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The Joy Of Out-Sourcing

The Pensacola News Journal has a local story about one of the “minor” problems with out-sourcing business functions: Sheriff, state investigate payroll company AES

The Escambia County Sheriff’s Office and State Attorney’s Office have launched an investigation into a local payroll company and its owner.

The Pensacola News Journal reported on Jan. 13 that some payroll checks from AES, which provides payroll services for businesses, could not be cashed due to insufficient funds.

If you think these guys possibly absconding with the payroll is “the” problem, you haven’t been in business. “The” problem is that they probably haven’t been making your withholding payments to the Feds, or payments to the state or local governments. Believe me, angry employees is a minor problem to the hell your life becomes when the IRS takes “an interest” in your business for failure to pay withholding.

Payroll is a major PITA for a business, and I know it would be wonderful to just pay someone else to do it – write one check and forget about it – but if they mess up, you are still liable.

4 comments

1 Badtux { 01.21.11 at 10:14 am }

Unfortunately, compliance for a business that has more than a couple of employees is such a pain in the butt that it’s almost impossible to keep payroll insourced these days unless you’re a giant mega-corporation. My current employer has only a few dozen employees but the tax implications of dealing with the various benefits packages offered is well beyond what their single bookkeeper/business manager can keep up with, the rules change more often than the wind direction around here. So despite the fact that my employer would love to be able to afford to have a full-time HR department complete with tax attorney on staff, they outsource all this to ADP.

My guess is that the local Sheriff’s Department has a similar problem. They would need a full-time tax attorney on staff to deal with all the interactions between benefits packages and the IRS, for example, what is this year’s limit for the amount of life insurance that must be listed as a taxable benefit (and have tax withheld from the paycheck to send to the IRS as tax)? How many of their deputies have life insurance provided by the Sheriff’s Department that’s above that limit? So outsourcing to someone makes sense. But outsourcing to the lowest bid or to a campaign contributor, on the other hand… well. You need to investigate the company *before* you issue the contract for them to handle your payroll, not *after*. Just sayin’ ;).

– Badtux the Well-taxed Penguin

2 Bryan { 01.21.11 at 9:56 pm }

My first civilian computer job was in payroll, and I have written a number of payroll programs on various platforms in multiple languages. There are a lot of good payroll packages out there that really can handle the job for a small business, especially in Florida where benefits are almost non-existent.

California is a bigger challenge, but you can do it with the assistance of the software.

Oh, the Sheriff is investigating the bad checks, and the state is interested in missing taxes. It will probably end up as a fraud investigation, and the Feds will show up later to take over after all the work is done.

AES wasn’t doing anything special. They just bought the software for Florida, and had a few community college graduates to input the data. The only problem with the software is that you need the subscription to keep it updated.

3 Badtux { 01.22.11 at 11:14 am }

Given all of the major California companies that have gotten in trouble with the IRS over taxes (most recently over options), I’m dubious. We have some really special circumstances out here in California! And the thing I’ll point out is that even though my company is small, we still have all those same issues — how to account for stock options, what part of compensation is taxable and what is not, and so forth. Ah, the high tech industry :).

My first job after teaching was with a small consulting firm that had 6 employees, and they used a similar package to the one you describe. They also ended up having to spend major money for a tax attorney after the IRS came in and did an audit after receiving a complaint that one employee was inappropriately listed as a contractor rather than as a full-time employee. (Said employee was a summer intern who was upset that he didn’t get offered a full-time job and called the IRS tax cheat reporting hotline). But I will defer to your superior knowledge of Florida here, and just note that any small business that turns over their money to somebody else better darn well know who they’re turning it over to and how reputable that “someone else” is… which, alas, is why giant companies like ADP dominate the payroll business, sigh!

– Badtux the Taxed Penguin

4 Bryan { 01.22.11 at 4:20 pm }

I was in business in California for a decade before moving back here, and I think part of my attitude is the fact that I go back to the days when almost all programming jobs were business related. You had to take accounting courses to get a degree in “Data Processing” and IT was part of the accounting department.

Having written a lot of payroll programs I’m used to reading and understanding “IRS”, which makes a big difference. I also knew the constituent services people in the local Congresscritters offices, so I could get a straight answer if I didn’t understand something.

The “contractor” thing is a crap shoot if the person listed doesn’t have a separate business license. In general, you are better off using a temp agency if there is a doubt, because they always accept business-to-business as a contractor.

I don’t think its difficult, because I never had problems, but I was familiar with the environment. A lot of tech companies don’t really have a lot of business experience on staff, and that makes a huge difference when dealing with the government.