Software survey: Moving past gross to net
Payroll may be one of the most disliked tasks, but it’s also one of the most critical in many businesses and practices. With ever-shifting hours and earnings, as well as withholdings that may differ from week to week, payroll is a job almost no one truly enjoys doing.
It’s gotten better over the years, as software has improved. And, as long as people earn money (or compensatory time) for their work, payroll and all of its attendant onerous tasks are here to stay. As sensitive an application as payroll processing is, it’s not a static one. Pay rates change, both those mandated and those earned by promotion or performing different tasks. And laws about how net pay is calculated also change with new laws and payroll requirements. To discover how this application is changing, and how these changes are likely to affect accountants and their clients, we asked eight of the major vendors in the payroll industry to share their views.
Not Just Paychecks
For many vendors, payroll has moved beyond just calculating gross to net. That’s not to say that calculating payroll has gotten simpler, more streamlined, or more straightforward. All the annoying bits and pieces that make payroll such a pain — accounting for tips, approaches such as paying per piecework, and processes that are vertical in nature, such as union reports — still abound. And, according to Andy Childs, vice president of marketing at Paychex, “There’s certainly complexity in some of the taxes, especially in certain parts of the country. In calculating gross to net payroll, the trickier part is the taxes. That’s probably where most errors get made and where most people find themselves exposed to fines if they aren’t doing it properly.”
One reason things haven’t gotten easier, according to Chris Rush, division vice president of strategy for ADP Small Business Services, is more complex minimum wage requirements. “The Fair Labor Standards Act requires employers to pay non-exempt employees at least $7.25 per hour for all hours worked. However, many states and local jurisdictions have higher minimum wage rates. Employers subject to multiple minimum wage requirements often need to figure out which rate applies. This can present a daunting challenge to many businesses,” he said. “It’s a complex issue. When federal, state and municipal minimum wages differ, an employer must comply with the rate most generous to the employee. For example, if your state minimum wage is $9 and the local minimum wage is $11, you must generally pay your non-exempt employees who work in that city at least $11 per hour, since it is higher than the state minimum wage of $9 and the federal minimum wage of $7.25.”
Thomson Reuters Tax & Accounting senior product manager for accounting and payroll Louie Calvin added another: “New laws and regulations, such as mandatory sick pay, state and local minimum wage rules, the Affordable Care Act and more are making payroll difficult for businesses to handle on their own without professional assistance.”
And with possible changes to the tax and labor laws on the horizon, the process of computing payroll will not become any easier in the near future. “The ever-changing regulatory landscape will continue to affect how small-business owners recruit, hire, classify and reward their employees. These changes may have significant implications for how businesses staff, and for their overall long-term strategies,” according to Andy Roe, general manager for SurePayroll.
Still another reason for increasing complexity in the payroll process is that payroll applications have in many cases expanded to include aspects of human resources. While HR as a separate application still exists, and is marketed by a number of the vendors in this survey, others have expanded their payroll offerings to include capabilities that are often considered to be more in the area of HR.
According to CYMA Systems’ marketing manager Pete Koblinski, “The human resources module is tied to the payroll software. However, workers’ comp is handled from the payroll software and does not require the human resources component. Additionally, ACA reporting requirements are handled through the payroll portion of the software.”
That’s similar to how AccountantsWorld’s payroll handles things. “Our Payroll Relief application provides the forms necessary to support the Affordable Care Act, and handles [paid time off], retirement benefits, third-party payments, and garnishments, including child support payments,” president Sharada Bhansali said.
And Accounting CS also has HR capabilities built-in, Thomson Reuters’ Calvin told us. “While not branded as HR software, the features of Accounting CS Payroll include, by default, many needed HR features, including tracking and retention of employee demographics, W-4 status, hire dates, and customized fields to track much more. Also included in Accounting CS are historical wage data, HR notes, pay raises and salary information. Another feature is accruable benefits (track and calculate payroll with auto accruals calculations),” he said.
MyPayrollHR also offers a payroll that encompasses aspects of human resources. “A full HR portal is available at no additional charge, which includes a complete HR Library, job description templates, opt-in e-alerts at the state and federal level, along with handbook review and construction, and live HR support from 8 a.m. to 8 p.m. EST,” chief executive officer Frank Grant told us.
At Gusto, their platform also integrates payroll and HR, according to communications manager Steffi Wu: “Gusto is one platform for payroll, benefits and HR. It gives small businesses one place to go for payroll, health benefits, HR, workers’ compensation, 401(k) plans and even 529 college savings plans.”
While extending payroll by adding features from human resources, the HR application itself has been heartily embraced by payroll vendors. Almost all of the vendors we surveyed offer HR applications as an adjunct to payroll or as a stand-alone.
Watch Your Back Office
How payroll integrates with other important applications is also something to consider. In some cases, payroll is part of a vertical application. This is often true in verticals such as point of sale, construction, and manufacturing, where payroll costs figure heavily into the cost of inventory or cost of goods sold.
