The best ways to work with client payroll
Payroll is one of those applications that no one really wants to do. Yes, it's a vital and necessary set of tasks, but it's also always a potential hornet's nest of complaints and penalties just waiting to be stumbled upon. Still, the Internal Revenue Service, state and local entities, and, most importunately, your clients' employees, insist that it be done.
The question is who gets to do it - your clients, your practice, or an outside payroll service bureau?
YOUR PLACE OR MINE?
The downsides to clients doing their payroll in-house are the same ones that have always existed. One is compliance. Tax rates change frequently, and a client doing their own payroll is reliant on others to make sure that they keep abreast of changes in federal and state reporting requirements, tax law and rate changes, and any necessary payments for payroll depositories and quarterly state unemployment insurance upkeep. Other payments include employee pension and 401(k) plans, different kinds of insurance and, depending on the type of business, union dues. Garnishments are yet another thing to track, and have become more common in this tough economy.
All of this is time-consuming, even for a client that has a small number of employees. For your larger clients, it means a staff dedicated to payroll (and possibly human resources), whether or not the payroll is actually processed in-house or elsewhere.
Payroll service bureaus have been around for many years, largely because they address many of the problems that make payroll such a time- and resource-consuming task. Additionally, many accounting practices have found payroll processing a lucrative revenue generator, and have themselves evolved into payroll service bureaus.
An increasing number of payroll vendors will sell you services that you resell to your client under your name. MPay's Payroll Partner program and AccountantsWorld Payroll Relief are examples of this approach.
Others, such as Thomson Reuters' myPay Solutions, take a more upfront stance. "At one time we offered a 'back-office' option, acting as though we were part of the accounting firm," according to myPay Solutions senior vice president Jack LaRue. "However, we discovered that not having direct contact with the client created significant problems when issues with the payroll arose that needed to be solved quickly. And when we had direct contact with the client, at times it was awkward to portray ourselves as part of the accounting firm."
Murphy's Law states whatever can go wrong, will. This is especially true with payroll.
No output is more diligently scrutinized than the paycheck of your clients' employees. If it's pennies less than they expect, you can bet someone will hear about it. If you are serving as the payroll provider, you are the one most likely to have to deal with a problem. And even if an independent payroll vendor is processing the payroll, as the client's accountant, you'll frequently become involved, especially if there are penalties resulting.
One important step in having a client's payroll run as problem-free as possible is making sure from the get-go that it's being performed by the right entity. For example, sometimes it makes more sense for a client not to do payroll. This is especially true with smaller clients, which might not have the resources to handle the complexities of changing laws and compliance requirements.
"Compliance is a major part of our value proposition for both accountants and their clients," said Don McLoughlin, vice president of marketing for ADP Small Business Services. "One of the benefits of working with ADP is that we have the deep resources it takes to keep up with the tax and regulatory changes that occur at the federal, state and local levels."
That's a pretty typical practice for many payroll service vendors. Paychex's director of marketing, Neil Rohrer, explained: "We spend thousands of staff hours continually monitoring current legislative and regulatory changes."
Compliance isn't just a matter of keeping up with the latest regulations. It also means making sure that your clients make the right amount of payments at the required time.
According to Rich Walker, director of accountant services at Intuit, "Intuit Online Payroll for Accounting Professionals (formerly known as the PayCycle Accounting Professional Program) has context-sensitive help which includes warning messages when the service anticipates issues, such as if the customer needs to pay taxes more frequently than they have selected."
FIXED BEFORE IT BREAKS
Making sure that your clients' payroll runs smoothly isn't a single process, regardless of who's performing it. It requires some study, careful planning, and a method for dealing with potential problems at the earliest possible moment.
The first step in resolving problems is to understand who in each organization has responsibility for what processes in the payroll system. That seems simple, and on a macro scale, it probably is. But when a problem arises, it can easily spiral out of control unless the right personnel are involved.
