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Death, Taxes and H&R Block

CFO Frank Cotroneo thinks tax preparation could be the next hot employee benefit.
David M. Katz, CFO.com | US
October 17, 2000

Each year, 14% of all Americans hire H&R Block to file their tax returns.

This means 86% don't.

So, CFO and executive vice president Frank J. Controneo thinks Block has figured out a way to sign up many of the people who don't use his services. And in the process, the company can finally solve a problem that has perennially haunted the tax preparation giant—How to make money in the three fiscal quarters when individuals don't typically file their tax returns.

On Sept. 27, responding to calls from a variety of employers—many of them dot-coms and startups—Block introduced H&R Block Employer Solutions as way to meet "a range of different employees' needs," says David Byers, Block's chief marketing officer and a senior vice president.

Under the program, employers would offer Block's tax preparation service as an employee benefit. The hope is that once employees sign up for Block's tax service, they will then use many of its other services, such as financial consulting, discount brokerage and mortgage services.

Cotroneo, 42, who moved to Block in February from the same post at Mastercard, where he spent 11 years, thinks marketing the tax preparation- related services through employers would be an especially effective method of reaching a large number of potential customers at once. And that's especially true during a tight employment environment, when companies are desperate to hold onto employees.

Parlaying Retention Worries
In fact, as a member of Block's management team, he is heavily involved in making employee- retention decisions, brooding about "brain drain." Noting his own recent switch from Purchase, N.Y.- based Mastercard to Block, based in Kansas City, Mo., he notes ironically that "employee retention is a very difficult thing."

The company, which employs 10,000 regular full-time workers through its subsidiaries, saw an influx of seasonal employees—mostly tax preparers--during its frenetic tax season (Jan. 2 through April 30) that swelled its employment rolls to 103,000. Block offices prepared about 16.3 million individual returns, or about 14 percent of the U.S. total, according to an Internal Revenue Service estimate for 1998 cited by Block in its 10-K.

In its basic form, the program gives employers promotional and employee- enrollment materials tailored to their firms. At tax time, Block preparers would put together the tax returns of enrolled employees. After their tax forms are filed, employees are ripe customers for added mortgage and financial services, the Block theory goes.

Block is marketing the benefit to the Fortune 50 and the Fortune 100 Best Places To Work, with the effort directed toward one-on-one meetings with human resources directors, according to Byers, who expects the first contract with an employer to be inked imminently.

What kinds of employees would most appreciate tax-preparation benefits?

Richard Federico, work/life practice leader for The Segal Co., a New York City-based benefit consulting firm, thinks that "young people right out of college, who have never had to file a tax return, [would] find it very valuable."

Block's Byers disagrees, saying that companies are looking to meet the needs of individuals who have more complex tax returns as well as to "package a range of products and services."

This is why Block has spent the past year or two adding more products to its lineup. In 1999, the company acquired the consulting practices of McGladrey and Pullen, at that time the seventh largest U.S. accounting and consulting firm, with 70 offices nationwide. It also bought Olde Financial, the parent of Olde Discount Corp., the fourth biggest U.S. discount brokerage at the time of the acquisition.

Byers says these two acquisitions boost Block's ability to offer the wide range of services it's touting: mortgage help, discount brokerage aid and financial planning.

And these services could generate revenue and income year-round rather than just during the annual spring tax season. If these services become popular, Block could finally better smoothe out its quarterly results.

Visions of Big Brother
Might the sight of employer- sponsored tax preparers lurking around workplaces prompt complaints by employees that Big Brother is peeking over their shoulders? Byers says that's not a problem, since the services would be delivered offsite. "Employees are not comfortable providing their financial information in their work environment," Byers acknowledges.

While the tax-preparation benefit could produce efficiencies if employee returns are checked against employer records, and vice-versa, Block is legally barred from releasing information supplied by taxpayer clients—as well as that provided by financial-services clients, he says. In a move separate from the benefits effort, however, Block is looking at ways to download W-2 tax form information from employers, according to Byers.

How will employers pay for the benefit? Various deals could be worked out, the marketing executive says. They include subsidized plans, in which the employer pays 80% and the employee 20%, and "even a possibility of no pay for some employers," says Byers.


Block might consider delivering tax preparation services for free if it thought it could use them as a door opener to obtain the more lucrative financial-services business with the employee-client, he suggests.

Some employers, he says, might fit the benefit into a "life-cycle account." In such a plan, an employer might place $10,000 of after-tax money in the account for the employee to spend during the course of his or her career on such benefits as mortgage assistance, legal fees, weight-reduction classes and fitness equipment, according to The Segal Cos.' Federico. While employees could draw on the account at any time during their careers, there would be yearly spending limits, and the benefit wouldn't be portable.

Adds Federico: "I think tax preparation fits into that nicely because it's something [an employee] might do on an annual basis."




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