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CPA Salary as percentage of billing?

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#1
opacpa  
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I'm thinking of hiring a CPA with over 20 years of experience (and a longtime trusted friend) to prepare tax returns remotely next tax season. I would like to pay based on a percentage of billings.

What would you think a reasonable percentage for this might be?

Thanks in advance,

Opacpa
 

#2
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W2 or 1099?
 

#3
opacpa  
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Probably W2.
 

#4
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At the first firm I worked at, I was paid a straight 40% of my production (billing rate x billable hours worked). Throughout the year, I was paid a "draw" against this production with a "bonus" at 6/30.
It was simple enough.
~Captcook
 

#5
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We basically pay 50% of their billing to the client (ie, not 50% of their billing rate), but..................we also adjust this amount for any write up or write downs from standard billing rates. All staff and clerical on the bill share in the write ups and downs.

Thus if a staff member prepares a return with no help from other staff, and has 500 hours, we do not pay that staff 500 x billing rate at 50%. We pay the staff member 50% of what WE billed the client, which may be greatly different from the hours our staff has in the job.
 

#6
smtcpa  
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I've always heard that 35% is a rule of thumb.

My question to the others, is there a way to do this without having to track time? For example, If my staff puts in 2 hours and I put in an hour, I would not want to pay 35% of what the client is billed. And, how would I know which clients I pay my staff on if I am not tracking time. It seems this works best when my staff handles 100% of the work for the client.
 

#7
opacpa  
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In my case, no other staff would be involved except for review and assembly. It should be a simple computation: amount billed times %.

It does significantly complicate things to include other variables.
 

#8
makbo  
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opacpa wrote:I'm thinking of hiring a CPA with over 20 years of experience (and a longtime trusted friend) to prepare tax returns remotely next tax season. I would like to pay based on a percentage of billings. [...] It does significantly complicate things to include other variables.

How would the potential employee like to be paid? Why not just pay the going hourly market pay rate and keep it as simple as possible? If the worker has no control over client selection, level of due diligence and review of detailed records, or billing rate, and is not the signing preparer, why should the worker be subject to a variable commission?

At H&R Block offices, the employee handles 100% of the client interaction including signing the return as preparer, and for an EA or CPA they probably pay about 30-35% commission (against hourly draw).

By contrast, when I worked for a five-person firm, I only rarely met with clients and did not sign the return, and was paid a flat hourly rate, which was my preference. The owner created her own headaches due to charging the clients mostly by the form, and yet measuring staff based on billable time (even though it was rarely actually billed that way). But that was a self-created problem that didn't really affect me or the client very much.
 

#9
opacpa  
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This is an outgoing partner who will work remotely on those clients who have a close connection with him. He will not keep an time sheet of hours worked. I believe this method of compensation will minimize drama and make both of us happy.
 

#10
makbo  
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opacpa wrote:This is an outgoing partner who will work remotely on those clients who have a close connection with him.

Oh, that's relevant new information you didn't include originally. Yes, then I agree a commission makes more sense, since he's really just continuing the same type of work he was doing for the firm before, but under new management.
 

#11
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opacpa wrote:Probably W2.


He’s remote, on his own time. Offer him a 1099 and then you can pay him a bit more but to me, I thing above 40 percent.
 

#12
opacpa  
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Update: We met this afternoon and landed on 40% of billings as W2 compensation. This seemed fair and reasonable to both of us.
 

#13
makbo  
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opacpa wrote:Update: We met this afternoon and landed on 40% of billings as W2 compensation. This seemed fair and reasonable to both of us.

Don't forget, he can probably file for unemployment compensation if you lay him off at the end of tax season, so that counts for something too.
 

#14
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40% seems standard across professional realm of services, from legal to public accounting to engineering.
 

#15
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Agree, 40% seems to be standard for a small firm.
 

#16
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40% seems high IME. Might be different in different parts of the country. I've consulted at other local firms small and mid sized and they were in the 25-33% range. Pay staff that generated 200k around 50-60k.

400k maybe 100k to 130k. 40% would be 160k which is high for tax manager, unless you're factoring payroll taxes in with the 40%.
 

#17
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I am paid based on a 40% commission. My base salary is $60k so my bonus kicks in at 40% of all collections over $150k
 

#18
Wiles  
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We bonus to bring up to 45% of realized billings. We include medical and retirement in their compensation for this formula.

I guess we are on the high side. I will let them know so they can say thank you.
 

#19
Wiles  
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I would be interested to hear what expectations are for hours billed and realization %.

We expect staff to achieve 75%-80% billable hours and 85%-90% realized.

Compensation is set at levels below these ratios, so they will get bonuses when they hit these.
 

#20
SandyV  
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makbo wrote:At H&R Block offices, the employee handles 100% of the client interaction including signing the return as preparer, and for an EA or CPA they probably pay about 30-35% commission (against hourly draw).


No, they don't pay anywhere close to 35% ... otherwise I would have kept working for them ;)
 

#21
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They can't pay 35% to employees because around 30% of the tax prep fee goes to the mothership in advertising/royalty fees!
 

#22
makbo  
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I don't know H&R current compensation formula, but when I left about eight years ago, for returns (fed/state) billed at $700 or more, the employee commission (against draw) was 30%. On top of that, there were additional amounts for retention metric, license/experience, and so on. So for the ordinary office worker, I agree 35% overall is a stretch, but I was thinking of the H&R Premium offices, where they only hire Circ 230 pros and have higher pricing than the regular retail storefronts. It didn't seem to me like 35% would be a stretch for that type of office.
 


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