ACH Payroll Processing & Fedwire Blog

ACH Payroll Processing & Fedwire Blog

Payroll Solutions for Sticky Situations

Friday, August 30, 2019
Payroll Solutions for Sticky Situations

“Mr. Blue Sky please tell us why
You had to hide away for so long (so long)
Where did we go wrong?”

- Lyrics from Mr. Blue Sky by Electric Light Orchestra

In many ways, there has never been a better time to be in the payroll business.

A healthy economy for the last decade, steady industry growth and an increasing number of companies that would rather subcontract the job than divert time and energy from their core business have created promising opportunities for payroll entrepreneurs.

One of our payroll provider clients was well-positioned to take advantage of both. In October of last year, the owner and his partners were heading up a payroll service bureau with more than two decades of success helping small to mid-sized companies manage payroll, time and attendance, benefits and variety of other HR functions.

Business was good and the owner – whose name we can’t mention so he could share his story – was mulling ambitious expansion plans.

Then he got the call that very nearly destroyed everything: an IRS agent was on the phone with one of his clients, who had just been informed of an $8,000 tax shortfall.

It was an odd amount, with an unfortunate and easily-followed trail: Someone inside our client’s company had been dipping into a client payroll and tax fund account over nearly five years. Over the course of 15 quarters, more than $2 million had been siphoned out of the account.

A lot of people get into the payroll business thinking it can’t happen to them. “They’re sold a blue-sky picture.”

Our payroll provider client was devastated. “We’re talking about millions of dollars,” he says. “Who has the ability to accommodate that? I really felt hopeless.”

Without any way of paying the money back, our client was deeply worried. A bank loan was not an option. “Explain that to a bank?” he says. “They’d “laugh us out the door.”

A Lifeline for a Payroll Client Who Needed More than a Cookie Cutter Solution

As a Cachet client for more than 15 years, our client remembered reading an email about a “secret menu” of offerings aimed at the payroll industry. The email included something about matchmaking.

Cachet might be able to help find a buyer for the business, he thought. It was going to be a fire sale and he’d have to take whatever he could get, but what choice did he have?

Then our client clicked through the link for details and saw what looked like another option – in fact, it looked like a lifeline.

The website wasn’t explicit, but it occurred to him that maybe he wasn’t the only payroll provider who had ever faced a catastrophic shortfall under these circumstances. He picked up the phone and dialed.

“I was in a pretty bad place,” our client recalled. “Cachet came to our rescue.” In addition to quickly helping him balance his accounts and communicate with clients, Cachet’s Director of Sales David Taub left him convinced he was not alone.

Taub explained shortfalls are a chronic problem in the payroll industry, both as the result of processes that don’t keep accounts properly reconciled and employees who find the hundreds of thousands – or even millions – of dollars that accumulate in an impound account too much of a temptation.

It’s an unhappy fact. “This is going on in the industry right now, at a magnitude that reaches hundreds of millions of dollars,” Taub said.

“Did you see the frightened ones?
Did you hear the falling bombs?
Did you ever wonder why we had to run for shelter when the
Promise of a brave new world unfurled beneath a clear blue sky?”

- Lyrics from Goodbye Blue Sky by Pink Floyd

From Planning the Fire Sale to Planning for Growth

The money that was taken from our payroll client’s firm was from an account held for a handful of large clients who didn’t want payroll checks and taxes drawn on their own accounts. Today, 100% of his clients have their payroll run through Cachet’s services, which provides full-service ACH direct deposit payroll, with daily reconciliation down to the client level.

That is a huge source of comfort for our client. With Cachet,“if it’s off by even a penny, they won’t let it go through until they find that penny,” he says.

And he’s once again looking to grow his business, with the confidence that comes from having the right partner.

A lot of people get into the payroll business thinking it can’t happen to them. “They’re sold a blue-sky picture … that the software will handle all of the collections and payments,” our client says.

Now? He knows better.

Little Errors Can Also Lead to Big Problems

Some companies find themselves in trouble because of things a lot less dramatic than embezzlement. Little mistakes that go uncorrected can turn into big problems down the road and, by the time those mistakes are discovered, the gap can be more than a business owner can cover.

It’s a tough spot. And if it’s a tax shortfall, it’s potentially a criminal liability.

