10 Things you need to know before switching payroll services

So you are frustrated with your current service provider and are ready to make a move to go to another company, here are some tips you may want to consider before switching: 

1. Payroll Records—Make sure you have all the payroll records before switching because your new company will require that information assuming you are transferring in the middle of the year. 
2. Tax Payments and Filings—Please make sure your current service provider will pay all your outstanding taxes and file any forms because the new service provider will not assume liability of what your prior service provider did.
3. Cancellation of Service—Please make sure you do not cancel your current service until the new service provider has completely set up your profile and wages because I’ve seen companies canceling services and unable to run a payroll because the new service provider does not have all the necessary information.
4. New Quarter or New Year—The best advice for business owners planning to switch payroll service is to start in a new quarter or wait until the following year.  The reason behind this is having a clean start with the new service provider; it will be easy to enter the Year-to-Date wages for W-2 purposes.  If you are starting in a new year, then there are no wages to carry over; it would be a simple setup process.
5. Customer Service—Please test out the customer service making sure there are live people answering the phones before switching services.  What good does it do if the price is really cheap and you can’t get basic customer service? 
6. System Functionality—Please verify that the system is able to support all your payroll needs such as 401K, 125 Plans, Internet access, garnishments, etc.  There are so many payroll companies out there, but not everybody can accommodate you like ADP or Paychex.  Some systems only supports up to 50 or 100 employees, you need to make sure they are capable of handling your situation.
7. Local vs National—When thinking about switching service providers, please make sure you know where they’re located at because if they’re local then you can print checks and get it deliver faster compare to a company in a different state.
8. Reports—Certain companies will offer certain reports such as Certified Payroll Reports, ask them about the reports that you need and make sure they can handle it.
9. Tax Debits—If you are tight on cash flow, choose a company that will debit your account two days before the due date; instead of paying the taxes on every payroll.  As you know payroll service providers make money from interest on your money and don’t pay it until the due date.
10. Year End Forms—Please make sure one company is handling your year-end forms such as w-2s, 940, etc.  Sometimes you would cancel service from the previous service provider and they filed a W-2 at year-end for you because you didn’t inform them to stop all the filing obligations.  The new company files a W-2 also and you’ll have two sets at year-end.

I hope you find this information useful as switching payroll service can be complicated, but as long as you understand the concept of it, you can make the transition smoother.

One person payroll department? Good or Bad idea?

Hi again,

If you are a business owner and you have one employee that handles all the payroll duties, you may want to reconsider it?  If you are like many other business owners that give the entire payroll duties to one employee in your company, you are asking for trouble.  One person payroll department have ripped off many small business owners who don’t know much about payroll.  

One of my client’s payroll administrator had 100% control in processing payroll with determining how often the employees are paid,  printing checks, signing checks, and delivering checks.  This employee had created a phantom employee (also known as a dummy employee), since this was a construction company, it was common to have employees on payroll for a day or two and that would be it.  The payroll administrator would create a phantom employee on the payroll and pay that employee once or twice a month.  The employee has a fictitous social security number, address, martials status, withholdings, etc, but he would keep a name that is legitimate from a person he knows.  Since this was a pre-printed check stock with the signature on it, the employee just had to print it with the dollar amount.  The employee will have his acquintance with the legitimate name bring it to a convenince store to cash the check, when the cash is received.  The payroll administrator would terminate the employee and delete the employee from the system as it never existed.  The payroll administrator did this for 8 months before getting terminated and prosecuted.  Since the owner isn’t handling any of the payroll function and nobody else was cross referencing the data and payroll information this person was entering, it’s tough for anybody to monitor the cash flow within payroll. 

It’s very important to separate all the tasks, such as having the owner/manager to sign or verify the checks.   Please limit access to the payroll administrator to processing checks and enter hours and make somebody in charge of printing checks only.  You must make an effort to confirm the payroll data at least once a month.  Payroll is probably the largest expense a business owner would have, why wouldn’t you protect it.

Truth about Payroll Service Providers

Hi,

Have you ever wonder how payroll service providers make their money?  The truth is they don’t make money charging you the service fees, the revenue is generated when you process a payroll and make the tax payments through their service.  Whenever you make a tax payment, the payroll service provider will keep those funds in their account until the actual due date.  They get the interest from their bank using other people’s money (OPM) and it’s a common approach in this industry.  Some of these taxes such as the Social Security (FICA) and Medicare are not due until the 15th of the following month if you’re a monthly depositor.  Other taxes such as State Unemployment Insurance (SUI)  are not even due until one month after the quarter ends, so the payroll service provider would have your funds in their bank account for a month to several months before they actually pay it to the appropriate federal or state agency. 

I guess this method is great if you want the payroll service provider to pay your taxes on time and as long as you paid it, it’s a done deal.  The truth is most of you are probably small business owners and need the extra cash flow to keep your business running.  If you are like me and would like to keep all your cash until the due date; my suggestion is to find a service provider that will not debit your taxes until the actual day or couple of days before.  I’m pretty sure you can use that extra hundred or thousand dollars for other bills.