1999 FTA Technology Conference Whose Customer Is It? Perspectives of the Payroll Service Industry Automatic Data Processing, Inc. ProBusiness, Inc.

1999 FTA Technology Conference Outline  Industry Overview  Industry issues affecting tax authorities  Industry standards project to improve accuracy and quality  Recent state projects  Changes to SSA formats for W-2 reporting  Recommendations

1999 FTA Technology Conference Payroll Service Industry  National Payroll Reporting Consortium  Top 12 represent over 700,000 employers  Over 1/3 of the private sector work force  Payroll tax payments & related reporting  Income Tax Withholding; W-2 reporting  Employment Security tax and wage reporting  Child Support withholding  New hire reporting

1999 FTA Technology Conference Payroll Service Industry: Pros and Cons  Efficient, highly automated  Largest source of electronic filing  Income tax withholding payments, W-2s  Employment Security Tax & Wage reports  New Hire Reporting  Significant edit controls  Far beyond what employers would do  E.g., formats of all state employer IDs

1999 FTA Technology Conference Payroll Service Industry: Pros and Cons  Prime industry issue:  Client indicative information  Significant source of certain errors... and staff irritation  Much can be done to improve results  Data validation programs minimize errors

1999 FTA Technology Conference Typical Problem Areas  Filings with no identification number  Employers in “Applied For” status (4 - 6%)  Misposting - incorrect ID or other element  Wide range of results:.03% to 8.0%  Filings for inactive accounts  “Zero” filings for live accounts that change processors with no notice

1999 FTA Technology Conference Reliability of Data: What Matters?  Elements required to post filings, payments  Employer identification number  Secondary ID numbers; e.g., EFT IDs  Entity name  Required deposit schedule  Required deposit method

1999 FTA Technology Conference Reliability of Client-supplied data  Most clients are NOT oriented to tax administration  Unsure of assigned withholding ID#  Registration for employer IDs  May occur at different times by different people - key information (e.g., name) may vary  Clients forget to tell us when an ID is assigned

1999 FTA Technology Conference Reliability of Client-supplied data  Reliability of Deposit Schedule Data  Often confused with payroll frequency  E.g., monthly, semiweekly etc  Most clients sign up in Fall (Oct-Dec)  Was the schedule provided this year’s or next?  May change annually or even midyear  Clients assume payroll services are notified

1999 FTA Technology Conference How to improve results  Implement feedback mechanisms  Prevalidate client data  So the first filing is error-free  Notify us of any errors  To avoid subsequent errors

1999 FTA Technology Conference How to improve results  Implement validation programs  Posting elements  Elements that vary by employer EIN, name  Elements that change periodically Required filing schedule or method  Provide the employer ID if missing  Reduce “Applied For” filings by 50%

1999 FTA Technology Conference Industry Standards Adopted  Notice of Power of Attorney  Links employers to service providers  Identifies subject matter, action requested  Functions as validation program  Basis for electronic commerce with agents  EDI T/S 157 and fixed file format

1999 FTA Technology Conference Industry Standard - Notice of POA  Client list reporting  SOP in many states  Manual, paper based... misses opportunity  Save postage and printing by suppressing unneeded tax forms  Turning point:  Link employers to service providers  Enables electronic commerce with agents

1999 FTA Technology Conference Industry Standards Notice of POA  Critical Link - Why & How  Most service providers handle related correspondence...but don’t get it directly  Establish agent ID on taxpayer database  Points to an agent database  ID, Name, address, & contact data  Electronic copies of correspondence to agents for fast resolution

1999 FTA Technology Conference Industry Standards Adopted  Standard process applies to many industries  Payroll & Tax Filing Services  U.C. Claims Administrators  Employee Leasing Industry  See separate handout for explanation & proposed layout

1999 FTA Technology Conference EDI Issues - Minnesota Model  Key lessons learned  2 or 3 options needed  e.g., EDI, Web-based & file transfer  Lead time for implementation  Acknowledgments a plus  Address indicative data issues  Prevalidation, ID assignments etc

1999 FTA Technology Conference EDI Issues - Minnesota Model  Some problems remain  Mainframe to PC is problematic  ASCII to EBCDIC & vice versa  Conversion of mainframe files; e.g., {cr}  File sizes/capacity  13 files needed; 13 phone calls  13 “ACK” files - coordinate to produce 1  Can’t automate script due to delay

1999 FTA Technology Conference Minnesota Model  Some problems remain  Delay in update of deposit data  Final deposits need 7-10 days to post  Returns show as money due  Internet based model implemented  Lead time a problem

1999 FTA Technology Conference Other Illustrations  Washington Employment Security  Major format change - “de-standardized”  Convert all magnetic tapes to FTP  Security, platform, testing all issues  New Jersey Combined U.I./Revenue Filings  Lead time a problem  Changes to employer account numbers

1999 FTA Technology Conference New Magnetic Media Formats for W-2 Reporting will impact TY1999  Many states accept SSA “TIB-4” Format  Format changed announced for 1999  State (“S” record) date fields expanded  Changes entire “S” record layout  MMREF - new SSA format  Major changes to all records  Transition Years

1999 FTA Technology Conference Recommendations & Incentives  Improve the current process  Electronic copies of notices  Proof of filing  Prevalidation  Delay payment and/or reporting due dates  Revenue neutral  Use Standards; i.e., ANSI X12/TIGERS

1999 FTA Technology Conference Recommendations  Improve information dissemination  Websites are VERY helpful  Announcements of changes  Consider how changes may impact your most highly automated clients  Let us know of major changes early  NPRC can help assess impact, plan and communicate

1999 FTA Technology Conference Perspectives on Electronic Filing National Payroll Reporting Consortium Automatic Data Processing, Inc Peter Isberg (973) ProBusiness, Inc Andrew McDevitt (925)