19 Apr Payroll Services: A Cautionary Tale
Posted at 18:45h
Did you hire a payroll processor for your business? It felt good, didn’t it? A burden lifted. I bet you were so happy to have that off your plate and felt lighter knowing that all of those pesky taxes were now being handled by a professional. You would have paid nearly anything never to see another notice from your state saying you made an error on a filing ever again. But then it happens….
the notices show up anyway. Now you pay a professional service to take care of all of the FUTA, SUTA, FICA, IRA, WTF, EMAC, FEDWH, STATEWH, 401K, (add an acronym here) and STILL the notices arrive.
So, here is the truth folks. Not all payroll processors are created equal and most of them aren’t great. After 15 plus years of interacting with payroll companies, I’m tired, frustrated and just confused. Mostly, though, I’m worried. I’m worried for every business out there that doesn’t have 15 years of experience, doesn’t deal with payroll day in and day out, that puts their trust in a payroll processor. I’m worried because the mistakes made by payroll processors I see and catch every day the average bookkeeper and business owner doesn’t. They have no idea their taxes aren’t being calculated correctly, that their W2 forms are wrong, that they aren’t remitting to all the right agencies, or that they don’t have to pay certain taxes until the state or federal government comes knocking and usually in the form of a demand notice.
Most recently I’ve been working with one of the larger payroll firms in the United States, Paycom, and to say that I’m concerned for all of their clients would be an understatement. Weekly, yes weekly, I am faced with yet another new mistake they have made. Lucky for me I’ve caught each one before the state or federal government, but in each case, hours of my week are spent unwinding various issues. “What would this be like for my client to have to do on their own?” and “what do other small businesses without my experience do?” are questions I frequently ask myself.
We have been trained to trust the expert especially if we are paying for their services, but what happens when they aren’t doing their job well? What happens when members of their team who represent themselves as authorities aren’t actually qualified to advise you or do the work their firm has tasked them with? Would you want the front desk clerk at the hospital to prep your operating room? I’d guess you wouldn’t. Then why are companies like Paycom allowing their call center staff to be giving tax advice and better yet tax advice they GOOGLED? Yes, that really happens (removed all day every day here since we aren’t positive but it has happend a minimum of twice to us.). In my most recent experience not only did the call center team agressively advise me on a tax set up for a client but when the CPA’s advice was contrary to the call center staff’s the Paycom employee proceeded to Google and call the IRS to prove she was correct (which she wasn’t). Now, I stood my ground, but I would venture to guess that your average small business owner would have gone along with the unqualified and erroneous tax advice from the Paycom employee.
My Paycom experience has taught me just how many things really can go wrong with a payroll processor when their systems are not up to par, their training and turnover is bad and when a company doesn’t have its act together. Here are some pointers I want to share to help you avoid bad payroll processors.
1. Don’t just swallow the sales person’s tale. A payroll sales person (and sales people in general) may tell you whatever they need you to hear to get you to sign the sales contract. Talk to LOTS of customers (not just the 5 references they send you), find industry pros like your insurance auditor, CPA, and bookkeeper that actually like working with them and then find a few more. Also, get their specifics of the contract, not just the base rate included in the agreement. We found with Paycom alllllll kinds of fees popped up later that were not mentioned when we asked are these ALL of the fees during the sales process. Apparently, the word “all” has different meanings to different people.
2. Know what your state payroll taxes and rates are and how they apply to you because the payroll processor won’t. 1 year later and I’m still finding state tax rates they didn’t set up correctly even though they are the same for every business in the state. They also had no idea how various taxes were to be applied to different companies. (addition: this was evident with EMAC tax in MA that 12 months later we had to help them sort out how it was applied. Example 2: Futa was applied to 501c3 companies and we had to instruct them to remove it even though the 501c3 status was noted during set up.) After a year of back and forth Paycom just flat out said they didn’t know and at the end of the day, it was up to us to tell them what to do. Great. If you knew all the ins and outs wouldn’t you just do it yourself? Hopefully, you will work with a company that knows your state well and your knowledge will be a double check. There is a big difference in the annual total employer tax between .0056 and .00056 so make sure they set you up correctly at the start.
3. Watch your fees. Payroll companies will charge the wrong amount in error or you may be a victim of fee creep. Several of the big guys will change the fee schedule with no notice so call them on it when it happens.
4. Don’t ignore notices from the state and federal government when they arrive. If you get a notice saying the taxes weren’t paid or there was an error DO NOT ASSUME IT IS TAKEN CARE OF. Make sure you follow up with your processor and keep notes about the matter. We have found even companies like Paycom can hold funds too long or not time the remittance properly, or pay the amount and not get the filing done. Log into your state tax portal and review for yourself because even if they say they did it they may not have or the transaction may have been rejected. It is not a defense to the state to say “well I thought they took care of it”. You are ultimately responsible even though you are paying a company to process and pay the taxes. (addition: To date we have had one client with a notice of late payment 24 hours late is still late in the eyes of the state.)
5. Review your set up carefully. Name, address and social security number typos as well as bank account number typos are frequent. While you shouldn’t have to review the work of other adult professionals you are paying a setup fee to and we would assume they double check the work they do not. This is easy to correct at the start and hard to correct after W-2s are prepared.
6. On the subject of W2s, make sure that they will have them to you on time. We had the hard experience with Paycom this year of finding that the W2 forms were not available right away in the employee portals. They add those later. This meant that employees who couldn’t stop by to pick up a paper copy or who couldn’t get mail, or who had moved and not changed addresses and were planning on retrieving their W2 electronically were not able to do so until very late in the game. Who would think that printing and mailing hundreds of paper copies would be easier and faster than logging on and downloading it but it was. Assume nothing and ask. Get it in writing so if it isn’t delivered you can ask for compensation for the inconvenience.
7. Don’t assume your payroll company knows how to complete your W2 forms. Be sure you are prepared to instruct on necessary things like officer health insurance reporting and what boxes will be affected by your pre or post tax deductions from pay such as your 401K or Simple IRA. I’m talking hand holding, put it in writing, follow up and make sure it’s done correctly then walk them through it again because they didn’t follow your instructions the first time. Seriously. S corporations with officers who get insurance via the company beware. Declaring it is required and last year we had to actually fight with Paycom to get it on the W2 and despite specific instructions, they still put it in the wrong box.
8. If you’re unsure ask your CPA not your payroll company. This is very important. They aren’t responsible if it is wrong you are. They aren’t qualified to tell you what and how various taxes apply to your business (seriously they aren’t), but your CPA is. Have them guide you through and even review your payroll especially at set up and at quarter ends.
9. When it is a bad experience tell people. Give a bad Yelp review and share your experience. If we as consumers don’t speak up more unsuspecting people will undergo the excruciating frustration of doing business with them again. These companies are big and it’s easy for them to fill their website with some good quotes. If you service thousands of companies and can’t find at least 5-10 people who say something nice then you really have issues. So assume that what’s on the companies website is a sample of a few people. Check Yelp, check your BBB, and more importantly check Glassdoor and Indeed and see what their former employees have to say. Give reviews on those sites if and when you can to warn the next guy.