Executive Suite: Alan Klein, Melville

Employees are already feeling the pinch of the 2 percent increase in payroll tax that took effect this year, and more changes in paycheck withholding are coming, says Alan Klein, chief executive of two payroll companies -- Ace Payroll Services Inc. in Melville and Payroll Systems in Reno, Nev.

The companies handle payroll for some 3,000 U.S. clients, including 500 Long Island companies with 10,000 to 12,000 employees. Klein, 50, has been building the businesses since 1994, when he transitioned from public accounting.

With the sunset of the FICA holiday, it's hard for people to swallow because they got used to not paying it. You also have the additional 0.9 percent in Medicare payments on earnings above $200,000 for a single person or $250,000 for a married person.

If the individual is above $200,000, then we're automatically going to calculate it. But the spouse may be employed by another entity that we don't process the payroll for. So it becomes incumbent upon the individual to tell us to withhold extra dollars when their combined income will be above $250,000.

The big one's going to be the Affordable Care Act. There are going to be a lot of record-keeping requirements thrust upon employers. Most center around the payroll process, such as calculating how many full-time employees they truly have; reporting the cost of the health insurance on W-2s; what the total employee share is allowed to be before the employer is subject to a penalty -- and that calculation is based on family income, so it gets a little sticky there.

I think, potentially, you'll see more employers -- who may not have offered insurance and are now required to offer something -- will wind up co-sharing this with their employees .?.?. and more employees paying a portion of the health insurance that they haven't paid before.

We're seeing some uptick in hiring, but what's interesting is we're really starting to see a very large increase in overtime from people who for the last couple years have said, "We don't allow overtime." They're definitely increasing their business. We're seeing increases in overtime for the last 12 to 24 months of 25 percent and greater for many companies.

There's a big push now by the taxing authorities to find people who are classifying employees as independent contractors that really don't qualify. As those companies are found, they're paying penalties of having to convert these employees over to W2 employees.

If they're getting a large refund, they can consider lowering the amount they're having withheld. Conversely, if they owe money come year-end, then they should consider increasing their withholding so they're not hit with this big bill at year-end.

If their employer offers a 401(k) or some type of deferred retirement plan, if they're not taking advantage of it, maybe they should so that they don't have as big a bite next year and they put away some money for retirement. If they are taking advantage of it, maybe they want to increase the amount they're putting away.

If you priced out the [payroll] service, whether it was with me or anyone else, you would find that it's really a nominal cost. For a 10-person company for the year on a biweekly payroll, processing payroll costs in the range of $1,700 to $1,800 for the year. The potential penalties that they can get for filing a late return or paying one or two tax payments late quite often can offset the cost of the whole service for the year.

We're going through more of a product integration: more of the background checks that the larger employers did that small and midsized companies may not have; more of the integrated human resource systems where they're tracking everything HR-related on their employees -- paid time off, licensing requirements, different functions, etc. Whereas in the past, we may have just done the payroll, we're now offering clients the full suite of products to be able to handle the life cycle of the employee.

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