Brokers who wanted to sell voluntary, employee-paid insurance at the worksite once had to wrestle with competitors for billing “slots” in an employers payroll system.
Today, improvements in payroll systems are ending the slot shortage, but payroll “is still a huge headache,” says Edward Cain Jr., chief executive at MyBenefitSource Inc., Norcross, Ga. “And most of the administrative burden falls back on the employer.”
“Id say its not really working smoothly for employers,” agrees Sean Gilday, a senior consultant at Insource Ltd., Toronto, a General Electric Company unit that helps insurers, benefits brokers and employers with worksite enrollment.
Bea Herig, finance administrator for the Sheriffs Office in Polk County, Florida, has no serious complaints about the limited number of slots available through the Sheriffs Office payroll system.
But she says the limit means the department can offer a voluntary benefits program only if at least 100 of the 1,400 employees sign up.
When existing carriers have trouble keeping 100 participants enrolled, “we may drop them,” Herig warns.
Insurers trying to sell voluntary life insurance, voluntary dental coverage and other worksite benefits think of payroll systems as vehicles for financing benefits purchases, but employers think of the systems as tools for keeping employees on the job and maintaining good relations with tax collectors.
U.S. payroll systems collect about $1.2 trillion a year in taxes for the federal government, or 70% of U.S. Treasury revenue, according to the American Payroll Association, San Antonio.
One-sixth of employers hire big, national payroll services companies to handle their payroll chores and payroll-related tax and legal responsibilities. The leaders are Automatic Data Processing Inc., Roseland, N.J.; Ceridian Corp., Minneapolis; and PayChex Inc., Rochester, N.Y.
Other employers use custom-made payroll systems, off-the-shelf bookkeeping or payroll software; Web-based payroll systems; spreadsheets; pocket calculators and word processing programs; elderly clerks banging on typewriters; and, in a great many companies, one harried owner equipped with a ballpoint pen and a checkbook.
Even when two employers use the same payroll service or the same system, “youve got different industry nuances,” Cain says. “Youve got different accounting nuances.”
Meanwhile, even though the new payroll systems have more billing slots, the number of products sold through payroll deduction payment programs is increasing rapidly, Gilday says.
Total administrative costs for the typical payroll system, including legal fees and administration of payroll taxes, probably vary between $1 and $5 per paycheck, experts estimate.
That adds up to about $1 billion to $10 billion a year for all U.S. workers.
Employers are ambivalent about payroll.
“Nobody wants to mess up on payroll,” Kapnick says. At his own company, the payroll manager “is always really nervous about changing anything.”
Small businesses that have problems with payroll can enrage employees and face hundreds of dollars in Internal Revenue Service fines.
But employers looking for employees to cut often cut the payroll clerks first, Kapnick says.
Meanwhile, at companies that handle part or all of their own payroll, the payroll personnel are the people ultimately responsible for administering the payroll deduction programs.
Payroll personnel keep track of workers who join plans, leave plans or change benefits levels.
Even if an employer sets up a Web-based system that workers can use to manage their own benefits enrollment, payroll personnel still have to supervise the enrollment process and handle complaints.