More Than Just MoneyPayroll outsourcing—and technology—helps mitigate the risk involved with theintricacies of healthcare reform, immigration reform, and tax changes.

Pity the poor payroll manager no more. In an era when the world is regulation mad, heaping oneroustax and employee benefits compliance demands on overwhelmed payroll departments, thankheavens that payroll outsourcing service providers are in the background shouldering much of thisburden.

Alleviating the tension produced by two major macro-trends—the rising tide of payroll-relatedregulations and rules and the impact of technology on payroll service delivery—is the valueproposition offered by top payroll providers. With regard to the latter trend, cloud-based deliveryplatforms allow users access from anywhere in the world with a smartphone, tablet, or laptopcomputer and assist clients with their rising compliance burdens.

Just in time, too. “Every company has a target drawn on its back from a wage-and-hour compliancestandpoint,” says Michael Busch, president of Valiant Payroll Solutions, a Woodbury, NY-basedpayroll outsourcing provider specializing in services to the hospitality industry. “The sheer number ofrules and regulators boggle the mind. And it’s only going to get worse.”

Among the federal regulators policing payroll-related practices are the Equal EmploymentOpportunity Commsion, Internal Revenue Service, Department of Labor, Citizenship andImmigration Services, Federal Trade Commsion, and Office of Foreign Assets Control (to cite a few).New regulations, of course, continue apace, evident most clearly in the Affordable Care Act’s “pay orplay” provions (REG 138006-12), the “most recent headache,” Busch notes.

“Healthcare reform alone is burdening companies to meet stiff obligations,” says Janet Klamm,director of product management and development, payroll and time and attendance services, atRochester, NY-based Paychex Inc. “Companies must make difficult determinations over who is afulltime employee, for instance. These changes are coming fast and furious.”

With regard to state rules and regulators, Klamm says, “They’re all looking for sources of revenuewherever they can find them, and are constantly changing the tax requirements insofar as[employment] filings and protections to generate it. It’s a hodgepodge [of regulations] out there.”

According to Mike Trabold, director of compliance at Paychex, the top three compliance suesconfronting the payroll space, at present, include healthcare reform, immigration reform, and tax

changes. The latter, he says, “encompasses IRS filing developments, state-level complexities, andpotential tax reform/deficit reduction impacts.”

Somebody’s Gotta Do ItFortunately, complying with this complex and evolving patchwork of rules is increasingly theresponsibility of service providers such as Unicorn HRO. “We’re doing more and more of thecompliance work for clients, simply because it is ever more confounding,” says Tim Diassi, executivevice president and general manager at Florham Park, NJ-based Unicorn HRO LLC. “There are somany regulations involving taxes that they just can’t keep up with, and be confident they’re incompliance.”

At the same time that myriad federal, state, and municipal tax agencies have stepped up theirenforcement activities, the rules themselves are increasingly more complicated, making compliancea treacherous exerce. “With regard to the HR side and employee benefits, the rules seem open-ended—more of a gray area,” Diassi explains. “We can walk the client through the process from aconsulting standpoint, but that doesn’t mean they always follow the correct [filing] process. One can’tblame them because this is complicated stuff. Mistakes are inevitable.”

Busch agrees, noting a set of particularly confusing rules affecting the hospitality industry,particularly restaurants. “There are all sorts of regulations affecting tipping,” he explains. “Forexample, the federal government requires that you file Form 8027 [to report employees’ tip incomes]every February. The form requires that you not only list total tips but track the source—was it paidwith a credit card, check, or cash? You also have to track whether the individual who received the tipwas directly tipped by a customer or indirectly tipped, the case with a busboy or assitant bartenderdrawing from a pool of tips.”

These various categories of tipping income require ways to identify and manage the source ofmoney. When an employee works overtime, these burdens increase. “Different rules now govern thetipping that occurs when an employee receiving minimum wage, for instance, is getting time andone-half in overtime pay,” Diassi says. “If you have invalid overtime rates or you’re underreportingwages and tip income—even if it’s inadvertent—the door swings opens to a Department of Laborinvestigation.”

The Labor Department is not alone in investigating compliance abuses with new aggressiveness, headds. “A major restaurant or hotel or celebrity chef found to be violating minimum wage laws issubject to zealous plaintiff attorneys filing class actions that tend to be reported with big photographsin tabloid papers, thus damaging that entity or person’s reputation,” Diassi sasys. “These entities, forthe most part, are not deliberately, flat-out in violation. They’re just not aware [they’re out ofcompliance].”

