Seasonal Preparer - Comp Structure

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#1
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I hired a seasonal employee for this past tax season admittedly didn't do enough research beforehand, and so now i have a few questions about what is standard practice in a compensation model like this that I should have already answered last fall. Oops.

1. Are seasonal preparers typically paid via W2 or 1099? I am paying through payroll as an employee as I believe it fits the work (she's using my laptop, my software, comes into the office, etc) but is this industry standard?
2. Other than the hourly compensation, what other benefits are typically provided? I have offered access to our retirement plan, but not any PTO as this seems silly for someone working by the hour. We do not offer healthcare so that's not an issue.
3. What is typically reimbursed to a seasonal/hourly worker? I have agreed to reimburse professional membership fees and up to $600 in CPE expenses, as well as pay for time spent taking CPE in order to keep up her license. This is starting to feel like too much for someone who only works seasonally.

Am I being unreasonable in thinking of cancelling this reimbursement policy and making those items the employee's responsibility? I hate to change this on her after the fact, but it is feeling like a big burden on my bottom line at this point and her hourly rate is already very high ($55/hr).

Anything else I'm not thinking of?

Thanks in advance.
 

#2
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1 - I have done some per diem for another firm as a 1099, but I set my availability, provided my own equipment (but I use their software, naturally) in my home office, I have my own practice with my own clients, I handle my own CPE, etc. While I would admit there's some grey area in my per diem work being classified as a 1099, the level of control you are exercising makes this individual clearly an employee, in my opinion.

2 - The benefits structure would be whatever you need to keep everyone happy. I think eligibility for the retirement plan is a nice touch. I would agree that PTO would not be required for a seasonal/temp employee.

3 - I'm sensing here that you're viewing this person as a cost center rather than a value center. Whether an employee works for you only during busy season or works all year, the need to stay up to date on tax law changes and licensure is the same. If you are questioning a $600 reimbursement of CPE/professional membership allowance, then I have to question whether this person is providing enough value to your organization in the first place. Or, is this person is bringing value to the organization but you're not recognizing it?

I don't know your internal accounting structure, but I would highly suggest that you come up some way to do a P&L on this employee for the last tax season. If you bill by the hour, then you should be able to calculate employee revenues easily. If you don't use the billable hour, or if there is a split in the work (i.e. employee prepares, you review and sign off), you can figure a reasonable method to allocate the revenues. For example, if a $600 tax return took the employee 2 hours to prepare and 30 minutes for you to review and sign off, you might split it 2:1 so the preparer's revenue is $400 and yours is $200.

Obviously this won't be penny-perfect but going through the exercise of an employee P&L should give you data which is directionally correct on the true cost of the employee (and I'm assuming that it is actually a profit/negative cost). From then you can start to look at the subjective issues, such as non-billable work the employee does for you, whether hiring the employee gave you more time with your family last tax season or whether it did the opposite, things like that. You should be able to do this with the software package in your practice (top tier like Prosystems/Lacerte/UltraTax versus value tier like Drake/ATX), so you definitely need to be able to do that with your employee.
 

#3
makbo  
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Yes, an employee's pay should be reported on W-2. There is every indication that this person is your employee.

As for benefits, I'd say yours are quite generous, especially at $55/hr. I hope you are in the most expensive of urban markets, because if not that rate seems pretty generous as well. Maybe consider paying only for license renewal, not for CE and especially not for time spent taking CE.

I assume your employee applies for unemployment comp during the off season (because you laid them off for lack of work)? That is also an indirect benefit you provide.

By comparison, I think H&R pays its seasonal preparers much less than $55/hr (base rate, there is a commission component on top of that), however they do provide free CE (but no pay for time spent, that was the topic of a lost class action lawsuit).
 

#4
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Thanks, I really appreciate the thorough response! WRT to #3, it's more the hours for CPE than the $600 reimbursement. The hours come to $2,200 so it's close to $3k in add'l expense. Would it be unheard of to pay a different rate for CPE hours than regular working hours?
 

#5
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I am well aware my seasonal person is an employee, I was more asking what was industry standard.

makbo, thanks for the perspective and ideas. I hadn't considered unemployment for the offseason. I may discuss that as a way to soften the blow from any negative comp changes.
 

#6
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BullCityCPA wrote:Thanks, I really appreciate the thorough response! WRT to #3, it's more the hours for CPE than the $600 reimbursement. The hours come to $2,200 so it's close to $3k in add'l expense. Would it be unheard of to pay a different rate for CPE hours than regular working hours?


The clarification does help. My first thought is that not paying an employee for taking firm-mandated CPE could be a wage & hour violation... but I'm using the weasel word "could" here because I don't know for sure. I can't imagine that having a separate lower pay rate for lower-end work would be illegal, but a pay cut could provoke a negative feeling with the employee.

