Payroll is one of those applications that few people love. Employees hate it because it’s never understandable, taxes take money out of their pockets, and for some reason the hours and rates never seem quite right.
To make things worse, if the employee has their own tax rate tables, it’s almost a sure bet that the net amount they come up with is going to be different from that printed on their paycheck (or directly deposited).
Employers hate payroll for pretty much the same reasons. Making things worse is that just when you finally think that you have payroll nailed and running smoothly, the government changes things up, as with the Affordable Care Act. In fact, the only people who seem not to hate payroll are the vendors that provide payroll software and those with payroll service bureau offerings.
Advising your clients on how they should be handling their payroll becomes more difficult each year. Life was much simpler back when you got paid in goats or bushels of wheat, and payroll (and other taxes) was a matter of how much you could keep from the tax collector. Then King George raised that pesky tax on tea, Congress passed the 16th Amendment in 1913 establishing the federal tax on income, and things have gone downhill since then.
But it’s not all doom and gloom. Sure, over the years we’ve all had an increasing number of payroll-related issues to deal with, including FICA, Medicare, a bewildering number of types of retirement plans, and, most recently, the ACA, but that’s why doing payroll calculation and recordkeeping using a computer is still much more effective and efficient in most cases than doing it manually.
Which way you and your clients go is really a matter of how complex a situation calculating and reporting payroll and payroll taxes is. As with most things in life, the “One size fits all” approach generally means that no one gets something that actually fits.
We surveyed several popular providers of payroll software and services to see where they think some of the issues are, and took a look into the crystal ball for some idea of where we are going.
ARE YOU IN OR OUT?
One question that needs to be answered before any decision can be made on payroll is whether it is going to be processed in-house or by a service bureau. Many of the same considerations that influence this decision are also germane if your practice is considering offering payroll as a service to your clients.
Payroll can be a relatively simple process, depending on the number of employees and the type of business. At its simplest, figuring an employee’s payroll can be a simple process of multiplying hours times pay rate, then subtracting deductions and taxes. But these days, life isn’t always quite so simple.
James Paille, director of operations for myPay Solutions at Thomson Reuters’ Tax & Accounting business, pointed out, “Today there are pretax deductions, post-tax deductions, grossups, memo-posted items, stock transactions and even more complicated items such as 83b elections with options. These are not specific to giant corporations but many are everyday events with small to medium companies. Outsourcing payroll is becoming a necessity to even the smallest of companies in order to stay compliant with all payroll laws and jurisdictions.”
“Payroll is a complicated product and is sure to get even more complicated in the near and far future,” he continued. “The Affordable Care Act alone more than doubles year-end processing for every business that today has over 50 full-time-equivalent employees. Starting this year, these companies will be required to prepare a second annual document for every employee (the 1095C) along with the W-2. This will reconcile the health insurance each employee is required to have. Many payroll companies are working closely with benefit administrators and the IRS to come up with the tools needed for compliance.”
And as payroll becomes more and more complex and tedious, having it processed by a service bureau, always a popular option, becomes even more so. Choosing a service bureau to recommend is more than just a matter of whether or not they can do the job and are reliable, but also how well they fit into the partnership between you and your client. Recognizing the importance of a service provider as a member of the team is important to all of the team members.
Saad Shahzad, head of channel sales at ZenPayroll, pointed out, “We realized early on that partnering with accountants was a critical piece in our mission to help small businesses succeed. It is obvious that technology is changing the accounting industry, but we also believe it has caused the accountant and client relationship to evolve as well. Instead of simply acting as a service provider for clients, the modern accountant now partners with their clients and acts as a trusted business advisor. In the next year, you’ll see ZenPayroll help small businesses in new ways, and we’ll work even more closely with accounting professionals.”
Chris Rush, division vice president of strategy at ADP Small Business Services, is also emphatic: “As a pioneer in providing solutions and services to help businesses manage their most important asset, their people, ADP understands that payroll and HR involve far more than just numbers. Payroll and HR solutions need to be powerful, accurate and secure. They also need to work in the real world’ and above all else they must help our clients and partners succeed.”
THE DIY CLIENT
There are still a fair number of clients that want to process payroll themselves. It’s not difficult to find payroll software. In many cases, if they are using an application such as QuickBooks or Sage 50, payroll processing is offered by the accounting software vendor for an additional fee.
In many cases, making the decision of who should be doing the payroll and where it should be done isn’t an easy one. Dr. Chandra Bhansali, chief executive officer of AccountantsWorld, noted, “Payroll processing is an extremely time-critical function. Employees must receive their paycheck on the payday, and all payroll taxes must be paid on time and form filed in a timely manner. For a very small employer who has no more than two to three employees, writing paychecks in the office and depositing taxes online can save money. Then let the accountant perform an after-the-fact payroll.”
