System for web-based payroll and benefits administration

Details System for web-based payroll and benefits administration System for web-based payroll and benefits administration

1999-10-01

2002-06-04

Millin, Vincent (Department: 2164)

Data processing: financial, business practice, management, or co

Automated electrical financial or business practice or...

Accounting

Reexamination Certificate

active

06401079

ABSTRACT:

FIELD OF THE INVENTION
This invention relates generally to the field of electronic payroll and benefit systems, and in particular to various aspects of online systems designed to facilitate online payroll and benefits administration.
BACKGROUND
The processing of a company's payroll involves many steps that are susceptible to automation. Although the advent of PC-based standalone payroll systems facilitated the widespread automation of certain of these steps for small as well as large businesses, there remains a significant “manual break” in the process—between functionality relating to the calculation of employee/contractor paychecks (including income derived from raw timesheet and salary data, as well as taxes and pre-tax and post-tax deductions) and functionality relating to the calculation and disbursement of employer tax liabilities (to federal, state and local tax authorities), as well as compliance with various associated reporting requirements and distribution of paychecks.
The latter functions typically are performed manually within a company or delegated to an outside payroll service. The convenience of a payroll service cannot be overestimated. Keeping track of the legal payment and reporting requirements across federal, state and local tax authorities, and complying with the many employment-related laws, is a complex task for which most companies are ill-suited. The process is not only difficult and time consuming, but often results in errors, which ultimately may cause the company to incur significant liability in the form of back payments and penalties, as well as substantial expenditures of time and money to determine the cause of and resolve such errors.
Moreover, it is inefficient for most companies to set up the infrastructure necessary to handle this task. A centralized payroll service can deploy this infrastructure once to implement employment-related laws and payment and reporting requirements to federal, state and local tax authorities for numerous companies on a nationwide, or even worldwide, basis. It can automate the disbursement of funds and the generation and, often even, transfer of information necessary to meet the various reporting requirements. The cost to a company of hiring an outside payroll service can be offset by the elimination of the need for certain part-time or full-time accounting personnel.
Yet, many small companies continue to handle the payroll process themselves, relying on standalone payroll systems to provide total control and flexibility with limited out-of-pocket cost. As a tradeoff for saving the cost of an outside payroll service, such companies simply accept the inconvenience of having to act as their own manual payroll service, often making mistakes, as noted above, by failing to comply with particular employment-related laws or missing payment or reporting deadlines to the various relevant tax authorities.
Examples of such standalone payroll systems include the payroll modules of the “MAS 90 Accounting System” from Sage Software, Inc. of Irvine, Calif. (www.sota.com), the “AbraSuite” human resources and payroll management software from Best Software, Inc. of Reston, Va. (www.bestsoftware.com), and the “Solomon IV” business management suite from Solomon Software Inc. of Findlay, Ohio (wwvw.solomon.com).
Although such systems are relatively full-featured and are designed to assist companies in acting as their own in-house payroll service (e.g., calculating employer tax liabilities), they require a significant amount of manual intervention in areas of a process that is susceptible to automation. They also require knowledgeable accounting personnel and dedicated computing infrastructure, such as database servers.
These systems do not, for example, enforce compliance with the many tax-related and employment-related laws and other regulations that span federal state and even local jurisdictions. As noted above, such a task is far better-suited to a centralized payroll service than an individual company or even the developer of a mass-marketed PC-based software product (which would have to be upgraded frequently to track all such relevant changes). Most payroll services (including centralized services), however, do not attempt to enforce or automate compliance. Rather, such services merely calculate taxes and mail tax payments and required reports to tax authorities.
Moreover, once the relevant calculations are performed, the company still must, in addition to printing and distributing paychecks, manually schedule and make the required payments to the relevant tax authorities at the appropriate time, in addition to meeting the various reporting requirements. These standalone payroll systems do not automate such tasks. It is therefore not surprising, for example, that Best Software, Inc. (identified above) also offers the “Abra TaxFile Payroll Tax Filing Service” to complement the “Abra Payroll” module of its AbraSuite software, in order to guard against tax filing errors and provide employers with the benefits of AbraSuite's electronic funds transfer infrastructure.
Some very small companies rely exclusively on an outside payroll service, performing only those calculations necessary to supply the payroll service with the summary data that it requires, and in the format that it specifies. As a tradeoff for saving the cost of certain part-time or full-time accounting personnel, such companies accept payroll service fees in order to gain the convenience of having the payroll service manage the entire process of calculating and distributing employee/contractor paychecks, calculating employer/employee tax liabilities and distributing the required payments and reports to the appropriate tax authorities.
Yet, with the convenience of a payroll service comes the loss of flexibility and control over the payroll process. The companies that rely on such services must manually calculate the components of the summary payroll data required by the payroll service, including gross income (hourly or salaried, along with any overtime, bonuses, commissions, etc.) and various medical and other benefits, as well as allocations among pre-tax and post-tax deductions. Such companies must also conform to the time deadlines imposed by the payroll service, or risk missing a payroll. Exceptions (which occur fairly frequently in any reasonably sized company) are difficult for a payroll service to manage. Even a change in direct deposit requirements may not be implemented by an outside payroll service for two or three pay periods from the time of the initial request. Finally, the company must manually extract (and perhaps translate) the summary data into the particular data format required by the payroll service, often making each payroll a special case.
Well-known payroll services from ADP (Automatic Data Processing, Inc.) of Roseland, N.J. (ww.adp.com), Paychex, Inc. of Rochester, N.Y. (www.paychex.com), and PayMaxx, Inc. of Franklin, Tenn. (www.paymaxx.com) all enable companies to outsource the calculations necessary to generate employee paychecks and employer/employee tax liabilities, and to make scheduled tax filings and payments to the relevant tax authorities. As noted above, however, companies must first generate the summary information for each pay period (including income, overtime, bonuses, commissions, pre-tax and post-tax deductions, etc.) and provide it to the payroll service in the specified format.
Larger companies in particular have attempted to get the “best of both worlds” by adopting a hybrid approach, using a standalone payroll system to calculate payroll-related data, and then manually transferring summary payroll data to an outside payroll service. One problem with this approach, however, is that payroll services require summary data in a particular format, which is not necessarily compatible with the output generated by standalone payroll systems (which typically are designed to enable companies to act as their own in-house payroll service). As a result, companies must manually integrate these two incompatible systems.
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