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Managing Payroll for Municipal Services in an Era of Transformation

June 17, 2024

For municipal services, the management of payroll taxes represents a daunting and labor-intensive endeavor, particularly when contending with employees who live in, and work across, various state lines. Each state and local jurisdiction introduces its own set of laws and stipulations, and falling short of these specific requirements can trigger penalties, accruing interest, and the prospect of legal proceedings initiated by the respective state/local jurisdiction.

Navigating the complexities of payroll taxes within municipal services can be arduous and demands significant resources, especially when faced with a workforce dispersed across multiple states. The plethora of laws and regulations unique to each state and locality means that non-compliance can swiftly lead to penalties, interest charges, and the potential for legal actions from state or local jurisdictions.

During a time of major changes in the municipal sector, trying to manage everything with just a small internal payroll team or using a third-party provider that doesn’t offer a full range of services can lead to difficulties, doubts, and risks. However, finding the right third-party partner, one that has the necessary technology and knowledge to handle payroll tax issues, can make a big positive difference.

Emerging Trends Complicating Payroll Taxes:

The Shift to Remote/Hybrid Work:

Historically, municipal services typically operated from singular locations, streamlining the payroll tax process. This all changed when the global health pandemic ushered in a rise in hybrid and remote work, a trend that many places have kept due to its flexibility and appeal to current work preferences. This shift has widened the range of tax jurisdictions that your municipal entity has to manage, increasing uncertainty, risk, and chances of non-compliance.

For municipal services, managing the intricacies of payroll taxes becomes challenging, especially with a workforce spread out over multiple states. This can lead to oversights, with staff often categorized under one location for simplicity despite varying local tax laws. Such shortcuts can risk penalties and scrutiny if it’s discovered an employee is working from a different state than listed.

Aging Payroll Professionals:

As experienced payroll experts leave and it gets harder to find new ones, many municipal centers are working with smaller payroll teams. This situation makes it difficult for these centers, especially those used to managing payroll taxes in-house or with third-party help that’s not fully up to the task. As a result, these municipal services are looking for new ways to make sure they’re handling their payroll taxes correctly. One solution is to seek help from outside vendors who specialize in the detailed work of managing payroll taxes accurately and efficiently.

The Journey to Cloud Migration:

For years, many municipal services have used a mix of outdated systems and manual processes for their payroll tasks, like tax collection and payment. This reliance on old methods and various unconnected systems can lead to mistakes and delays in handling payroll taxes. The municipal sector has been slow to embrace new technologies, so sticking to these outdated processes risks errors, such as mismatched employee addresses, which could trigger audits and uncover discrepancies in records.

Recently, though, there’s been a rapid shift towards modernization, with more municipal organizations aiming to streamline their processes by adopting cloud technology. This move seeks to centralize operations within a single, more transparent system. However, selecting the right technology solution requires careful consideration and expertise.

Charting a Path Towards Risk Mitigation:

Overseeing a small payroll team in a large municipal entity, responsible for nationwide payroll taxes, often leads to overtime and burnout. If your external provider lacks payroll tax support, you’re likely aware of the looming risks and insufficient compliance efforts. Partnering with a specialized third-party provider might offer the comprehensive support and technology needed to tackle these challenges.

When evaluating potential providers, prioritize those offering:

  • Technology seamlessly integrable with your existing payroll, benefits, or HR systems.
  • Automated rule integration capable of diminishing manual monitoring, error detection, and flagging of liabilities.
  • Access to seasoned specialists well-versed in the latest regulatory updates and shifts impacting your operations.
  • Established agency relationships and networks adept at researching and resolving compliance-related challenges.

Given the significant transformations unfolding across the municipal landscape, pinpointing a provider that can illuminate a more assured path forward, enabling compliance confidence through expertise, innovation, connectivity, and a comprehensive suite of solutions, is paramount in minimizing risk and enhancing your capability to adeptly manage payroll tax obligations.

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