1. 1999 FTA Technology Conference Whose Customer Is It? Perspectives of the Payroll Service Industry Automatic Data Processing, Inc. ProBusiness, Inc.

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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%

12. 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

13. 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

14. 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, email & contact data  Electronic copies of correspondence to agents for fast resolution

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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 - 2001

21. 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

22. 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

23. 1999 FTA Technology Conference Perspectives on Electronic Filing National Payroll Reporting Consortium Automatic Data Processing, Inc Peter Isberg (973) 974-5779 Pete_Isberg@ES.ADP.COM ProBusiness, Inc Andrew McDevitt (925) 737-3196 amcdevitt@probusiness.com