I know, we're focused on retirement plans here at Retirement Planology, but I have to write about this. Having seen first hand where a payroll company really botched things up and caused a lot of problems, I feel it's important to share what I know and pull some info from our friends in the payroll world.
From the 10,000 foot view, you're hiring an outsourced payroll company to pay your employees on time, pay your taxes on time, and file your payroll tax forms -- all performed accurately. Here are some items to consider when interviewing payroll companies.
You'll want to ask what level of security they have protecting the information. For instance, are they SSAE 16 Type II compliant? Are they bonded and secured? If they're holding onto your money and are remitting your taxes, it's important to at least consider how easy it would be for them to commit fraud and run away with your money. (Think I'm kidding? Unfortunately I'm not.)
On that subject, how do they handle internal compliance? For instance, do they pay a Third Party to conduct audits on their processes? Do they have in house Employment and Compliance lawyers to ensure the company is following all regulations to protect their information? Accuracy and privacy are a big deal here, as is the ability to catch a potential screw-up.
Who is handling the tax filing for the company? What experience in the industry do they have? For instance, is it the firm owner's wife, kid just out of college, etc., or is it a team being led by someone with years of tax filing experience? You're trusting them to get this part right. Consider the particular issues your company has with types of pay, classes of employees (union, non-union, etc.), and whether you'll need a company that can handle multiple state taxes as well as federal taxes.
I've seen many occasions where there is service after service tacked on to the payroll. I'm not saying that it's bad, but I am advising you to consider what services you actually need and to see whether they're fair in light of fees paid. The best way to get an accurate picture of what those services feel like and whether promises were fulfilled is to ask other clients.
Who you work with makes all the difference in the world. I've personally been on the receiving end of a payroll specialist who did not know how to calculate or enter a 401k matching contribution. I found that to be baffling but I helped him sort it out. (No, if they match UP TO 6% that does not mean the company will contribute 6%, it means that an employee has to contribute 6% to get the full match.) It doesn't hurt to ask to meet the person that would be servicing your account and consider the average tenure of the payroll specialist. Offices will be different and specialists who help different client sizes will be different.
How about their client turnover percentage? For instance, some of the bigger companies lose around 25-27% of their clients every year. With every vendor relationship, you're hoping for a long-term commitment. It may not hurt to ask for the information from the exit surveys of clients that left.
Payroll reports provide valuable information -- whether you are trying to determine the profitability of a particular area of the business or just trying to pull an employee census. The payroll system is only as strong as the technology backbone providing it and the capabilities it has. Make sure to explore how you can pull custom reports and slice and dice data to meet your organization's needs. Also inquire about how quickly the system updates and feeds any other systems (example: retirement plan) that depend on the data. The tech world is continuously being built on how well you can play in the sandbox with others. It's a fair question to ask how the payroll system interacts with other systems including benefits, HR, and accounting.
From a 401k or other retirement plan perspective, more and more payroll providers are offering the ability to feed and receive data from retirement plan providers. Be cautious of the words "seamless integration" though, and inquire how many days it takes for each system to update and under what circumstances errors could occur. You will also want to verify that there is a chance for a human to interact with the system to catch errors. For example, if you have an employee that is on track to reach 1000 hours and become eligible for the retirement plan, but you have knowledge that they will not meet that requirement or there is something else that will keep them from being eligible, you will want the ability to update the system before they are automatically enrolled.
Each payroll service will require you to fulfill certain responsibilities. It is important for you to understand what happens throughout the process. For example, will your data provided be submitted directly into the system or re-entered?
Consider the time-saving benefits of one system over another and how much work there will be to double check the data. Find out where the checks and balances are in the system, especially if your organization is routinely audited.
There usually isn't the same level of confusion associated with fee schedules in payroll land compared to retirement plans. However, you should still make sure you understand the ins and outs. Will you be charged per month or per payroll? If charged by employee count, when are you no longer charged for a terminated employee? Is the add-on product they're trying to sell you really worth it in the long-run from both fees and time-saving effort?
Hiring an outsourced payroll provider sounds simple enough, and it's a great thing to do for a number of reasons. Just make sure to be an informed consumer!