Tax Relief Act leaves payroll administrators scrambling

December 23, 2010
| By Pete Daly |
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Luanne Brown and Jim Bolek were on the edge of their seats as the Tax Relief Act — known officially as the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010 — gradually evolved from all the political controversy in the halls of Congress and was signed into law by President Obama Dec. 17.

Brown and Bolek may still be on the edge of their seats today, but not because they are liberals or conservatives or some sort of political activists. It’s because they are payroll people.

Bolek, a vice president at Basic Payroll Plus in Wyoming, said that now that it is known where changes will be on paychecks in 2011, the payroll software companies must update their product and get it back to their customers at payroll departments and third-party payroll service companies ASAP.

According to the American Payroll Association, the Tax Relief Act of 2010 will result in new tax rates, last minute withholding tables, a reduction in the employee social security tax rate, extensions of certain fringe benefits and more. The APA offers a 60-minute webinar for payroll processors that details the changes and offers advice on how the HR departments must clearly communicate the payroll changes to all employees.

The IRS, according to the California Society of Enrolled Agents, a nonprofit organization of tax professionals, requires employers to start implementing the changes contained in the Tax Relief Act as soon as possible in 2011, but no later than Jan. 31.

Bolek said when the tax legislation was signed Dec. 17 that it was likely the changes won’t be reflected on some of the first paychecks issued in January, because the payroll companies and payroll departments will have to program the tax changes after the software has been updated at the source.

The social security tax deduction change is “completely out of the box. That’s never been done before,” said Bolek, and will require “a whole new level of programming, just figuring out how they are going to do it.”

When asked if that week in December had her on the edge of her seat, Brown said it was more like “the last few months.”

Brown is the payroll manager for GVSU, and also the president of the West Michigan chapter of the American Payroll Association, which has about 60 or 70 active members. She said that payroll is a process in which those responsible “have to rely on so many people before we get the information into the system.”

“Every year we wait for the new tax tables to come out, and every year there is some kind of change,” she said.

“This one had us on the edge of our seat because nothing was resolved until this late date. Usually, the new tax tables are already out by now,” she said.

While the 2010 tax bill was still going through the painful political process, Brown said she was on the Internet “every day … looking and reading, looking for updates, seeing where the bill was.”

“We’re kind of the tax geeks,” she said, jokingly. “We get excited, monitoring it, chatting about it” with peers.

Typical changes payroll professionals watch for each year are changes in the tax brackets, but this year was different.

“The piece of legislation that caught us by surprise was the 2 percent decrease in the social security rate for the employee. We were unaware that was something that was going to come down, and that just happened in the last two weeks. That sort of caught us off guard,” Brown said on Dec. 17.

Two years ago, the Stimulus Act, also known as the American Recovery and Reinvestment Act, also had an impact on paychecks when it amended tax tables so that everyone would end up paying $600 less, over the course of the year, than the withholding rates in place the year before.

Brown said another change was initiated in spring 2010 with passage of the Obama administration’s health care bill.

“It’s going to be a big impact on payroll and our reporting,” she said. “Over the next three or four years, we’ll have lots of changes, things to be reported on W2s.”

“In 2012, we will have to start tracking how much the value is for your health care,” said Brown, explaining that it will be reported on W2s, but at this point, only for information purposes.

“But we’ll have to be doing modifications to our payroll system to be able to track that. It’s those little behind-the-scene things that we have to pay attention to in payroll,” said Brown.

The GVSU faculty and staff payroll covers 2,800 individuals, plus there is a student payroll of about 2,500.

GVSU does its payroll processing in-house, using SunGard business software for higher education. It is a comprehensive platform used at colleges and universities in 40 countries and handles data ranging from applications by prospective students through the student grading system, and even HR functions such as payroll.

Most companies have at least one payroll person, even if most of the process itself is outsourced to a third-party administrator. “Usually, we’re tucked in the back corner though,” joked Brown.

Payroll people know the work they do is important, although most people who aren’t working in payroll probably don’t even know that there is a National Payroll Week.

“It’s usually the week of Labor Day, when everybody’s on vacation,” said Brown.

Brown said the largest payrolls in the Grand Rapids region would have to include Spectrum Health and Meijer Inc.

Basic Payroll Plus is a division of Basic Human Resources, which is based in Portage and was founded in 1989. With a staff of more than 80, Basic Human Resources is now one of the major third-party administrators of its type, serving more than 9,000 businesses and nonprofit organizations in 45 states.

Basic Human Resources offers administrative services in flex spending accounts, health reimbursement arrangements, COBRA and retiree billing, health savings accounts and, of course, payroll.

Bolek said Basic Payroll Plus is “like an ADP but on a very small level.”

Automatic Data Processing is based in New Jersey and is one of the world’s largest providers of outsourced data processing for business. A publicly held company, it had nearly $9 billion in revenue last year and about 550,000 clients.

Bolek said there is a large market for payroll services in the Grand Rapids area.

“I don’t know how your payroll is done, but I bet you it’s outsourced,” he said.

The Basic Payroll Plus website notes that when an employer outsources processes such as payroll to a third-party administrator, the liability for remaining in compliance with federal law “always remains with the employer” — not the third-party administrator, making the point: Be sure you can trust your third-party administrator.

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