A step-by-step outline
By Bobbi Kaelin
Have you lost a client to a payroll service company? They swoop in and offer great prices and services and then perhaps offer to simplify everything by also handling the benefits….bam, all your hard work gone.
Payroll providers have access to a lot of client information, and a legitimate need for some information – but not all. How is it possible for you to keep the payroll service out of your clients’ benefits? Well, first, let’s see how they get into the business in the first place.
Payroll providers are service providers – and the more services they offer, the more revenue they can generate. They have access to a lot of information, and the information they have can be used to gain additional revenue on their end, sometimes by abusing their position and/or instilling fear in your client. This fear can erode the trust the client has with you and potentially can cause your relationship to suffer.
In your role as the benefits broker, you have a unique opportunity (and a responsibility) to provide your client with unbiased information and services. The more information you have, the more benefit you can be to your client. You are the benefit expert, and you should be looking at the payroll records, fees and documents. You should perform a Payroll & Benefit Audit (PBA) for your clients.
The amounts of money you save your client can be astounding! Not only in locating potential errors in payroll deductions or tax savings, but also in addressing inflated or unused payroll service features.
There are two audits that are performed:
Payroll Service & Fee Audit
Payroll Register & Benefit Audit
You will need the following items to provide the service:
Payroll Deduction Register
Payroll Invoice for current
SPD for medical, dental & vision benefits (including OE materials)*
Section 125 Documents**
Payroll register & benefit audit- a step-by-step outline
- Review the employee benefit deductions shown on the payroll register
—Verify the number of payrolls that benefits are deducted. If it’s 26 pay periods, are they deducting premiums over 26 paydays or 24? The calculation gets missed on occasion.
— Are the premiums being deducted consistent with the employer written policies? (look at the open enrollment materials that disclose what the employees will pay and compare it to the benefit invoice)
— Calculate the cost that should be deducted per the plan (i.e. does the employer pay 75% of the employee-only coverage? Does the employee pay the difference? Or is the employee’s premium share calculated on a flat dollar amount? Are the premiums being deducted properly for ee + 1, ee only, family, etc? Do they match and compare it with the deduction amounts on the payroll reports?)
— If this is confusing or difficult to calculate, consider having the employer direct the payroll company to separate premiums by the different benefits. For example, have the dental, vision and medical broken out separately on the reports. They can still show as a single deduction on employee payroll stubs.
— Are there employees on payroll that are not showing payroll deductions for benefits?
- Do you have a valid waiver on file for those individuals? If not, this is an opportunity to assist with compliance and remind the employer of the importance of the waiver, or perhaps enroll the individual on the spot
- Or perhaps they have already enrolled and the employer failed to take deductions
— Are the deduction amounts being withheld consistently amongst all employees?
— Are the premiums being deducted on a pre tax basis?
- Does the employer have the documents (POP) to allow for this? Review those documents*.
–Do the documents allow for automatic enrollment or do they require a signed form?
–– Do the documents include all applicable benefits? There may be plans that you’re not aware of, such as American Fidelity or AFLAC, and you’re the broker and should know about all benefit plans in place. There may be three separate 125 documents that no one knows about.
— Medical, dental, vision, etc should be pre-tax unless the employee has opted out, in writing, for the tax-free deduction.
–Premiums for disability insurance should be deducted on an after tax basis.
–If the employer allows for HSA contributions to be made through payroll the Section 125 document must indicate this.
–If the client has an FSA, also look to make sure the deductions match those of the TPA for this plan. I’ve seen participants be reimbursed a full year, yet never had deductions taken.
—If they have a parking or commuter benefit plan in place, make sure the employer understands that parking benefits that an employer pays for are no longer deductible business expenses – so it should be done via Section 132 as an employee payroll deduction/reimbursement.
- When reporting wages to Workers Compensation, make sure that the premium deductions are excluded first! Employers in California enjoy a savings in this area that may be missed.
–Consider having a dependent audit every year or so. Your client may have cousins, grandparents, or non eligible individuals on those employer-provided benefits. It is not difficult for smaller companies. When enrolling, employees should be submitting proof of marriage, children, etc.
Note: If the employer does not know where the SPD and Premium Only Plan Documents are, have them created. An SPD can run between $300-750, and a POP documents can run between $99-300. Those documents do not need to be created each year – nor should they expire at the end of a year. They only need to be revised or updated if there are changes or modifications. And if you’re creating new S 125 documents, you may as well put in HSA contributions, just in case that is missed if HSAs are being offered.
The bottom line is that you may see deductions that are incorrect, benefits you’re not aware of, duplications, or issues that should be adjusted. As the broker, you’re supposed to be aware of the benefits – but as a payroll service provider, I’ve also done general reviews/audits and discovered payroll fraud, such as having certain employee contributions for benefits be wrong, or free, and have even discovered a ‘ghost employee.’ By looking beyond the basics, we have helped our clients and built upon the trust we already had, and I think you can do the same as a broker!
