Gain Productivity By Outsourcing Your Payroll

Spend your time on what makes money. Let someone else sweat the small stuff. So goes the siren song from the growing swell of payroll processing firms. Their serenade has a mission: lure you away from those pesky administrative details that keep you from productive work. For many employers, heeding such fair music makes sense. Payroll tasks can eat up valuable time at even the smallest business.

Beware the sour notes in this particular symphony. While incompetent vendors have always had the ability to tangle their clients in a web of financial errors, the danger is particularly acute with scores of new and untested competitors entering the field. The new entrants range from big employee leasing companies that see payroll processing as the first step on the long march toward outsourcing of all employee management, to small accounting firms offering personalized reporting and discount rates to undercut the big guys.

This rising chorus of competitors has been sparked by one key event: the new federal mandate for electronic filing of tax reports. Starting this year, businesses with $50,000 in annual federal employment tax liabilities are required to file electronically. In January 1999 the threshold drops to $20,000.

Vendors are saying: let us handle that filing. We'll monitor changes in the federal and state tax laws and adjust your deductions automatically. And while we're at it, we'll handle your deductions for your retirement plan, health insurance, and social security. We'll write and deliver the checks, and perform direct wage deposit for employees who want it. More: to help you assess your investment in human resources, we'll create those customized reports you never got around to developing yourself.

"As outsourcing grows, we are being asked to do more than just process payroll," says Gene Polisseni, vice president of marketing at Paychex, the Rochester, N.Y., based payroll processing firm that operates in 37 states. "The idea is this: why not assign all the overhead tasks to the company that has the employee data?"

Times are good for employers shopping for a deal. Competition has kept costs down. In some regions a business may pay $19 a week for 10 employees; $10 for three. This covers not only the mundane processing of paychecks, but also accounting for taxes and preparing quarterly tax forms. These tasks can cost significantly more when assigned to a book keeper.

"The cost savings alone are significant for most employers," says Guy Maddalone, president of GTM Associates, a regional outfit in West Albany, N.Y. "And it makes a lot of sense to let someone else juggle the tax forms." Most firms welcome small accounts. Even at giant Paychex, 60 percent of clients have fewer than 10 employees.

Avoid pitfalls when selecting a firm

Picking the wrong payroll processing firm can have a major effect on your operations. Prior to putting your data in the hands of a stranger, perform due diligence. Here's how to pick the right one.

Ask for names of current customers.

"It's important to get referrals any time you are dealing with your money," says Maddalone. Request names of customers who are about your size. Then call those customers and ask some related questions such as: How responsive is the company? Has it made any mistakes? Is there someone there when you call?

Assess your outsourcing needs.

You can avoid overpaying for this service if you draw up a list of precisely what you need to out source and what you don't. Beware the larger vendors, in particular, who may try to sell you too much service. "One of your best sources for advice is your accountant, who can suggest exactly what you need to out source," suggests Polisseni.

Determine what size of processor is right for you.

"Typically, a market is served by three tiers," says Jason Ladd, vice president of sales at CBS Payroll, a San Bernardino, Calif., based processor with 5,000 accounts in the western states. "At the top you have the big national players like Automatic Data Processing (ADP) and Paychex. "Then you have one or two regional players who have from 5,000 to 10,000 accounts. Then you have the lower end these are accounting firms who buy someone else's software and typically have a client list of 50 to 100 businesses."

Assess the quality of the reporting.

Many service firms are luring customers by providing customized reports that are difficult to obtain otherwise. CBS Payroll, for example, provides workers compensation reports in addition to month, year-to-date and annual payroll accounting reports. Further, it distributes wages and taxes to various departments within the client company for true costing figures. And it performs automatic debits and credits from the payroll to the ledger, eliminating part of the payroll process.

"In all, we have developed over 40 standard reports with multiple variations, based on what customers have told us they need," says Ladd. The idea of mid-sized firms like CBS is to lure customers away from the smaller competitors who cannot offer such reports, while keeping at bay the larger vendors, which may charge extra for reporting.

Get a guarantee.

Overlooking a tax filing deadline can be costly, which is yet another reason to use an outside processor. Many firms will guarantee their accuracy. Look for one that does.

Checking out the payroll processor

• Request names of current customers and call them.
• Don't buy more services than you need.
• Select the right size of processing firm.
• Assess the quality of reports.
• Insist on a guarantee of accuracy.

Get more information from these web sites.

Paychex
911 Panorama Trail South
Rochester, NY 14625
800/322-7292

World wide web site: www.paychex.com Click on "Managing Your Payroll" for a selection of tips about outsourcing the tasks in this area.

Automatic Data Processing (ADP)
One ADP Boulevard
Roseland, NJ 07068
(800) 225-5237

World Wide Web site: www.adp.com Click "information center" to order free copies of "Automating the Tracking of Employee Hours" and "Changing Regulations Create Payroll Problems for U.S. Companies." Or call the information hotline: 1-800-225-5237.

Access Card offers convenience.

Employers can now offer workers check-cashing privileges more easily than ever, with a new form of debit card from Paychex, Rochester, N.Y. Employees can access their money using the Access Card at any point-of-sale terminal at no charge, or at an ATM for the usual bank fee. Employers pay a fee for each pay period.

Information: Paychex, 911 Panorama Trail South, Rochester NY 14625. 800/322-7292.