In the payroll processing business, we pride ourselves on being equipped to deal with thousands of changes each year. In fact, that is how we provide value to our customers. For those not in the payroll industry or operating a small business, the implications of congressional indecision on payroll tax cuts may not be obvious. Recent history would indicate it is far from obvious to the members of our House and Senate.
In mid-December 2010, Congress decided to reduce the Social Security rate for employees from 6.2% to 4.2% for checks dated in 2011. Payroll companies, payroll software companies and all businesses who process their own payroll had less than a week to make these changes, having a far greater impact on businesses large and small than we could have predicted.
But here is the biggest mystery to those of us who have to live under the laws Congress passes. Why a two month extension? It makes no sense. It looks as though they have no idea how payroll works or how information is collected or submitted; and they did not ask for input from anyone involved in the process. Employers reconcile Social Security every three months on Form 941, and employees reconcile every twelve months on Form W-2. Anyone processing payroll will either produce two W-2s for each employee (one for the first two months and another for the last ten months), or the Form W-2 will change dramatically to collect both periods on the same form. The Form 941 will also require changes, or the information cannot be reconciled. Since the IRS only knows how much you make over 12 months, how can they reconcile one percentage for two months and another for 10 months? Without major changes and more detailed reporting, it is impossible.
Consequently, the employer is faced with additional administrative costs, and the tax authority has an even larger administration cost. But what about the employees? They can certainly live knowing their income will remain unchanged or will increase. What tears them apart is trying to live with the unknown. In the end, if the tax cut is extended for only two months, their paychecks are a little bigger, but the extra gained will likely be used to pay someone to prepare their taxes because we have further complicated an already complicated process.
On behalf of employers who process their own payroll, those of us in the payroll industry and the employees who depend on us to get their paychecks to them correctly and on time, I am pleading with our leaders to lead. Do not delay the decision on the payroll tax to the deadline. Make the decision now. Give us the requirements, and we will get it done. If you wait until February 15th, no matter what the decision, everyone loses: the American business, the American worker, and most certainly the IRS. Since there is not a winner, how about we go ahead and punch this in the endzone now and make a decision?
Chad Richison is CEO of Paycom, one of America's largest payroll companies.