Payroll Services & Fees
Payroll services, and the fees involved, are often hard to understand, and include fees that may be unnecessary, inflated and duplicated. One fee I see quite often is for ‘special reports.’ The report may not be special, and it should not be assessed each pay period as it’s simply an automatically generated report. I’ve also seen letters from the payroll company indicating that the client needs to have a valid document on file to pre-tax premiums. And the same service provider indicates they can do this for them. HA! – of course they can, for a fee. I’ve also been told that the payroll service provider has indicated that the deductions are not allowed to be taken on a pre-tax basis due to the service not having a POP document in their records. I say baloney! The payroll service does not need those documents – nor should those documents expire at the end of each year. The payroll service is just that – a service provider. They are not the benefit broker, nor are they the employer. But the letter creates confusion and fear, and that fear can cause the client to depend upon the payroll service company for compliance in the benefit arena. You’re the benefit expert and you should be reviewing the payroll and payroll service fees to make sure the payroll service provider is doing what is necessary. Follow these simple steps and take control over the benefits, the deductions and maybe even get some credits or refunds for your clients.
This is fun because you’ll oftentimes be able to provide your clients with immediate savings and increase your value.
Request a copy of the client payroll invoice. Confirm it is consistent each pay period, or request two or three pay periods.
Look at the payroll invoice and the line items
- Do you see fees for check signing? Direct Deposits? Special Reports? Your client shouldn’t be paying for those.
- Payroll posters? Should be free.
- Anything you see on that payroll invoice that isn’t clear should be questioned.
- If there are flat fees per employee, find out what those are for. Employers may be paying for HR or compliance tools that they never requested, or haven’t utilized.
- Fees for ACA compliance for a group of three employees? Oh come on.
- Accrual fees? Again, this should be included.
- Is the payroll provider also the WC insurance broker? Perhaps you have a relationship with a trusted property/casualty broker who should be consulted? Or if you are licensed this could be brought under your business.
Look at every fee. Understand and question everything. If nothing else, I have been able to tell clients that they can get the same services for less and I’ve put it in writing. The payroll service then (miraculously) waives that fee. Why not get your clients the best services possible and lower the costs?
Sometimes I see compliance fees, HR services, onboarding costs, and more – which are costs that the employer doesn’t need, never used, or are unaware of.
Here are standard fees that make sense from my perspective:
Processing Fee (a flat amount per pay period processed)
Per check fee ($0.75 – 2.50 per check written)
Tax Filing Fees ($10 – 20 per state, per payroll)
Garnishments, 3rd party checks, etc ($2-4 per check)
California New Hire Reporting Fee ($3-6 per)
COBRA Administration $1 pepm (yeah, maybe – but you should be aware of this)
Retirement Plan Fee (again, are you aware of this?)
Delivery Fee (only applies if the payroll has ‘live checks’ to be delivered)
If you have any payroll invoices you would like reviewed, you can send them to me and I’ll give you an honest assessment. I’m happy if the payroll service provider waives fees, as that allows business to reduce costs and perhaps increase benefits!
The payroll service should be reputable, accessible and have a live person the client can talk to. Beware of very low cost service providers, as the fees may appear to include everything – but the employer would then need to pay additional costs for W2s, tax payments and more. Or, perhaps the client is responsible for making the tax payments? Loss leaders are just that: a way to get in and hopefully get more. If the client doesn’t use more of the service bureau’s offerings, the service itself is going to decline because the revenue isn’t sufficient.
If they sell or offer insurance benefits, be wary and remain at the forefront of your client’s mind in all benefit areas.
Payroll service bureaus should be motivated by providing great services at competitive prices for their clients, and not be using the payroll service as a means to obtain the benefit business. I’m not saying it can’t be done, but in my many years (28!!) in this business I can vouch for the integrity of the broker when it comes to benefits – that is their specialty. As a payroll service provider, we make enough money to be in business, and would rather stay in our area of expertise to assist the client in a responsible way.
Bobbi Kaelin joined PayPro Administrators in 1991, and has worked internally in compliance, plan design and client (participant) services. She primarily works with brokers, agents and employers on tax-advantaged plan designs, COBRA and CDHP. PayPro Administrators provides payroll, pension, CDHP administration, compliance and reporting services, and more – all designed to support the broker/agent in the healthcare industry. She is a California Department of Insurance Education Provider, a frequent speaker at industry events, and is the Immediate Past President of the Los Angeles Association of Health Underwriters. She lives in downtown Los Angeles and is active in her community as well as EBPA and NAHU.