Updated: Oct 15, 2018
Tax Preparer Compensation
Performance-based compensation is the ideal because it pro- vides an incentive to employees based on the contributions they make to the company. However, preparers who simply crank out tax returns to generate fees while failing to satisfy the client and deliver true value are not making a contribu- tion to the success of the business. To encourage friendly, competent client service, you could pay extra compensation for generating client referrals and improving client retention rates. Consider providing incentives for completing annual continuing professional education (CPE) requirements and attaining professional credentials such as the enrolled agent status. The tax office staff, including the receptionist and clerical employees, could share in an “Office Bonus Pool” equal to a percentage of the growth in office revenue over the prior year. Also consider providing incentives for the accuracy rate of tax returns prepared.
The most significant measure of a productive tax preparer’s performance is client retention. Paying extra bonuses to tax preparers whose personal client retention rates exceed 75 to 80 percent could produce dramatic results in terms of growth. The pay plan should, ideally, reward tax professionals for produc- tion, while also encouraging teamwork and a commitment to providing quality client service and delivering true value.
Tax Preparer Employment Agreements
Firms that do not bind their employees to certain restrictive contractual agreements risk losing clients to tax preparers who leave the company. However, a noncompete provision that is construed as being unreasonable will not be upheld by most courts. In fact, noncompete agreements that extend beyond the employment term may not be legal in some localities and some states, such as California. However, you should not permit your employees to compete; it’s a conflict of interest. If an experienced tax preparer applies for employment and has a handful of long-term personal clients, you may have the option of “buying” the clients. Another alternative might be to exclude existing clients specifically by contract addendum from your noncompete provision. The most important contract provisions are “non- solicitation” and “confidentiality” clauses that survive beyond the term of employment. Such restrictive covenants can effectively prevent tax preparers who leave from taking clients with them. It’s not necessary to reinvent the wheel. Obtain a copy of an employment agreement from one of the national tax firms or from a provider of tax practice man- agement products to use as a guideline. In any case, engage a qualified labor law attorney who is familiar with state and local laws to ensure the employment contract is likely to be upheld by the local courts.