How the “1099 Economy” Will Transform Accounting

'Uberization' disrupts the CPA business model.

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Hitendra Patil
Patil

By Hitendra Patil
Pransform Inc.

In “Four Signs the Uberization of Accounting Has Already Begun,” we analyzed the opportunities and threats for CPA firms’ operations. After some more research into the “1099 economy” or the “contingent workforce,” the evidence all seems to point in one direction: Transformation in the business model of accounting firms. The US Dept. of Labor notes that employers are seeking new ways to make employment more flexible with contingent work arrangement, and the DoL recommends that the definition of employee and that of employer should be standardized and grounded in changed economic realities:

  • 53 million workers in the US are now “freelance workers.”
  • 2 million workers are “contingent workers” and this number is estimated to double by the year 2020.
  • More millennials freelance than any other age group.

These and many other findings indicate key impacts on how accounting firms will do business in future. Here are some of our thoughts:

STAFFING AT ACCOUNTING FIRMS

  1. Temps won’t be seasonal anymore – Accounting firms have been deploying “temps” for years now, especially during the tax season peak loads. Going by the research and the preferences of the growing number of people who want to be contingent workers, accounting firms will need to draw up plans to engage them throughout the year.
  2. Temps will be hired for value-added tasks too – Research indicates that the nature of workforce is changing to “on-demand” workforce. It suggests that accounting firms will not only hire temps for usual routine tasks but also engage people from larger pool of subject matter experts, seasoned professionals, consultants and even potential competitors like small firms and solo practitioners. Technology will only make it easier going forward.
  3. Non-competing temps will be non-existent – Contingent workers with specialized tax or accounting knowledge will obviously work for multiple firms at the same time. Standard non-compete clauses in the standard employer-employee agreement will not hold good for the contingent workforce. Instead, “confidentiality” clauses will become more deeply defined.
  4. Temps will be highly competent – As they work for multiple firms, contingent workers will become “shared resources” who have exposure and experience of working for multiple firms and on multiple projects. In other words, each CPA firm will need to spend lesser time in training and review of work done by the contingent workforce.
  5. Temps will self-learn firm’s processes – With the rise in the number of contingent workers, there will be an increasing need to have “knowledge on tap”. Workflows, internal procedures, dos and don’ts, troubleshooting – a lot of knowledge hitherto only an internal IPR will need to be made available on tap to contingent workers. Cost alone would prohibit person-to-person discussions to share such knowledge to get the work done.
  6. Contingent workers will redefine performance appraisal processes – Pay-for-performance will become more of an automatic method for contingent workers doing work for accounting firms. It can redefine the “performance measurement parameters, processes and methods” even for the permanent staff at accounting firms, as accounting firms will find it difficult to keep two separate processes for measuring performance of contingent workers and permanent staff.

CLIENTS OF ACCOUNTING FIRMS

Just like transformation in the quantity and quality of temp staffing at accounting firms, the new generation of clients of accounting firms will also be a different breed. More and more clients of accounting firms will be these contingent workers. And no, it’s not just about millennials as your clients.

  1. Clients can turn accounting into partially contingent services profession – Given the nature of work and income cycles of contingent workers, new clients will increasingly expect “on-demand” accounting services. Such “on-demand” business will more likely need to be handled using “on-demand” workforce. This will further increase the use of contingent workforce by accounting firms. Setting up a fixed expenses business model that generates variable income will be a disaster.
  2. Business clients of accounting firms will need new services – As more and more businesses deploy contingent workforce, and as the complexity of work done by contingent workers increases, business owners will be faced with decisions related to taxability on projects and assignments. Accounting firms will need to provide “contingent worker tax advisory” services to their business clients, at least till such time the processes and relevant tax law changes mature.
  3. Clients will need more customized services – The 1099 economy will produce workers with multiple sources of income but according to a recent report from the US Government Accountability Office (GAO), core contingent workers are more likely to report low family income and hence their discretionary expenses will be limited. More purchases will be out of necessity. This will likely shift the preference to low-priced, on-demand services from accounting firms. It will not only mean accounting firms will need to provide customized service packages but also highly standardize them, using far more technology than ever before, to keep such services profitable.
  4. Cloud delivery of service on mobile devices will be a necessity – The 1099 economy will also need optimization of costs. Contingent workers will not spend just collecting or giving information to accountants. Simplified, necessary information will need to be made available on mobile devices used by contingent workers.
  5. Clients will need comprehensive advice at once – Contingent workers will neither have the time nor the resources to specifically buy each component of accounting and tax services that they need. The “bare necessities” required in accounting and tax would need to be packaged as one comprehensive service.
  6. Clients may pay by services in return – The “barter economy” can make sense in several situations. Like Airlines Mileage programs, firms and contingent workers may use “points” to trade services (giving rise to taxation complexities in the short term).

