Simplifying Payroll for Small Businesses

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1 Simplifying Payroll for Small Businesses Marcus von Kapff Business Banking and Cash Management Sales Executive

2 Processing Payroll Payroll workflow Deductions and forms Avoiding tax pitfalls Who does the work? This presentation was prepared exclusively to assist in evaluating, on a preliminary basis, certain products or services that may be provided by Chase. This presentation is for discussion and reference purposes only. Chase makes no representations as to the legal, regulatory, tax or accounting implications of the matters referred to in this presentation. 2

3 About Payroll Processing Payroll workflow Calculation and Documentation Outside Parties Disbursement Payment and Notifications Received Salary and wages Taxes Other deductions Payroll Calculation Accountant, Firm or Service Printing Checks Tax Payments Direct Deposit Federal State Local I-9 W-2 Tax returns Tax Forms & Notices Accountant, Firm or Service Employees and Contractors 3

4 About Payroll Processing Deductions and forms Statutory deductions Federal tax Social Security tax Medicare tax State and local tax Voluntary deductions Health insurance Life insurance 401(k) Retirement Tax forms I-9: Employment Eligibility Verification W-2: Wage and Tax Statement (distribute to employees) 1099: Miscellaneous Income (distribute to contractors) 940: Annual Federal Unemployment Tax Return 941: Quarterly Federal Unemployment Tax Return 944: Employer s Annual Federal Tax Return 4

5 Avoiding Tax Pitfalls Penalties and audits You can face serious penalties for inaccurate tax preparation or fraudulent returns. For fiscal year 2006: 17,971 audits of smaller businesses 197 cases of tax preparer fraud investigated Number of Audits IRS Small Business* Audits, ,000 17,858 17,871 18,000 16,000 14,332 14,655 14,000 13,608 12,000 10,000 8,000 7,294 6,000 4,000 2,000 0 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 *Businesses with revenue less than $10 million. Source: Internal Revenue Service ( 5

6 Who Does the Work? Varying levels of need Five or fewer employees More likely to do all or most tasks in-house Calculate and file their own taxes Pay employees by check Mail tax forms and notices 25 or fewer employees Likely to use external or more automated payroll services CPA or outside firm Direct deposit Some services through bank or payroll provider More than 25 employees Could be using a full-service provider 6

7 Trends in Payroll Checks and electronic payments Direct deposit Payroll cards Payroll outsourcing 7

8 Payment Methods Different ways to pay Depending on the size of your business (and other factors), various methods may make sense for you. Writing your own checks Direct deposit Payroll cards Outsourcing 8

9 Checks and Electronic Payments The electronification of payments Overall, the use of checks has been on a steady decline. Electronic payment methods such as ACH are on the rise, particularly for direct deposit of payroll. Corporate Check Deposit Volumes ACH Volumes Transactions (Billions) Transactions (Billions) Source: NACHA, Tower Group 9

10 Direct Deposit Why use direct deposit? Streamline processes, save time Manual process takes time and resources Use your online banking portal or ACH service to pay employees and transfer funds Reduce errors Manual processes increase the risk of human error Prevent fraud Handwritten checks increase exposure to fraud risks (e.g., theft of checks, and alteration of payee name or amount) Make employees happy Faster access to funds More accurate and timely information More than 80% of employees are being paid by direct deposit. Source: American Payroll Association, National Payroll Week 2006 Survey, Getting Paid in America 10

11 Direct Deposit Cost savings with direct deposit A company can save thousands of dollars per year by switching to direct deposit.* Paper Check Direct Deposit Cost Savings with Direct Deposit Processing $0.865 $0.513 $0.352 Staff time lost $2.064 $0.00 $2.063 Total cost per payment $2.928 $0.513 $2.415 Total cost per month $ $ $ Total cost per year $7, $1, $5, *Based on estimates for a company with 100 employees. Source: NACHA, 11

12 Payroll Cards How do payroll cards work? Payroll is deposited to an account held by the employer Employees use debit cards to access funds from ATMs or debit terminals as needed With Visa or MasterCard payroll cards, employees can make purchases at thousands of retail locations worldwide How long have they been around? Introduced in the mid-1990s Backing of Visa and MasterCard (announced in 2001) has helped providers make them a more attractive option for employers 12

13 Payroll Cards Why use payroll cards? Pay unbanked employees using direct deposit Employees without a bank account Those with an overseas bank account Workers who are too young for bank account (a teenager with a work permit) Pay transient or temporary staff Contractors Agency employees Other benefits Streamline processes Reduce errors Better audit trail Prevent check fraud Benefits for employees Immediate access to funds No check cashing fees Access to funds at ATMs and retail locations Safer than carrying checks or cash 13

14 Payroll Outsourcing Trends About 18% of payroll clerks work part-time (2004), and businesses are increasingly outsourcing the payroll function. 1 77% of U.S. workers say if their payroll were outsourced overseas, they would be unhappy or inconvenienced. 2 Why outsource? Save time and resources Eliminate time-consuming tasks Free up your staff Specialist to handle tough tasks Changes to employment laws and regulations Taxes Value-added services More detailed reports Customized reports Check printing and fulfillment Measures to help prevent check fraud 1Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Edition, Payroll and Timekeeping Clerks ( 2American Payroll Association, National Payroll Week 2006 Survey, Getting Paid in America 14

15 Helping You Simplify Payroll Identifying opportunities to streamline your payroll processes Choosing the right solution 15

16 Identifying Opportunities to Streamline Your Payroll Processes What are the costs of processing payroll? In research conducted for Chase Business Banking, Greenfield Consulting Group found that businesses were often unaware of their internal payroll costs.* Participants also didn t realize that a company with less than 50 employees could benefit from some form of payroll service. Some of the questions you should address: Where are the inefficiencies in your payroll processes? What can you do about them? How can you and your employees benefit? *Businesses that employ 1-50 employees, have been in business for at least one year and have annual revenue under $10 million. Participants were a mix of male and female, between the ages of 26 and 65, and all were financial decisionmakers for their respective businesses. Final report, December

17 Choosing the Right Solution Questions to help you assess your needs Time commitment Do you personally process your payroll? How much time does it take to complete? How is this impacting your responsibilities? Do you use online services? Software? Are any of these integrated with your accounting system? What are your reporting needs? Resources and costs Do you do your tax calculations in-house, or does an accountant? Would you prefer to manage your tax liability or leave that to another party? How much does payroll currently cost your business? About your business How many employees do you have? Are you looking to expand? Are employees all paid at the same frequency? Do you use independent contractors? How do you manage deductions such as 401(k)? Do you have to provide any paper checks? Do you have any unbanked employees? Any other employees who could benefit from a paycard program? 17

18 Thank You 18