Disagreement with Outside Accountant over Fee

This is a needy client, inherited three years ago from a retiring EA, who does not like change. He has an outside accountant (she doesn't do taxes) to do his accounting and comes to me for tax preparation and payroll. Outside Accountant made an error with payroll journals last year and client wanted it fixed during tax season. So I looked over the spreadsheet, found the error and communicated the error to the outside accountant.

When I wrapped up the tax return, I sent a fee note for the return and a separate line item for $300, being the extra time incurred (during tax season) on identifying the error on the payroll tax accounts. Client called me to discuss. He expressed surprise at the fee note (although he knew, after the fact, that I had done the work) but stated that accountant was prepared to pay my fee for the error. I established that client does not always send information to accountant on a timely basis. I pointed out that tax season is busy for tax professionals and accountants, especially when the client does not want an extension, and every professional - including me - makes at least one mistake during the season. He asked that I speak with the accountant.

I have just come off the 'phone with her. I said I was unhappy about her falling on her sword; my first offer was to split my fee three ways. She understands that I need to charge for my time but feels I should have been upfront about there being an additional charge. On the latter basis, she said she would not have charged for the work. She feels that she has to represent the client. I agree with that to a point, of course. However, it was her mistake. Call ended much less positively than I expected.

Client is a B client and, frankly, not that far from a C. I have one other mutual client (new this year and a solid B, I think) with this accountant. So, what advice do the assembled minds have?

Cut the client loose after Q4 payroll?

Accept that I should have gotten an engagement letter or, at least, an understanding that client would pay, ie, write off the $300?

Something else?

Accountant would have a very good point had my engagement letter not said that I charge by the hour. Or maybe she has a very good point regardless. Hence the post.

Client was not aware that I do monthly accounting as well and seemed mildly interested when I mentioned it.

I always find it odd when other people are shocked that we expect to earn money for our time.
This is the reason I don't do flat rate, or flat fees.

Not sure how to best advise you on this matter.
I'm not sure I would cut the client loose, and I'm also not sure I would have offered to split the fee three ways, or otherwise discounted the time. I know some here hate this approach, but I'd probably offer to accept what they think it was worth, and then make a determination after that money is received, whether they respect you and your time.

...I'd probably offer to accept what they think it was worth, and then make a determination after that money is received, whether they respect you and your time.

I would probably do this as well. I would also share this: If you are going to fire a client, do it right away. It benefits no one to linger on completing work when you don't want to be doing it. The mental drain is real.

It sounds like you described the circumstance very well both initially and afterward.

Thanks, both, for the thoughts. To be clear, if I disengage for future work I would do it very soon. However, I would, if client wishes, finish up payroll for the year, including filing W-3 and Q4 reports. I think a payroll switch in mid-quarter is almost always a bad idea, even for a sole employee S Corp.

I don't know what to think about the "pay what you think it is worth" approach in this case. I did think about that, but the outside accountant rather complicates it. In fact, the outside accountant is the complication, to the extent that I cannot countenance taking on any more of her clients. Hmm. So do I go back to the client and try to negotiate directly with him? Not appealing, because I don't care to throw another service provider under the bus.

Situations like these are always stressful, because you're now sinking time (that you will not be compensated for) into trying to collect the fee and explain why it exists.

My clients sign an annual acknowledgements and understanding doc that states time spent on a client's account outside of an engagement covered by an engagement letter is billable at prevailing hourly rates. One specific example given is time spent interfacing with a client's attorney, financial planner or third-party accountant. So, I have something to point to in these situations. (and the doc partly exists because of past situations like yours -- I wanted a trump card to end the conversation favorably and quickly)

I think it comes down to what your engagement letter says. Even if out of scope work isn't mentioned, if the scope is clearly defined it is logical to deduce that out of scope work is not covered in the engagement fee estimate and will be billed separately.

You offered to split it three ways. I'd Honor that and be done with it.

Agree with Recked, the people who believe we should work for free, or that the annual compliance fee is the equivalent to an all-you-can-eat buffet with unlimited consulting and calls astound me. Thankfully, those individuals don't last long in my practice. They get weeded(?) out pretty quickly.

I would not have offered to split it 3 ways. I would have went with a quick and polite explanation of why you charged them extra, and then the "pay me what it's worth" approach.

With a B- client, had they not paid all of it, I would have cut them loose as of the 31st of Dec (with advanced notice right now).

If the invoice was completely paid, then I would keep a B- client, I guess.

Since you offered 1/3, you must honor that, of course. But you can still do the above with the 2/3s.

I charge flat rates, but my engagement agreement says that the listed rates are just estimates, and that there are additional fees for (a list of about 20 things) including "clients that require extra time" as a catch all.

Usually what I do is I eat a little bit of extra work at first, but I change the listed rate in advance for the NEXT year for a PITA client, rather than create the stress. I'm getting paid perhaps even more for it this way - it's not like I'm working for free.

I explain in advance that I took a loss on their production in the previous year because I didn't want to pull a bait and switch, and that I thought it would be good business to let them know in advance what the price will be for next year.

Last year, when I did this to one client, she actually offered to pay me for the extra time for which they were not charged in the current year. And she did.

And, if you give them advance notice that you won't be providing future services, I'd hope that their account is current for all work up to that point, and that you collect retainers on any work to be provided moving forward.

Given the circumstances...them wanting phone calls and "debates" over $300. I could easily see this client ghosting you on the final bill.

Tell them point blank. My bill is $300. If you object to that, then pay me what you think my time is worth.

Most of the time, this works. If they send you something less, you have a choice to make. If it is low enough to disengage, then disengage.

Dear Client,

Thank you for your recent payment of $xxx. This represents a discount of my original bill of xx%. I am writing off the rest of your bill.

Be advised that as of today, I will no longer provide any services to your company. I will forward all relevant documents to your accountant.

Sincerely,

Sumwunlost

Thanks for all the thoughtful replies. I’ll sleep on it and decide what to do in the morning. My engagement letter is clear as to terms, at least to me. Perhaps not to a non-accountant. Doesn’t excuse it, but I think I have learned a lesson today.

To be honest, I am more annoyed at the outside accountant. She said she thought the discrepancy was because of deferred OASDI. She has complete access to this client’s Sharefile. Anyone with the ability to read a column of numbers would have seen that the thousands of dollars she was out could not possibly have been that.

OK, so I e-mailed the client and outside accountant. Client replied appreciatively & promptly and mailed a check for $100.00. Outside accountant was less gracious but agreed to stump up. I await her payment. Sent her a link to pay by credit card as she doesn't do checks.

I think I could take away a lot of pain points if I got the bookkeeping work. We will see. I rather suspect, in time, that either the outside accountant will go or I will.