ACCOUNTING AND TAX TECHNOLOGY

  1. Newer technologies to ensure privacy of client data – One of the critical challenges for accounting firms to address will the confidentiality and privacy of client data if accounting firms hire contingent workers. More often than not, the contingent workers will work from their homes or locations other than firm’s office/s. It will be a huge concern how to ensure IT security of the computers and internet connections at contingent worker’s place of work. Cloud computing has already provided mobility to CPA firm staff and with that mobility, the concerns of data security are increasing. While the cloud data centers will be secure enough, the IT industry will find ways to ensure relatively simpler computer and internet set ups that connect to cloud softwares will be secure enough. There may be “secure office-desk spaces” available for rent. Accounting and tax softwares will have more security features implemented such as “self-expiring temp logins”, “two-factor authentications”, “fingerprint authentications to log on to accounting software” and so on.
  2. Firms will embrace new work distribution technologies – Accounting and tax work is deadlines based. It is a must that work gets done in time. To cater to peaks of work inflow – call is “seasonality within a week or month” - accounting firms will need to be ready with “buffer resources” i.e. have multiple workers on standby. But such workers will likely do the work on first come first serve basis as they get paid only for the work done, not for the idle time. Hence, office management and workflow tools will incorporate “demand distribution” algorithms similar to those used in network traffic load balancers, manufacturing companies that use inventory and order management technologies etc.
  3. Contingent workers and clients will need contingent communications – Because these workers will work on multiple projects for multiple companies and firms, every time they pick up an assignment or a project, they will need taxability advice at that very moment. Accounting firms will need technologies such as CRM, secure private messaging networks etc., more than ever before to “keep in constant touch” with the contingent workers and clients.

INSURANCE AND HEALTHCARE RELATED TO ACCOUNTING PROFESSION

According to the GAO report, contingent workers earn less and are less likely to have work-provided benefits than standard workers.

  1. Emergence of Short-Term Insurance Products – It is likely that contingent workers will get more attracted to firms that provide “period-benefits” e.g. health-insurance for short term – like a travel medical insurance or car rental insurance. The insurance industry itself will identify such needs and will come up with such products that satisfy the short-term needs of contingent workers as well as firms that hire such temps.
  2. Changes to HealthCare Laws and Pooling of HealthCare Costs – As contingent workers are less likely to have work-provided benefits, they will face severe challenges on the healthcare front. There will be necessary amendments to relevant regulations to absorb the contingent workers into healthcare laws. It will likely result into pooling of healthcare costs i.e. accounting firms and other businesses may actually contribute to healthcare pool - may be part of social security - rather than paying for individual contingent worker each time. In other words, those contingent workers who have great health may indirectly assist in meeting healthcare expenses of other contingent workers.
  3. Professional liability insurance plans will cover extended workforce – While accounting firms having professional liability insurance are generally covered for temporary staff and independent contractors, the contingent workers themselves will need liability insurance to cover themselves. Given that the income levels of contingent workers are likely to be lower, like the car insurance that covers not only the damage to your own car but also the damage to third party, insurance plans that cover accounting firms will also cover liabilities that contingent workers may face.

These are thoughts to get you started in analysis of your own practice’s use of contingent staff, segmentation of your clients into contingent workers and others, your HR processes and technology usage. It's only a beginning.

 

2 Responses to “How the “1099 Economy” Will Transform Accounting”

  1. Angie Grissom

    This article is well written and thought provoking. Firms need to consider these predictions into planning to stay ahead of the curve and to remain competitive. Thanks for sharing. Angie Grissom

    • Hitendra R. Patil

      Thanks Angie for taking the time to read the article and sharing your thoughts. I am glad that you found the article useful.

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