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?

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