Want to talk about payroll and accounting? Get out the bottle of Excedrin, because you’re going to need it. Fast-paced change has become commonplace in the increasingly competitive workplace. But in the accounting and payroll side of business, it has become more rapid and confusing than most small to mid-sized companies can handle.
"Accounting and payroll are jobs that are changing as fast as the computer industry," says Craig Moss, branch manager of AppleOne Temporaries, which supplies accounting and payroll temporary employees nationwide. "And as you know, the computer industry moves very, very fast."
The difficulty comes not only from employees, who are moving from job to job more often in this employee's market, but also from the fact that rules and regulations concerning payroll are always changing. To deal with complex functions such as taxes, worker's comp, direct deposit, unemployment claims and 401k plans, it takes someone with knowledge, dedication and skill to keep track of all the new laws and policies. And if a company isn’t careful, the result could be costly, either in the form of a stiff financial penalty or a big lawyer's bill.
"It’s not one of people’s favorite jobs, but it’s an important one," says Ricardo Cardenas, sales manager for CBS Payroll, a national payroll company.
No wonder so many businesses are outsourcing these functions.
"Probably the biggest reason to outsource payroll is to get rid of the headache," points out Mike Maiorino, sales manager for ADP-Automatic Data Processing, a nationwide payroll company. "Businesses don’t want this burden on their backs. It’s high maintenance."
Larger companies with more than 1,000 employees are more likely to have an accounting and payroll department in-house. But for smaller companies, this isn’t cost effective.
"These people don’t add productivity to the bottom," explains Bonnie Apple, owner of Peak Performers, a local temporary agency associated with an international chain. "So outsourcing really can save a business money."
According to the National Federation of Independent Business, about 90 percent of American businesses have less than 20 employees. The California Employment Development Department estimates that in San Diego, 65 percent of local businesses have fewer than four employees. The outsourcing trend is sweeping San Diego as more and more businesses discover that payroll and accounting functions are best left to experts.
"Some companies in San Diego just started out in a garage and then, all of a sudden, grew in leaps and bounds," says Apple. "They don’t know how to manage payroll."
But what’s really pushed this trend into high gear is the recent change in tax laws for small businesses. The Internal Revenue Service has ordered any business with $50,000 in payroll taxes to adopt the Electronic Federal Tax Payment System (EFTPS), which means that such businesses must both file and pay their taxes electronically. While President Clinton pushed back the enrollment deadline from Jan. 1, 1997, to Dec. 1, 1997, and then again to July 1998, non-compliance will result in a 10 percent penalty. It’s estimated that 1.2 million businesses nationally are affected by this new regulation.
"For many companies it’s another straw on their backs," says Maiorino. "And they say that one in three small businesses gets in trouble with the government."
No wonder companies are scrambling for options. That's exactly what happened to Ellen Burnette, the owner of the five-month-old CytoTemps Inc., a cancer diagnostic company based in Mira Mesa.
"I started out with three employees and it quickly grew to nine," she recalls. "I did the first month of payroll and it was a mess because I had no idea what I was doing. With all my other responsibilities, I knew I wouldn't be successful in payroll. I realized I needed help and I needed it fast."
Businesses with this problem actually have many solutions to chose from. Think of levels of service as transportation vehicles and these choices range from a bicycle to a compact to a Cadillac.
• Computer programs: There are several reasonably-priced computer programs available that can assist a small business with payroll. These include well-known titles such as Quicken and Peachtree. While requiring time and diligence, these programs can work well for businesses with fewer than four employees.
However, computerized payroll and accounting programs do have one major drawback. "The government continues to change the laws all the time," warns Maiorino.
While saving money with a program instead of hiring an accountant looks good in the short run, the cost of a mistake could easily take away any realized profit.
• Check writing services: There are companies that take on the task of issuing checks with the taxes all properly calculated. The cost is minimal, at about 2 cents a check.
Kelly Leasing provides this service to many of its customers. "We take over the payroll," says Deborah Burnett, a national sales executive for Kelly. "We cut checks, keep records, maintain time cards and calculate vacation accrual."
For businesses with fewer than 10 employees, this system can prevent a headache, yet leave the company in firm control of finances. However, it doesn’t allow for complex functions or the recent electronic tax requirements.
• Temporary employees: If a company occasionally has a need for an accountant or payroll expert, but doesn’t want the expense or long-term commitment of bringing one on staff, a temporary employee could be the best solution.
"It’s perfect for when you need someone only during certain times of the year, like at year-end when things can be hectic," says Nancy Meyn, branch manager for Accountants on Call. She estimates that the use of temporary accountants has risen 30 percent in the last three to four years.
These temporaries can also fill in when a employee is on vacation or maternity leave. "Accounting and payroll aren’t like other departments," points out Meyn. "When someone is gone the work piles up and other workers are usually not cross-trained."
However, bringing in a temporary is only effective if it’s for a short time. In addition to the cost of paying a larger salary to the temporary agency, there's the unbudgeted expense of an additional person, which is usually 20 to 30 percent of the temporary's salary.
But there's another option that’s quite similar and is more cost effective.
• Leasing: This option, which is also known as a Professional Employer Organization (PEO) is different from outsourcing someone to do payroll. Instead, employees legally become the employees of the leasing agency. Companies pay the leasing agency and the agency then pays the employees. The agency is also responsible for the employee's taxes, benefits packages, any employee complaints, insurance and legal disputes.
Another advantage is that the leasing company acts as a human resource department by replacing employees, conducting performance reviews and calculating raises.
"This is the hottest thing on the market right now," says Apple.
Price depends on the number of employees a company needs and how long the contract is for. While clerical employees usually cost 22 percent more than the employee's wage, more hazardous workers, who have a greater risk of filing injury claims, can cost up to 40 percent more than wages.
This system is only cost effective if an employer has fewer than 200 employees.
• Payroll: The Cadillac of accounting outsourcing is a payroll company. The advantages are that the company not only issues checks, but also provides services that include electronic tax filing, unemployment management, workers' comp, 401k plans, direct deposit, time and attendance sheets and new hire reporting. The cost ranges from $1 to $3 a check, depending on the number of services required.
But perhaps the biggest advantage is that this is the only option that includes complying with the EFTPS. "The government continues to make it difficult," said Maiorino. "This gives peace of mind for many business owners and they can sleep at night."
That's because, if there is any problem with the IRS, it’s the payroll company’s problem. They are the ones legally liable.
"If you do your taxes yourself and Uncle Sam sends you a nasty gram, who is responsible? You are," says Cardenas. "But we guarantee you accuracy."
That's why Burnette chose to go with a payroll company. After researching her options, she chose ADP. "I wanted to do this business successfully and the tax issue was just huge," she says. "ADP went back and fixed that first month I messed up and since then they've been very thorough. I would absolutely recommend outsourcing payroll to other businesses." |