“For any employer that has over five or more employees, computerized payroll, in-house or outsourced, is a sensible option,” Bhansali continued. “If an employer feels they have someone in the office who can take that responsibility, then they may consider doing payroll in-house using a cloud-based system. Outsourcing payroll mitigates the risks of heavy penalties for late filing or errors.”
Some vendors, including Xero, include a basic payroll with their accounting software. Xero’s Standard and Premium plans include payroll for five or 10 employees respectively, but it is only available for seven states. “Small-business owners are typically very conscious of managing their cash flow and do all they can to keep additional monthly expenses to a minimum,” said Mark Pinard, Xero’s director of product marketing. “To assist with this, Xero includes payroll as part of its subscription price, making it easier to manage monthly costs. Xero’s customers know exactly what they are going to pay month in and month out and no longer have to worry about two separate subscription payments or additional employee pricing.”
But Pinard admits that the included payroll isn’t for everyone: “Payroll in Xero is a do-it-yourself payroll feature focused on small businesses. For those businesses with higher employee counts, or wanting a full-service payroll solution, Xero seamlessly integrates with several payroll providers whose products are available for additional subscription prices.”
PLAYS NICELY WITH OTHERS
When considering payroll for a client, it’s important that they understand that while payroll may be available as a stand-alone module or service, it’s really part of an overall financial management system. And even if the client realizes this, in many cases they assume that accounting is the only other application that payroll has to interface with. Some vendors do nothing to expand on this assumption, but the truth is that payroll should integrate tightly with human resources applications, an important system that many of your smaller clients may not even consider.
Larger entities often maintain separate departments to handle employee-oriented services. According to Joy Duce, SPHR, senior managing director of human resources consulting services at Top 100 Firm Sikich LLP, “The corporate structures of businesses often include payroll, accounting and human resources divisions. While these three divisions are often separate from one another, some businesses may consolidate the databases that each department uses. Deciding to integrate your human resources, accounting and payroll databases is not a right’ or wrong’ choice, but can benefit your business for a variety of reasons.”
Michael Gioja, senior vice president of information technology, product management and development at Paychex, is also bullish on a more comprehensive solution: “As the demands on accountants’ and business owners’ time continue to grow, so does the demand and desire for an integrated, single-platform solution that offers a streamlined approach to human capital management. Features and functions once considered exclusively for the largest businesses continue to move down-market. Business owners want applications to help them identify and recruit talented employees, quickly onboard them, drive employee engagement, and offer them a unique experience customized to their needs. The market is shifting from payroll-only solutions to robust integrated offerings that cover recruiting and applicant tracking, onboarding, payroll, benefits administration, and retirement administration. With access to centralized and integrated data, an intuitive user interface, and mobile technology, users are able to work smarter.”
Sikich’s Duce emphasized another reason to have a tightly integrated payroll/human resources solution: “If employees in payroll and human resources accidentally register the wrong information in the database, it can cause problems across both divisions. By unifying the data platform you can reduce the number of mistakes made by multiple departments.”
TO INFINITY AND A LITTLE FARTHER...
All the vendors we queried were united on two points — payroll is complicated, and it’s not going to get any easier in the future.
No one has a crystal ball, but Paychex’s Gioja sees four prominent areas of focus at the forefront — cloud solutions, data integration, consumerization, and mobility. “Cloud solutions allow users to do what they want, where they want, when they want, and how they want with greater efficiency, productivity and flexibility. They also give business owners the ability to grant their employees and business partners permission to perform tasks in an easily accessible and secure environment,” Gioja told us.
Marty Hamby, president of Apex Payroll, agrees that the future is definitely in the cloud. “The cloud has allowed small and midsized payroll service firms the ability to offer features and functionalities normally only available to enterprise-level businesses,” he said. “It has leveled the playing field so that now these organizations do not have to invest in and maintain the IT infrastructure required to operate these types of technologies.”
Yet another believer is ZenPayroll’s Saad Shahzad. “Our service is cloud-based and automated, making it easy to improve efficiency and streamline tedious administrative tasks.”
Paychex’s Gioja was also passionate about ease of use and being able to use the application from anywhere. “The demand for an easy-to-navigate user interface continues to grow, and users expect their enterprise applications to look and act like Facebook, Amazon, and other popular consumer technology experiences,” he said. “This is all happening in an environment of continued mobile growth where more is being done across devices, and vendors are taking a mobile-first approach to the design and development of their offerings. More and more, users are accessing their important data from all devices and want the ability to start the payroll process on a desktop, make updates on a laptop, and finish on a tablet or smartphone.”
A LAST THOUGHT
Payroll is an application that should be approached not with trepidation, but with considered research and knowledge of how it will affect the workflow and efficiency of the firm and client. Producing a paycheck is only one step in the process. Depending on the circumstance, it can also involve complex human resource requirements, union rates and reporting requirements, and other fairly esoteric considerations.
Do your homework and you’ll have an easier time taming the payroll monster.
ADP Small Business Services
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