Page 119 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
not a value-added activity when the core task is simply to move data
from one database to another.
The best way to avoid retyping 401(k) payroll deductions is to link
the payroll system directly to a 401(k) plan.This is done by outsourcing

the payroll-processing function to a supplier that also offers a 401(k)
plan. A good example of this is Automated Data Processing (ADP),
which offers linkages to a number of well-known mutual funds
through its payroll system. When a company uses ADP’s payroll and
401k services, a payroll department can record a 401(k) payroll deduc-
tion for an employee just once; ADP will then take the deduction and
automatically move it into a 401(k) fund, with no additional book-

keeping required from the payroll staff. For those companies with many
employees, this can represent a significant reduction in the workload of
the payroll staff.
There are two problems with this best practice. One is that a com-
pany must first outsource its payroll function to a supplier that offers
401(k) administration services, which the company controller may not
be willing to do. The second problem is converting to the new 401(k)
plan.To do so, all employees in the old plan must be moved to the new
plan.The associated paperwork may be great enough that the transition

is not worthwhile; moreover, the 401(k) administrator may require a
separation fee if the company is terminating its services inside of a min-
imum time interval, which may involve a small penalty payment.These
issues should be considered before switching to a centralized payroll
and 401(k) processing system.

Cost:

Installation time:

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