients don’t know that you can do this for them, you might want to promote it for next year. If 1099’s are just part of payroll I would use same fees as W-2’s. If you have set up work to complete 1099’s for someone then consider setup fee appropriate with the work involved.
Employee Attendance Records for 2000: These are very popular. They provide your clients with an easy way to keep track of time off for their employees. Almost pure profit for you. PayChoice will generate these for you via the Global Reports Print Utility, but the billing must be done manually. Suggested price is $15.00 base, plus 25¢ per employee, plus delivery unless included with payroll.
Marketing Idea: Promote these in November and December via payroll stuffers, notice on Time sheet control, and use global messaging to remind your payroll reps to ask if they want to order. PAI will develop sample stuffer for you to be made available in November.
Employee W-4’s for 2000: Each year employers are supposed to have employees complete new W-4 forms. PayChoice will automatically prepare these using the Global Report Print Utility so they ready for employees to complete (employee’s current status is printed at top ). Billing is done manually. Suggested price is $15.00 plus 25¢ per employee, plus delivery unless delivered with payroll.
Marketing Idea: Promote these in November and December via payroll stuffers, notice on Time sheet control, and use global messaging to remind your payroll reps to ask if they want to order.
Record Retention Archival Program: As we reported in the 2nd Quarter, 1998 issue of the PayChoice Advisor, some payroll companies offer to maintain backup records (electronic files) for their clients as added protection for them. Suggested price is $75 annually plus $25 for each archived record accessed in the future. The company who thought of this automatically charges the fee with the first payroll of the year and for anyone not wanting the service it is written off (50+% acceptance rate).
Beginning of Year Annual File Creation fees: As part of the year-end work, many companies charge a modest fee with the first payroll of the year. It is used to take care of the work associated with year-end programming, addressing regulatory changes, and getting the company prepared for the new year. Suggested price is $10 to $25 per company. Don’t charge this if you offer record retention program.
Adjustment Payrolls After W-2’s Are Run: $150 plus cost of rerunning all W-2’s plus cost of adjustment payroll.
Magnetic Media: I would recommend automatically filing such for client. If a client wants to file mag media themselves, I would suggest a price of $100 to $150 per company.
ViewChoice Year-End CD: A minimum of $75 per copy.
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