This lack of awareness can be chalked up partly to the difficulties that legacy payroll systems endurein trying to stay apace of the shifting morass of record-keeping laws and regulations. “If you look atcompanies with more than 2,000 employees, they’re all fundamentally using payroll technology thatis 15 to 20 years old,” says Larry Dunivan, chief information officer at Minneapolis-based CeridianHCM. “These systems have been modernized in different ways, forms, and shapes, but theynonetheless have great difficulty keeping up with the shifts in regulations. In many cases, they’reforced to rewrite [the software coding] from scratch—not the most efficient or cost-effective process.”

As the compliance environment becomes even more complex, and Dunivan says this is “guaranteedas long as we have Democrats in the White House,” the burdens on payroll will exponentiallyincrease. Not that many organations want to be in the business of payroll-related compliance. It isobviously not many companies’ core competency; nor is payroll IT. “If the technology is weak,”Dunivan asserts, “there will be unintended consequences.”

Enter the CloudWhy tempt such consequences when one can essentially pass on workforce management, wage,and time-and-attendance payroll obligations to outsourcing service providers, particularly now thatthey provide such services in a hosted Software-as-a-Service (SaaS) environment?

Given companies’ intricate and constantly altering compliance responsibilities, a cloud-based payrollsystem provider can become the de facto internal payroll department, focused on a singleresponsibility that is, in fact, its core competency. “The payroll user gets real-time data from theswipe of a badge right to net pay, whereas today you have a series of interfaces and batch jobseating up four to six days of the payroll cycle, with lots of process points of failure in between,” saysDunivan. “Payroll cycle time is dramatically reduced, there is no latency, and everything is validatedin real time.”

Cloud-based systems also offer the opportunity to immediately recognize when there is a problem inthe payroll/compliance pipeline. “If you have an employee who has been paid significant overtimethis week, you can see that immediately and not schedule him again at the higher wage,” Dunivanexplains. “Additionally, payments that fall outside parameters or guidelines that would get auditattention for being out of compliance are evident right away.”

A good example of the type of “red flag,” Dunivan notes, is a manager who repeatedly tries to getemployees to waive their breaks.

The cloud also makes it more efficient for providers to conduct their specific business tasks. “In anon-premises environment, vendors would have to contact users to alert them to upgrades and theneed to install the software,” says Klamm. This, in turn, costs money for expensive internalprogrammers to attend to the task, not to mention reminders when needed work goes undone.

“I remember situations where a client in the past would be three versions behind the newestupgrade, and when they tried to install the new one they couldn’t,” she explains. “The reason wasthey hadn’t installed the previous two releases. You really don’t have to have your own technicalpeople in HR stay on top of this when you’re in the cloud, which creates huge gains for theemployer, and providers as well.”

Diassi shares these views, also pointing out the enticing cost benefit for buyers—paying monthlyoperating expenses rather than funding an expensive capital project—opex versus capex. “Nomatter how you slice it and dice it, HR payroll is a cost to a company, a necessary evil—all work andno reward,” he says. “At least when it’s handled in the cloud, the costs, logtics and time-elementsbecome predictable. Best, of all, someone else is taking on the reporting burdens.”

Busch from Valiant affirmed the value of cloud-based payroll for compliance purposes. “You keepup-to-the-minute with regulatory changes when it comes to payroll,” he says. “Even at the simplestlevel, tax charts change every year. To not be in the cloud and stuck constantly updating yoursystem—utilizing resources that can be better put to other things—makes absolutely no sense. AtValiant, we are making the updates in the middle of the night while users are sleeping; they don’thave to worry about loading software or having people on staff to load it. We’re specialists—better tooffload it to us. Then, when you come in the next morning, everything is up to date.”

Many of today’s cloud-based payroll systems also can effortlessly and seamlessly integrate withother enterprise technology platforms, Diassi asserts. “In the past, IT had to house [the system],build connections between one app and another, and keep everything synchronized,” he says. “Wehandle that for the client now.”

Mobility is another positive technological trend changing the payroll landscape. “It certainly hasbecome more important insofar as scheduling and time-and-attendance, where you need flexibility toeasily update the data,” Busch says. “We also see mobility as important to employees from a self-service perspective, insofar as accessing their pay stubs and W-2 information, particularly at taxtime. Finally, we see a few people making direct deposits of their paychecks with their mobiledevices, which will grow in use. Really anything that reduces the need for paper, whether it’s payrollchecks or W-2 forms, is critical.”

Klamm from Paychex concurs. “We have users who are active with our mobile apps, checkingbalances and paystubs and things like that, or HR staff wanting to check and be sure that there isenough funding for payroll checks going out,” she says. The plan is to unveil additional mobile appsin the coming year, “responding to what are clients our looking for,” she adds.

“The trend is definitely toward BYOD—bring your own device,” Diassi chimes in. “This is whatemployees want, and the fact you can provide so much in the way of interactions through a mobilesmarphone packed with a variety of useful apps means you are effectively compelled to do so. Yousimply cannot not do this.”

He adds, “This is a trend with sturdy legs.”