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What is Payrolling, Anyway?

Posted on February 17th, 2015 Read time: 4 minutes

The following is a guest post from IES’s President, Peter Limone:

We all experience the question, “what does your company do?”  Most of us have an answer for this, but know that the answer we’re giving is not the full story.  Go ahead, explain your company in the next 20 seconds!  Of course there are companies out there where the product they produce is easier to explain – this is especially true when your company is focused and concentrates on just one or two products.

If you’re like me and your company provides an unusual or rarely understood product or service (in my case, payrolling and HR administration), depending on the situation you have a different answer. For example, to my 74 year old mother I might say “we process payroll.”.Meanwhile, in a networking situation where I feel the need to be more descriptive, I might say “We serve as the employer of record for our client’s contingent workforce.” The latter explanation sounds fancier, but I’m never quite sure if it really means anything to the listener.

Let me break down the elements of payrolling; the payrolling company serves as the employer of record.  For the most part that means that employee and employer liabilities attach to the payrolling company, not the client.  The payrolling company is responsible for collecting and remitting payroll taxes and for paying all the employer taxes such as FICA, FUTA, SUTA, Workers’ Compensation and any local payroll taxes. As the employer of record, the payrolling company also provides benefits to its employees such as Health Insurance, Dental Insurance, 401K plans, Flexible Spending Accounts and other benefits. The payrolling company also provides general liability insurances. Payrolling is for the contingent workforce, which means you payroll temporary employees, seasonal employees, and project-based employees, but generally not your permanent workforce.

As I wrote the above paragraph, a little voice inside me kept reminding me of another complicating issue involved in payrolling: that each state has different employment rules and those rules keep changing. That is very true, and the payrolling company needs to have a solid process for keeping up with those rules, whether they deal with co-employment, sick time pay, overtime rules, etc.

So when would it even make sense to use a payrolling provider? Below are a few examples:

  • You’re opening a branch in a state where you’re not licensed to do business. Using an employer of record, you can hire and payroll the individuals working in this new area indefinitely, or just for a few months until you establish yourself in that state. Benefit: you do not have to wait for all the accounts and permits required to do business in that state.
  • You have a six month project where you need to hire several employees to complete it, who will roll off as soon as the project is over. Benefit: your company does not suffer an increase in SUTA costs due to laying off the individuals at the end of the project.
  • You’re a recruiter or a staffing company and you do not want to process and fund payroll for contingent hires. Benefit: eliminate the headaches of processing and funding payroll.
  • You’re an entrepreneur who needs to hire additional staff, but you don’t have the time or expertise to deal with hiring and payroll. Benefit: ready- made payroll and benefits services so you can focus on growing your business.

Payrolling companies typically do not recruit and place workers, this is done by the client or by an independent recruiting or staffing company, which has the added advantage of letting you hire exactly who you like but still outsourcing the administrative functions of hiring and employment.

I could go on forever in networking situations explaining what payrolling companies do. Many times I’m asked whether we recruit or provide staffing services; the answer is no, and sometimes I even use our tagline to address this: “you find the talent, we do the rest.” On occasion the question comes up “are you a PEO (Professional Employer Organization)?” Again, the answer is no. In general, PEOs hire permanent employees for the client, whereas payrolling companies hire temporary or contingent employees.

There are many benefits to using payrolling companies, however it’s not for everyone and it may not fit your situation.  If payrolling is the right solution for you, finding the right provider can lead to a productive, beneficial partnership that will last a very long time, adding value to your business while saving you time and costs.


About Peter

Peter joined IES in 2011 as the company’s Corporate Controller. In 2012 he was promoted to CFO, and in 2013 was also named President. Previously, he worked as Vice President and Controller for 3E Company, a subsidiary of Verisk Analytics, Inc, where he was responsible for the integration of the company’s accounting, treasury, reporting, tax, and financial systems. Prior to that, he was the Division Vice President of Finance and Information Systems at Follett Software Company. Peter’s extensive finance experience also includes serving in various roles and capacities for the Safety-Kleen Corporation, Laboratory Corporation of America, and Quest Diagnostics.

As President and CFO, Peter is responsible for strategic and departmental leadership of the company, with special emphasis on IES’s accounting and finance departments. In addition, he serves as Treasurer for IES and administrator of the company’s 401k plan, and supervises the corporate budget process, from forecasts through compilation to implementation and monitoring.

A licensed CPA, Peter received his Masters in Finance and Accounting from the University of Maryland, and his Bachelor of Science in Accounting from Elmhurst College. Currently he also serves as Director on the board of Temporary Services Insurance, LTD (TSIL).

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