The CPA Journal

Choosing a Payroll Service Provider

By Robert Basso

As technology improves, payroll service providers offer more and more features, but they still make mistakes and experience costly outages. There may be no single reason for such problems, but certainly one is that service providers are drifting away from personalized attention. Many payroll service providers have chosen to make individual attention a lower priority because of their reliance on technology. Others put a priority on bundling an increasing variety of services. While some providers have slowly integrated additional services into their service packages, others have rushed into new areas without regard to existing services.

The following are some of the questions that should be asked before choosing a payroll service provider. These questions can be applied to virtually all companies or professionals that provide outsourced services, including financial planners, insurance agencies, CPAs, attorneys, banks, commercial lenders, marketing firms, and website developers.

What is their track record? The payroll service industry contains hundreds of local, regional, and national providers. Advances in technology, the Internet, and software have fueled this growth. It is essential to review the credentials of companies under consideration. In addition to traditional methods of conducting research, such as reviewing Dun and Bradstreet Reports, customers should seek references, review complaints, and search for media coverage. Businesses considering a payroll service provider should also check with the American Payroll Association (APA; www.americanpayroll.org).

Who are their clients? One solid way of evaluating a company’s ability to provide services is to examine their client roster. Ask for references or a client list. Look for experience with companies of similar size in the same industry.

What are their clients saying? Once you have the list of clients or references, find out what they have to say about the provider. Although price is important, it should not be the sole factor in an informed decision. Ask about personalized attention, the willingness to adapt to specific needs, and the timeliness of service. Because late or mismanaged paychecks can cause significant disruptions and problems, ask about specific policies and past problems in this area. While no company is perfect, chronic problems could signal potential trouble.

What is the industry saying? Most reputable payroll service providers belong to the APA and participate in its conferences, meetings, and committees. The APA may have information about member companies or assist in finding reliable companies.

Can they expand? A payroll provider must have the ability to meet a company’s growth plans and a changing business model. Some payroll providers have developed niche markets and may not be able to provide solutions to complex problems outside their niches. For example, if a company plans to go public, can its payroll provider offer services such as stock repurchase and profit sharing programs? Companies that have such long-term plans need to ensure that their payroll providers can meet these planned needs.

Are they keeping up with technology? New technologies provide additional opportunities for providers to offer more services at a reduced cost. Recently launched Internet-based services offer a variety of options for managers and can be instrumental in reducing the cost and time spent on payroll services internally and externally. Up-to-date providers will have adaptable and scalable software, and a data storage system to match. In addition, providers should not only report payroll and payroll tax information on paper but also electronically. This technology saves space and enables flexible and immediate access to information.

Will they provide personalized attention? Although technology may be the answer to some questions, it does not solve problems caused by diminishing personalized attention. Most business managers need and want to feel comfortable with the companies and individuals with which they share financial information. Although a website or regular e-mail can assist in building a strong working relationship and in answering general questions, a trusted person that can be called with questions or emergencies is indispensable.

The service provider’s client-to-service-representative ratio and the number of Certified Payroll Professionals (CPPs) on its staff are important indicators of personal attention. CPPs receive specific training in processing and administering payroll services and have passed a rigorous certification examination. At a good company, 80% of the customer service staff will have the CPP designation. Working with credentialed professionals is an important consideration, and each provider’s policies toward the professional development of their staff should be studied.

Do they have any ethical or legal problems? An important consideration in deciding whether to outsource payroll services is the opportunity to share the risk with the provider of the liability for penalties and interest for improper filings or late payments. Nevertheless, the business cannot avoid ultimate responsibility for the timely filing and payment of taxes and should closely monitor the provider’s performance. The provider’s record in timely and proper filing and payment of taxes is critical. Request information regarding legal problems and ethical considerations. Many problems can arise if a provider misses, forgets, or fails to file properly. If a provider goes out of business or files for bankruptcy, its clients may be responsible for the taxes as well as any interest or penalties.

Are they competitively priced? The large number of payroll service providers encourages price competition, but the wide range of pricing practices means that the quoted fee schedule does not necessarily reflect providers’ capacities to provide expanded services that reduce overall costs. A provider that offers expandable and scalable services could be much more valuable and cost effective in the long run than one that offers lower rates today.

Robert Basso is the owner of Advantage Payroll Services’ Hicksville, Long Island, New York, regional office (rob_basso@advantagepayroll.com).

THE CPA MANAGER