How do I avoid messy payroll taxes?

People who believe in the magical power of PEOs to fend off multi-state tax headaches need to hear this.

I recently helped with a migration off of a PEO. The client was frustrated with all the ways that the PEO was curtailing their decisions and all of the extra work it involved.

“Extra work?” you ask. “But PEOs are supposed to save work.” 

That’s the myth. 

Here’s just one example: 

There was a garnishment notice. 

A team member's former employer from 3 years ago didn’t deduct local taxes and the employee owed almost $900. 

The PEO applied the garnishment to start on the payroll to be submitted THAT DAY. 

We called and begged them to hold their horses. 

“We’ll pay it,” we said. “But please wait one pay cycle. Let us talk to the employee, please. Let us talk to the agency. This person has kiddos at home.” 

After a frantic morning of calls, we got them to stop the garnishment.

Or so they said.

The agency confirmed we could wait a few weeks and deduct 1% rather than 10%.

The employee said they'd already paid it in full anyway.

Payday came around.

THEY’D DEDUCTED THE GARNISHMENT ANYWAY. 

Worse still, since it was the final paycheck, they couldn’t correct it.

“You’ll see the money come back on your invoice,” they said.

“That’s not the same thing,” I said. “Pay statements are legal records. That’s what you’re going to submit the quarterly reports based on. That’s the data we’re importing into the new provider.”

I spoke to 3 people. They couldn’t fix it.

“Can you at least send us the UC-2 in a few weeks?” 

“The what?” 

“The UC-2. The Pennsylvania quarterly tax report.” 

“The what?”

“Your tax team will know what it is. PA is a self-reported state. It’s our tax form. You have to give it to us.”

We never got it. (We did eventually get it)

As we migrated the payroll records, we found several more discrepancies. 

Tax rates not updated. 

Other tax rates reflected changes that had been repealed before going into effect.

We asked them for the tax IDs in company-reported states. They gave us the unemployment numbers, but seemed surprised that there were other taxes in many states. 

“What’s the Washington L&I?” I asked.

“The what?”

“The worker’s comp insurance code.”

“You need to get your own worker’s compensation insurance.” 

“Yes. I know that. But Washington is a monopolistic state.” Why am I the one explaining this? “It’s a tax. I often see it as LI, or LNI.”

“Oh! Here it is.” 

Payroll taxes are always messy. Always.

The only reason you don’t see the mess with a PEO is because it’s happening behind the curtain.

But that doesn’t mean they’re doing it right.

And when you leave, they may hand you back a hot mess to deal with.

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👋 I’m Claire. I deal with hot messes.

Need help with a hot mess?

Get in touch