Case in point: another payroll business owner told us he was facing a considerable shortfall after discovering a series of accounting errors that had gone uncorrected for a decade. His plans to retire in comfort were running up against a terrible math problem, since most of the profits from the sale of his business would have to go toward making up the shortfall. No matter how he added it all up, he was going to have to scale back his retirement plans considerably.

Luckily for him, he also discovered Cachet’s menu of out-of-the-box business services, which could help to get his business back in ship-shape, allowing him to get back to retirement planning.

Shortfalls and out-of-balance accounts are far more common than most providers realize, and it’s not always due to malfeasance. Mistakes just… happen. Here are just a few that we regularly see:

  • A client has an NSF and leaves the payroll provider unable to cover the direct deposit
  • Accidental overpayment of a 401K contribution or taxes
  • Typos that lead to overpayment of hourly rates, e.g. $1,000/hour instead of $100/hour

Sometimes there is a temptation to cover these types of shortfalls with funds from the tax impound account on a temporary basis, but it’s a dangerous practice.

Don’t try to go it alone like Drax

But budget shortfalls aren’t the only problems payroll providers can encounter. A provider who dots every “i” and crosses every “t” can still be stymied when it comes time to expand – or sell – their business.

Finding an Exit Strategy (or Growth Plan) that Works for You and Your Clients

Finding the right exit strategy can be tricky, especially when you’ve spent an entire career providing high-quality customer service to a collection of clients who may have left one of the big-box providers for exactly that reason. Selling out to one of those same big providers could leave your clients right back where they started.

Growth mode brings questions, too. Growing a business organically takes time. If you’re lucky, your business will grow 10% by itself each year. If you want to grow your business by more, it might be time to consider an acquisition.

How do you get the best price for your business without pulling the rug out from under your clients or your employees? And how do you know if the business you’re looking to acquire is the right fit?

This is an area where Cachet’s experience pays off. How?

As the expression goes, sometimes it’s not what you know, but who you know.

Three Words: We Know People

Make no mistake: Payroll is a tough industry but it’s also one in which many mistakes can be avoided if you know where to look for help.

As for us, we can provide introductions to a wide variety of industry vendors and professionals, including the experts at our sister companies under the FBG Holdings family: Payroll Tax Management, Time Rack and SBS Payroll.

What it comes down to is ... well, maybe they say it best in Chicago: “We’ve got a guy.” In addition to finding the right company to buy – or the ideal purchaser -- we can introduce you to experts who provide the following:

  • A W2 guy/ gal
  • A Human Resources gal/ guy
  • A training guy/ gal
  • A marketing gal/ guy

“Hey you with the pretty face
Welcome to the human race
A celebration, Mr. Blue Sky's up there waitin'
And today is the day we've waited for”

- Mr. Blue Sky, Electric Light Orchestra

A Little Something Extra…

Running a payroll business isn’t a cookie cutter enterprise. It’s hard, it’s risky and it can be full of unknown situations and pitfalls. That’s why you need a partner who offers more than cookie cutter services.

Cachet clients have access to secure, reliable and cost-effective ACH payroll processing that lets them sleep at night. But that’s not all. We’re in the business of providing solutions and removing obstacles for our clients, not just providing products. That’s the idea behind our secret menu (shhhhh).

If you’ve got a payroll challenge that is keep you up at night or holding back your business, call us on our secret menu hotline: (626) 365-0555. No matter what you’re facing, there’s a pretty good chance we’ve seen it before. We’re like the Farmer’s Insurance of payroll: “We know a thing or two, because we’ve seen a thing or two.”

Remember our client from the start of this blog?

Without Cachet, he would be out of business and probably with little to show for it. “I would have had to have done something drastic … and if you walk into a (sale) situation like that … you wouldn’t have gotten the full value,” he says.

Instead? “Now we’re in a growth pattern,” our client says. Cachet gave them the confidence he needed to move forward. “I would never have thought of looking to Cachet to help me solve this problem. Now I’m looking for companies to acquire.”

To learn more about what having the right payroll partner can do for your business, give us a call or click on the link below.

Contact us today to learn more about our secret menu of services

Related Content:

Don’t be like Matthew Perry: make sure who you know is in the know

Our Partners