At the client, there may be data entry clerks, a payroll supervisor who is the initial problem resolution contact, and a controller or chief financial officer who is responsible for making sure that everything that needs to be paid is paid in a timely manner. It gets even more complex when the client has insurance, pensions and 401(k) plans. You and the client need to know just who to go to solve each specific kind of problem.
The same holds true on the payroll processor side, whether it's your firm or a service bureau. Just about every payroll vendor we contacted claims to have the best customer service team, superbly trained to handle and resolve any problem. Unfortunately, the reality is sometimes grossly different. Having a clear understanding of the workflows and responsibilities in all of the entities involved in the payroll process can often make problem resolution less of a morass.
A PLAN COMES TOGETHER
Having a cheat sheet with this information for each client, and sharing it with the client and the payroll service bureau, is an easy way to ensure that all parties know the processes, procedures and people to go to for resolving a problem. In constructing this cheat sheet, don't forget the people in the other organizations the client deals with - their banks, insurance carriers, and anyone else even peripherally involved in payroll.
This is especially important if your firm is acting as the payroll provider or you are partnering with a vendor, such as AccountantsWorld, that does not deal directly with the client. Make sure that your cheat sheet has an addendum that is not circulated to clients or others that details who at the payroll or software provider is tasked with providing critical support.
Robin Leuthold, an AccountantsWorld user at Atlanta-based Ahmed H. Zaki CPA, said, "If I am aware of a problem, I call AccountantsWorld. If the payroll client is aware of a problem, they call me, and then I call AccountantsWorld."
Training is another area that helps head off problems. Mistakes are inevitable. The better trained clients and staff are, the less likely it is that they will make mistakes - especially major ones. This educational process is ongoing, and many vendors, including AccountantsWorld, ADP and Paychex, provide training with CPE credits.
Some accountants think that when they hand off a client to a payroll service bureau, they can wash their hands of the responsibility of making sure that the client is aware of changes in laws and procedures that may affect them. That's not really the case. Maybe the payroll service provider is the one responsible for keeping your clients apprised and updated on compliance issues, but that's not going to help you keep the client if they fail and the client ends up with penalties.
A typical experience is that of Albany, N.Y., CPA Douglas Ebersman: "[The] payroll company did not understand that employees of S corporations, under new 2008 IRS procedural rules, were to add health insurance to gross wages of officer/employees in order for the officer to deduct it on their personal income tax returns as self-employed health insurance premiums."
"Although I notified my client of this change," he said, "the client neglected to forward the message to his payroll company until after his company payroll had been prepared for the fourth quarter, and a new set of quarterly tax returns and Form W-2s had to be prepared at his expense. The payroll company should have been aware of this change and proactively notified their S corporation clients."
ANTICIPATE, DON'T ASSUME
Experiences like this point out another necessity - follow-up. Many vendors don't have any formal program in place to monitor client status, though all do have active customer service.
Best practices dictate that as the client's accountant, you should make sure to create some sort of formal plan for keeping clients up to date on new laws and procedures that might affect them. A short newsletter or even a timely blog is a recommended approach.
In addition, ensure that you actively monitor the status of payroll deposits and reports. Don't assume that they are being made, are timely, or are accurate. Many payroll providers have a process in place where an accountant can check on the status of their clients. Monitoring payroll status to proactively catch potential problems is something that should be billable. It can be as easy as just having the client copy you on critical reports, or as complex as a scheduled biweekly or monthly phone call.
Said Ebersman. "I also regularly remind clients to verify with the tax authorities that their withheld funds are being remitted appropriately by the payroll vendor." After all, even if your clients are paying the required taxes, they won't get credit for them if the money doesn't find its way to the necessary agency.
Ted Needleman is senior director of the Technical Services Division of Industry Analysts Inc., an independent market research firm and testing laboratory. He was previously the editor-in-chief of Accounting Technology, and writes frequently on software, hardware, and technology-related subjects.
PayCycle (now an Intuit company)
(c) 2009 Accounting Today and SourceMedia, Inc. All Rights Reserved.
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