But integrating payroll with other back-office systems is an important capability. “The ability to sync accounting, time tracking, expense reporting and payroll data allows small-business owners to have a more holistic view of the health of their business, their cash flow, and where potential for improvement can be found,” Roe said. “SurePayroll currently integrates with leading third-party applications such as QuickBooks Online, QuickBooks Desktop, Xero, Sage 50, AccountEdge and Kashoo, as well as 18 different time and attendance systems.”
Thomson Reuters’ Accounting CS is another system where the payroll is tightly integrated. “Professional tax and accounting firms and payroll service bureaus using Accounting CS enjoy integration with many other firm services,” Calvin said. “Integration options available in Accounting CS Payroll that are increasingly popular include payroll journal entries that are automatically generated and journalized so that all financials and general ledger reports are properly updated; time clock integrations; W-2 and 1099 data-sharing with the firm’s professional tax software; and integrated workers’ compensation that connects payroll providers, agents, carriers and policy holders through all aspects of procuring and processing ‘pay-as-you-go’ workers’ compensation insurance. All of these features add up to a considerable amount of time saved for full-service firms responsible for services outside the scope of payroll.”
AccountantsWorld’s Payroll is another one that’s tightly integrated with the vendor’s other applications. According to Bhansali, “Our Payroll Relief software seamlessly integrates with our accounting solution, Accounting Power, as well as with our client portal, so that all payroll forms and reports are available to clients 24/7. In addition, we integrate with workers’ compensation, 401(k) administration, and time and attendance software.”
Payroll to Go
One trend that’s picking up steam is easier-to-use payroll. That means that instead of spending hours on the phone reading off employee times and rates, data entry is done in-house. And at least some questions can be answered by employees through self-service.
“Employee self-service allows the client’s employees to enter their own time, view their pay stubs and more through a secure portal from any Internet connection. A mobile app is available as a free download from the Apple Store and Google Play,” said Thomson Reuters’ Calvin.
AccountantsWorld also aims at ease-of-use. According to Bhansali, “All of our software is optimized for use on mobile devices such as tablets and smartphones so that users can access and use our products from anywhere, at any time. Payroll Relief users can upload timesheets and approve payrolls from any device, and we provide employee portals that support electronic delivery of W-2s for employees to retain or print for their own records, and enable employees to upload images of W-4s.”
That accessibility is mirrored by Paychex. “We have significant mobile feature functionality. You can pretty much do just about anything on a mobile device that you can do on our desktop application,” Childs said.
And Gusto is accessible from any Web-enabled device, Wu said: “So people can manage everything on the go. Some of Gusto’s customers have even run payroll from the ski slopes and the beach.”
Looking Toward the Future
A number of vendors shared some of the things they see in the future. Benchmarking is one area that ADP sees gaining importance: “Big Data benchmarking and predictive analytics tools can help accounting firms further differentiate and grow the firm’s service offering as a strategic advisor by providing its clients with valuable insight to attract and retain top talent,” Rush told us. “It can give an accounting practice the ability to compare its employee data with current industry averages — including compensation, turnover, productivity and other workforce metrics. Turnover probability identifies the likelihood of voluntary turnover across an organization, within job types, locations and teams, as well as for individual employees. And data analytics can help accounting firms prepare for new pay equity reporting requirements.”
And Gusto’s Wu noted, “Effective 2017, qualified small businesses may be eligible to claim a tax credit for costs related to their research and development activities, up to $250,000. The new payroll tax offset allows companies to receive a benefit for their research activities, regardless of whether they are profitable. A lot of small businesses do not know about this potential credit, and they may miss out on thousands of dollars in tax liability reductions. Gusto plans to support the R&D credit in tax year 2017.”
AccountantsWorld also has some new features coming, according to Bhansali: “We are in the process of implementing a new task manager tool, based on Trello, to provide payroll users with complete visibility into their payroll and compliance processes, allowing them to review the entire practice at a glance. The task manager provides end-to-end monitoring and management of payroll and compliance processes, and enables users to easily track due dates, create checklists, share documents, and monitor task completion. Our task manager tool provides enhanced organization, facilitates collaboration, enables wide-scale process and task tracking, and helps firms to improve the efficiency and productivity of the payroll services they provide.”
Money in Your Pocket
While payroll is a pain to do, that’s not always a bad thing, since it means that clients will often readily pay to have it done. And almost every vendor surveyed has some kind of plan to have some of that end up in your firm’s bank account. Sometimes, this means that your practice purchases the software and processes the payroll for your clients.
“CYMA’s software can be white-labeled, but is more commonly branded through our Web-based employee self-service. CYMA does not process the payroll — firms purchase the software, so accounting firms end up pocketing the entire markup amounts, rather than splitting fees,” Koblinski told us.
SurePayroll offers several options in this area, according to Roe: “We provide accountants with a range of payroll solutions, including a reward-based referral program and use of our partner dashboard to access payroll information for their clients already using the product. Our most popular solution is our white-label payroll platform, which enables accountants to offer a full-service, turnkey payroll solution to their clients under their own brand.”
Similar options are offered by other payroll providers, including MyPayrollHR. “We mostly work with accounting firms that resell or white-label our platform.” Grant said. “Additionally, accounting firms can profit from our relationship because they can choose between a referral program, a resale program or a hybrid plan, whichever is most appropriate for their firm and client needs.”