But again, get back to my response to #3, and look at the forest instead of the trees. Total comp/costs versus revenues. Is the total value proposition correct? To put it another way, would you be fine if you were paying this person ~$58/hr for tax work and ~$15/hr for taking CPE? If yes, don't worry about it. If no, then either you and the employee need to increase the value your current employee brings, or you might need to find a different employee.
 

#7
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Excellent points. This employee has been a great fit and does great work, but I feel like I am overpaying significantly based on discussions with other partners around my area. I expected this employee to lead our tax team from a technical standpoint and while she is a reliable preparer, she hasn't risen to that level and I think I could replace her with a much less costly person.

I am stuck in a situation of liking the person I have, wanting to maintain continuity for our firm and clients, but feeling like I have committed to a pay structure that is unmanageable eating too far into my bottom line. I guess I am trying to find a way to have my cake and eat it too, and cutting back on the CPE costs seemed like the low-hanging fruit.
 

#8
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So, we go to what I said at the end of the last e-mail. You and the employee need to increase the value she brings, or you need someone else. So, you might need to do some coaching with her, and you might need to have some discussions on what your expectations were and the areas that she has or hasn't met them.

Your fixation on the cost, however, makes me wonder if you will ever be happy with this employment arrangement. Will a $2,000 haircut solve what you feel is a $10,000 (or some other large number) problem?
 

#9
CathysTaxes  
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How about a lower base rate plus commission on work performed? This way you get away with a lower rate for education and a higher rate for when she performs.
Cathy
CathysTaxes
 

#10
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Anent time for CPE, what is your employee giving up (during the off-season, I imagine) to attend classes? Does your employee work strictly during tax season or do they come in at critical deadlines to help out?

I know it is not a perfect analogy, but I started working for a CPA (in the Bull City as it happens) as a temp. I then became part-time a few months later. I got pro-rata vacation, holidays that fell on my regular work days (Tuesday and Thursday) and CPE was provided, with time paid at my regular rate, whether I would have worked that day or not. From my perspective, I felt that was fair. Mind you, the hourly rate was pretty poor, so I suppose the rest of the package made up for it.

I started my tax life as an employment tax auditor in England. One thing I learned from that is that employee relations are extremely important. If you roll anything back, be prepared for a loss of motivation. It was bad enough when the roll-back was because of an edict from a spotty-faced kid with a royal-crested briefcase. An employer does not have that cover.
 

#11
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missingdonut, you're right in that the CPE money is not really the issue. I think I have some resentment from how she sold herself (35 years experience, step into tax director type role) versus how she performs (solid preparer, but not very comfortable reviewing others, asks a lot of questions on her own work). She's also quite a bit older than I am so I have some of my own issues in approaching her from a coaching standpoint.

I built my firm on my ability to network, build relationships and sell work, and so I was looking to hire (at a premium price) someone to come on board and basically run the tax practice during busy season, so that I could keep focusing on business development. I think you are right in that I struggle to be content with her not for her preparation skills or value or personality, but because she really doesn't fit the role I hired her. I am feeling a little taken advantage of because it feels like a significantly overpaid tax staff position, which was not what I set out to hire. I paid a premium because I wanted management-level skills, and they haven't materialized.

In fairness, she is bringing value to the firm (about $15k), but I think I could have paid a staff person half of that and gotten about the same results. As a small firm with no room to make additional hires, it feels like I'm missing out on significant profit.

Cathy - I like that idea, I would consider it but I don't know what kind of commission is standard on something like that, any insight there?

Sumwun - Thanks for the insight on your compensation package and thoughts on employee relations. I started my firm with the belief that I could make a good living while not treating employees like cattle, and I take pride in paying above-market rates to all of my employees and offering benefits not often seen in public accounting (no tracking billable hours, work from home, bonuses for both performance and selling work). I don't like feeling resentful of an employee, which is why I posted here to begin with but I think I was hiding from my own feelings a bit. I know that a roll-back would shift the resentment to her end, and I don't want an unhappy/unmotivated employee, but then part of me thinks that even after a rollback she would have a comp structure here that she couldn't dream to get elsewhere, so what right does she have to be resentful? Of course, I realize she would have every right because I agreed to her original structure and have no one to blame but myself for it, and she would rightfully feel undermined and unappreciated and probably angry. Ugh.
 

#12
Derby  
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I'd love to see seasonal rates for tax prep as I never see discussion of this.

Here's what I've seen personally for seasonal tax position, for a licensed EA:

Staff at $30/hr, 1099 contractor, low COL area.
Senior at Big 4 firm, fully remote. Hiring manager had no problem paying $45 as a W2 employee, with overtime pay at 1.5x as required by law.

No benefits at either position.
 

#13
sjrcpa  
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Derby - was this in Michigan?
 

#14
ATSMAN  
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For EA @ $30 per hour, no benefits seems low to me. Perhaps there is a glut of EAs in that zipcode.

I have seem more like $50 to $90 per hour for contract work or a percentage of billing method.
 


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