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Payroll Practitioner's MONTHLY - Volume 11, Number 6, June 1999 - If you think of the Internet as just an information resource, it's time to expect more. The Internet is having a profound impact on the way companies choose and use payroll service providers -and even if your payroll is done completely in house, this trend may make outsourcing more attractive than ever.
The Internet now allows even the smallest companies to do what big companies have done for years -cut costs and increase efficiency by paying their employees and filing their taxes electronically. Firms of any size can afford these high-tech advantages now that a growing number of payroll service providers are using the Internet as the basis of simpler, more affordable payroll processing packages.
This latest development is yet another cue for payroll practitioners at all levels to refocus on what they - and only they - can do for their company. Technology and the new payroll service products may take away many of your traditional processing responsibilities, or shorten the hours you spend on them. So now it's time to show your unique strength - keeping your company in compliance with payroll law and being the first to know about all new legal and technological developments.
How Internet Payroll Works
Virtual Payroll, Inc. was the first to offer what company president Rey Monzon calls "a completely checkless payroll system" to clients, thanks to three electronic services which only recently became a way of business life. "When EFTPS became mandatory for semi-weekly depositors, that was the cue for me," Monzon explains. "The Automated Clearing House (ACH) system already provided a tried-and-true method of direct deposit. The Internet completes the cycle, as an easy, safe, and inexpensive way to input information. Together these three factors allow us to process clients' entire payrolls electronically."
Just four years ago, says Monzon, his business plan was greeted with skepticism. "People thought the Internet was for 14year-olds - it wasn't considered a serious business tool," says explains. "And there was the feeling that payroll was too confidential to trust to the Internet." But since Virtual Payroll went fully live with its Internet-based services in March 1997, other, larger payroll service providers have begun offering an Internet option or have plans to do so. Monzon's company has also begun licensing its interface to other service bureaus, giving them a window to the Internet. "The big companies are jumping in," says Monzon, "and that validates the concept."
We asked Monzon to explain the benefits of having your payroll done via the Internet, how it works at Virtual Payroll, and what kinds of services and benefits every payroll service client should be looking for when evaluating a present or prospective service provider.
How It Works
Clients begin by setting up an account, sending company and employee information to Virtual Payroll via registered mail. This setup is only done once, so the only changes that occur from payroll to payroll, and that are entered and submitted on-line, are adding new hires, making employee file changes, and entering hours. Each function has its own entry screen. The client's data is automatically transmitted to Virtual Payroll's secure web server. A typical payroll input would look like this:
| Employee #1 - 40 hrs. | Employee #3 - Pay salary |
| Employee #2 - 20 hrs. | Employee #4 - No pay |
Virtual Payroll deposits paychecks into employees' individual bank accounts through the ACH system, while the client downloads and prints employee earnings statements and paystubs. For employees that aren't willing or able to be paid via direct deposit - and these are the exception to the rule among Monzon's clients -Virtual Payroll provides the client with the correct calculation for a manual check, which the client prepares and distributes. This saves the client the cost of delivering manual checks.
Clients get a standard set of five reports every pay period: payroll summary, payroll register, tax summary, bank reconciliation, and employee direct deposit statements (paystubs). Reports may be viewed on screen, printed, or imported as a text file into a word processor. The payroll summary report gives company totals including the total amount debited from the client's account to pay employees, payroll taxes and billing. The payroll register reports the individual employee earnings, taxes and deductions. The tax summary keeps track of federal and state liabilities. The client can enter these amounts into its accounting system as summaries or in detail.
Finally, Virtual Payroll files the client's federal 941 deposits via EFTPS, prepares and files all state and federal quarterly and annual payroll tax returns, and files employees' W-2s on magnetic media.
Internet Advantages
Using an Internet-based payroll service provider is faster, cheaper and more accurate than sending and receiving by phone, fax, client-server or courier pickup. "All of these methods have security problems, additional costs and inefficiencies that are virtually eliminated by utilizing the Internet," says Monzon. "Now there's no need for long distance charges, printing expenses, software installation and training, connecting to your LAN, unauthorized local access, eavesdropping, and unauthorized paper trails. With a service like Virtual Payroll, all of your data remains stored off-site electronically, password protected and easily retrievable."
Clients maximize savings-on the cost of ink, toner, check stock and paycheck couriers-if they can get all their employees to agree to direct deposit. What's more, "a checkless system is an environmentally safe way to do your payroll," says Monzon. "When you eliminate the many costs of ink, check stock, toner, office supplies, postage, etc., you also eliminate the toxic effects of many of those substances. And there's no longer the costs monetary and environmental - of payroll couriers driving automobiles hundreds of miles each day to deliver envelopes filled with paper."
What to Look For
Monzon says you should look for a service that will work with the resources you already have, and that won't hit you with unexpected charges or fees. Virtual Payroll clients can use any computer and modem, any web browser, and don't have to download or install any payroll software. There's no client/server connection to set up. The company charges no setup or conversion fees and requires no service contract. All services are provided for one all-inclusive service charge of $17.95 per payroll plus $1 per employee paid. (PPM contacted a leading website designer/developer who is developing more of these online payroll sites. Mario Ortiz stated that each of the developing companies he knows of will be charging similar rates.)
Monzon points out that some payroll services are charging clients a premium to do their payrolls over the Internet because it's so convenient. Actually, the Internet saves service bureaus the cost of trained operators to take the payrolls over the phone and fax, as well as the costs of delivering via next-day courier. If you already have a relationship with a traditional service bureau, be sure they'll pass their overhead savings on to you when negotiating the price of an Internet option.
Security issues: Monzon explains that Virtual Payroll designed its system so that no money ever changes hands over the Internet. The Internet is just a way to send and receive payroll input, not to make electronic payments of any kind. Employees and payroll taxes are paid using non-Internet-based methods.
Even if no money is changing hands, however, keeping your payroll data secure must be an Internet payroll service's highest priority You should ask whether all available security devices, including password protection, two-way encryption, automatic input confirmation and SSL (Secure Sockets Layer) servers, are utilized, and that new security technologies are added as they emerge. At Virtual Payroll, clients receive information over the Internet in the form of encrypted datafiles accessed on a SSL (Secure Sockets Layer) server by entering their Company ID and password. Only authorized users are allowed into the system.
To contact Virtual Payroll, e-mail to: reym@aol.com for more information.
Another key safeguard to look for is complete separation between the service bureau's web server and its payroll processing server. Virtual Payroll web server and its payroll processing server are not connected in any way. Files sent to the company's web server are accessible only by their system administrator. Only after authentication and input confirmation are the files processed. The client designates two of its employees who will be allowed access to the client's account. Virtual Payroll assigns the Company ID and password and sends these to the client by registered mail.
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