More than just writing checks.

• Author: Mogollon, Carlos David
• Position: Payroll processing firms

Payroll-processing firms also keep tabs on rules and other hassles

How do businesses become profitable and stay ahead of their competition? Rarely by burning the midnight oil while trying to understand the latest federal guidelines on unemployment insurance, pension and FICA reporting on W-2 forms.

Perpetual change in government regulation and reporting rules for payroll processing have many small-to medium-sized employers struggling to keep track of new requirements. That's leaving them less time to focus on what they do best -- tool-and-die manufacturing, providing family medical care, running restaurants or whatever.

And with the Budget Reconciliation Act, national health-care reform and Vice President Al Gore's "Reinventing Government" initiative either passed by Congress this year or pending next year, businesses handling their own payroll could find themselves with a whole new set of requirements to learn.

Most payroll-processing companies doubt that reform will mean less red tape or fewer bureaucratic forms in triplicate.

"The mandates of the government are what cause a lot of the problem, and there are some in the offing right now that will just make it more difficult for the small-business man, and that's our focus. We focus on the business with 10 to 20 employees, basically," says Ken Dennis, a franchise owner and associate of Advantage Payroll Service in Evansville. He has about 600 clients and, being a CPA, also handles management accounting for some firms.

"In 1994, some of the forms are changing," Trent Dougherty, vice president of Information Dynamics in Indianapolis, says of government reporting requirements. "It really can become a nightmare for companies doing it themselves."

With changes such as the Family Leave Act, payroll-services companies are being asked by clients to play more of a human-resource-manager role, tracking interviews and hires and hours with an eye toward meeting antidiscrimination and other regulation requirements. They'll also help their clients improve their businesses by providing a productivity data resource.

"There are things now that we didn't have 10 years ago," Dougherty says, including more complex cafeteria plans and pension arrangements. "There certainly hasn't been any simplification." Among other things, Dougherty's firm has a program that checks 401(k) programs for illegal discrimination.

Computer advances, the emergence of "swipe" card readers and increasing popularity of direct bank...