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Best Practices in Payroll Compliance Programs: The Advantages of Piggybacking

Best Practices in Payroll Compliance Programs: The Advantages of Piggybacking

Did you know that the "piggybacking" concept can significantly reduce payroll compliance costs for multiemployer benefit plans while minimizing contributing employers' downtime? 

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"Piggybacking" is a method accounting firms use to test contributions to two or more benefit plans at a single employer. A firm servicing multiple plans can coordinate testing in a way that is virtually impossible for multiple unrelated firms. Piggybacking adds value to the compliance testing program through cost sharing and employer convenience.

Cost Sharing

As noted in Payroll Auditing, A Guide for Multiemployer Plans, "Firms hired to do external audit programs often have many clients. External auditors can arrange to do a payroll audit of a given employer where all plans covering a given trade and/or the plans for different unions can be audited at the same time. This allows the audit cost to be shared by the plans included in the audit."1  This cost-sharing principle is based on the fact that union shops-from service industries to building trades-often participate in a number of multiemployer benefit plans. Piggybacking can be most cost-effective in industries where contractors employ workers from various trades and contribute to numerous plans.

Cost sharing benefits originate in the following areas:

  • Preparation
  • Travel
  • Fieldwork

Preparation:  In preparation for a payroll compliance audit, the accounting firm must schedule the appointment, obtain contribution data and prepare workpapers. It is more efficient to complete these activities once for multiple plans and schedule a single appointment rather than to duplicate efforts for each plan tested.

Travel:  Best practices dictate that the accounting firm perform payroll testing at the contributing employer's place of business. Coordinating testing allows multiple plans to share the travel expenses. Actual travel savings attributable to piggybacking will depend on the structure of the plan's contributing employers and the distance from the plan's accounting firm. A plan with numerous nationally located employers will reap greater cost savings.

Fieldwork:  Plans also realize savings in the area of payroll compliance fieldwork. Table 1 below compares audit costs when testing a single plan (stand-alone) to testing multiple plans. This example is based on a single employer reporting 25 different participants to each plan. As shown in the table, as additional plans are piggybacked, the total cost of testing rises marginally.

Another way of looking at the savings is presented in Graphs 1 and 2 below. In the examples, a stand-alone payroll compliance audit costs $1,500, whereas piggybacking a second and third plan reduces the cost to $1,125 and $1,000 per plan, respectively.3

Employer Convenience

In addition to the hard dollar cost savings noted above, coordination of testing reduces an employer's time spent preparing for and participating in the audit. Piggybacking reduces the employer's time spent scheduling the audit, collecting records and addressing auditor inquiries.

Scheduling:  Employers reporting to multiple plans must manage numerous appointments to accommodate each firm. If one payroll auditor tests multiple plans, there will be one point of contact and a single appointment scheduled.

Record Collecting:  Compliance audits are usually performed for a period of one to five years, requiring the employer to retrieve records from storage and run reports from legacy systems, which can be time-consuming. Working with a single firm enables the employer to minimize the time spent gathering these requested records.

Addressing Auditor Inquiries:  The auditor also requires substantial time from the employer during the appointment for inquires, which can be distracting and prohibit completion of other tasks. Again, it is more efficient and convenient for the employer to address the auditor's requests in a single appointment.

Conclusion

Trustees and employers are interested in reducing costs and increasing efficiency, especially under current economic conditions. Testing employer contributions concurrently promotes efficiency for plans and participating employers alike. To get the best value out of your payroll compliance program, ask your compliance auditor if piggybacking opportunities are available.

Tim Hallenbeck is a payroll compliance manager in Lindquist LLP's San Ramon office. He has been with the firm since 2003. Tim supervises and reviews the work of the senior and staff compliance auditors assigned to the trusts he manages.  He has helped to develop department training programs and re-design Lindquist LLP's customized payroll compliance tracking systems. Contact Tim at (925) 277-9100 or thallenbeck@lindquistcpa.com with questions or comments.

1  Lawrence R. Beebe and Philip Vivirito, Payroll Auditing: A Guide For Multiemployer Plans (Brookfield, WI; International Foundation of Employee Benefit Plans, Inc., 2008) pp. 9-10.
2  Most trust agreements require that all documents must be made available for the plan auditor at the employer's place of business.  A field auditor has the benefit of discovering obvious reporting discrepancies, for example, a shop employing dozens of production employees; however, only a handful are reported on a monthly basis.
3  Actual costs and savings will vary by plan.

Our firm provides the information in this e-newsletter for general guidance only.  It does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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