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PAYROLL PROCESSORS

A payroll processor performs the following services for one or

(1) an accounting of:

more employers: preparing and issuing payroll checks, preparing

a. Funds received from that employer; and

and filing state income withholding tax reports or unemployment

b. The aggregate amounts disbursed for:

insurance contribution reports, or collecting, holding and turning

(i) Payroll;

over to the State Tax Assessor income withholding taxes or

(ii) Each category of local, state and federal tax; and

unemployment insurance contributions. Effective January 31,

(iii) Unemployment compensation premiums.

2005, all payroll processing companies must be licensed by the

(2) a disclosure of the specific method or methods whereby

Maine Department of Professional and Financial Regulation’s

that employer can contact state and federal tax and

Office of Consumer Credit Regulation. Thereafter, a payroll

unemployment insurance authorities, including but not limited

processor must apply for a license before January 31st of each

to internet address and toll-free telephone number information,

year.

to verify that payments have been made and properly credited

All payroll processors must provide proof of liability insurance

on behalf of the employer.

equal to twice the highest weekly payroll processed by the

(3) a clear and conspicuous disclaimer stating that use of the

business in the preceding year or $5,000,000, whichever is less.

language referencing bonding does not signify or ensure that

For liability insurance coverage, the processor may choose from

the bond will cover all potential claims if the payroll processor

one of the following: fidelity bond, employee dishonesty bond,

fails to comply with its responsibilities. A payroll processor

third-party fidelity coverage or liability insurance that includes

shall provide this disclaimer to an employer before contracting

crime coverage.

for payroll processing services to that employer.

Payroll processors who have authority to access, control,

A payroll processor may not designate itself as the sole

direct, transfer or disburse a client’s funds must also provide

recipient of notices from state or federal authorities for

evidence of a surety bond in an amount equal to the total of all

nonpayment of taxes or unemployment insurance

local, state and federal tax payments and unemployment

contributions. A payroll processor shall ensure that such

insurance premiums processed by the payroll processor on behalf

notices are provided directly to the affected employers.

of employers in this State in the 3-consecutive-month period of

highest volume during the previous calendar year or $100,000,

Failure to register or abide by all statutory requirements will

whichever is greater, but not to exceed $500,000.

subject a payroll processor to certain civil penalties. Further

information and applications may be obtained from the Office

On a regular basis not less frequently than quarterly, a payroll

of Consumer Credit Regulation. Call (207) 624-8527 or visit

processor must provide the following information to each

the web site by going to

employer:

and selecting Consumer Credit Regulation.

Dos and Don’ts for Clients of Payroll Processors in Maine:

Using the services of a payroll processor can be a convenient and economical way for an employer to file and pay withholding taxes. However,

employers face certain risks associated with the use of a processor, including possible lack of compliance and the risk of loss of funds that are

under the control of the processor. Ultimately, it is the employer who bears the responsibility for meeting its payroll tax obligations. If you are

an employer that uses the services of a payroll processor, you should take the following precautions:

⌦

Educate yourself to understand your filing requirements and the risks associated with using a payroll processor.

⌦

Verify with the Office of Consumer Credit Regulation that the processor is licensed and has provided proof of liability

insurance to protect client funds, including coverage for crimes such as fraud and theft.

⌦

Obtain verification from the payroll processor and its insurer that its liability insurance will remain in effect for a specified

period of time.

⌦

Read your contract with your processor carefully.

⌦

Ensure that your agreement/contract and any power of attorney that your processor has with you specifically requires that

all notices sent by the IRS and state tax agencies be sent directly to you.

⌦

Never hesitate to contact tax authorities directly when you feel it necessary.

⌦

Check with the appropriate tax agency periodically to ensure that returns and payments are filed in a timely manner.

⌦

Insist on verification from your processor that any problem for which the employer has received a notice from a tax agency

has been resolved.

⌦

Never assume that everything is fine solely because you have not received notice of any problems.

⌦

Never sign a tax return before it is completed.

⌦

Require that the processor provide copies of returns, not just summaries, at the time of filing.

⌦

If you are using a nationwide payroll service, be sure you are assigned a direct contact person and telephone number.

Form 941/c1-Me - Combined Filing For Income Tax Withholding And Unemployment Contributions Page 3

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