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.
Keeping track of the comings and goings at a company with a 20% annual employer turnover rate can be a nightmare, experts say.
Payroll experts differ on the level of grief payroll system slot shortages still cause worksite benefits marketing teams.
Some large government systems suffer such serious shortages of slots that they have to use complicated bidding systems or rationing systems to manage access.
The Polk County Sheriffs Office devotes an entire subsection of its general orders to payroll deduction services.
“Payroll deduction is provided as a service and benefit to members,” the Sheriffs Office declares in General Order 17.2. “External organizations have no claim whatsoever on the deduction slot.”
Sub-section 17.2 notes that “payroll deduction slots are limited and costly to administer,” and goes on to reserve the slots for insurance programs, the employee credit union, and several agency-approved organizations.
Sidney Simon, product management director at BenefitAmerica, Mountain View, Calif., a company that links the computers of worksite benefits sellers with the computers of the employers, says the slot shortage is rapidly disappearing.
Some payroll systems Simon sees are so old they lack the ability to remember requests for ongoing payroll deductions.
Every system he encounters has its own billing codes and data formats.
But most large employers are now using modern systems that come equipped with hundreds or thousands of payroll slots, Simon says.
“We dont see that theres any limitations we have a problem with,” Simon says.
Many of the large companies that once had the oldest, most difficult systems replaced the systems while fixing their Year 2000 problems, according to David Bailey, assistant vice president of policy administration at UnumProvident Corp., Portland, Maine.
But many midsize employers “are lacking in the number of slots,” says Mike Kapnick, treasurer at Kapnick and Company Inc., Adrian, Mich. “The slots are all used up.”
Kapnicks company, MyBenefitSource, and a number of other bill-consolidation services find ways to bill two or more products through a single payroll slot.
But simply billing through a single slot without itemizing may be counterproductive for employers that want employees to use and appreciate their benefits, Cain says.
When employees pay many bills through a single, poorly explained slot, “the employees kind of forget what they bought,” Cain says.
MyBenefitSource overcomes that problem by itemizing all benefits purchased, Cain says.
MyBenefitSource also tries to reduce the burden of administering the slots by combining benefits brokerage services with a Web-based administration payroll system.
By combining brokerage services and payroll, MyBenefitSource gives a small or midsize employer the ability to change all of an employee’s benefits and human resources records by changing a single-online form, Cain says.
Neiciee Durrence, a colleague of Baileys at UnumProvident, says insurers can also help, by designing products with the characteristics of the payroll systems in mind.
One trick is simply to base the actuarial work for a product on a weekly billing cycle, so that the insurer can accommodate weekly, biweekly or monthly pay cycles without encountering serious rounding errors, Durrence says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 8, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.