Another one bites the dust.

A payroll company.

This seems to happen at least every 12 to 18 months.  And, the problem isn’t that these firms fail- it’s what they do to their clients when they do.

It’s firms like these that set the policies we’ve used for decades to prepare our clients’ payroll.

While we do prepare the paychecks, compute the taxes to be withheld, and help our clients file their forms, we NEVER take funds from our clients’ banks.

No, we prepare the paychecks that are then printed by our client- or electronically deposited into their employees’ bank accounts.  The taxes withheld are either transferred from their operating account to a completely different account (often in a different bank) still under THEIR control, to await the time payments are due or to be immediately transmitted to the federal and state authorities.  But, no funds are ever withdrawn to our accounts to pay the bills on their behalf.  That’s just not how we roll.

We prepare the 941’s (quarterly statement of taxes withheld), the 940’s (the annual unemployment forms), the monthly or quarterly forms the state requires, and the quarterly state unemployment forms. The client signs and mails them (unless the client has provided us with powers of attorney allowing us to sign the forms on their behalf.

What do these other payroll firms do?

NEPA Payroll Services, Accupay,  and MyPayrollHR (among many other payroll providers) withdraw the money for their clients’ payroll and taxes.  And, they “promise” to make those payments on their behalf.

But, like many firms that do their own payroll, they are not meticulous with those funds.  As an example, over the years several of our product design clients ran into short term financial binds- and decided they could “borrow” those escrow funds to cover their shortfalls.  (No- they never told us about this; we only found out later.)

Some of them managed to accumulate funds to cover their taxes when they are due (in a week, in a month, in a quarter).  But, way too many weren’t.

The problem is that the IRS considers the owners of the firm and those involved with the payroll processing to be criminally liable for those missing funds.  Because those funds are held in “trust” by the employer on behalf of the employees, and are due to be conveyed to the IRS on behalf of the staff.  And, if those funds aren’t paid, the IRS will demand payment from the owners and from those folks who have signature authority over the payroll services- and in full, with interest.  This is known as a “Trust Fund Recovery Assessment” (aka the 100% penalty), imposed against every “responsible person”- even if that person had no knowledge that the IRS was not being paid.  Oh- and the IRS is allowed to shut down the firm AND impose criminal penalties against the responsible parties.

(This is how some of our clients for whom we developed some wonderful new devices, drugs, and/or processes simply ceased to be.Which is why we decided to become trained and authorized to provide such services to our clients- so it wouldn’t happen to any more of them.)

NEPA was small potatoes- only about $ 5 million of trust funds was involved.  MyPayollHR, the firm that just folded, has absconded with at least $ 70 million of trust funds.  Another problem- MyPayrollHR never set those accounts up as payroll accounts with their banks.  So, when the banks froze the accounts (in bankruptcy), employees pay was never sent (neither were the taxes).  And, some of MyPayollHR’s clients may not know yet that their taxes weren’t paid.

And, here’s the real kicker- the problems that result, if you are the client, the employer that used these payroll services.  Even though you already had the funds taken by the firm- it’s YOUR problem now that they haven’t been paid.  Yes, you have to pay twice.

How’s that for a kick in the shins?