In 2019, payroll companies in Texas received orders from the state’s Department of Banking to halt operations until they obtained a Money Transmitter License (MTL). If Payroll Service Bureaus (PSBs) were not aware of MTLs before, they sure were after that.
Fortunately, the order didn’t take effect immediately, giving Texas payroll companies time to comply. But compliance was and is a complex and expensive proposition, especially since about a dozen other states have subsequently adopted similar regulations. That is: Similar, but not identical. PSBs serving clients in multiple states are now faced with obtaining licenses in all those states, each with their own rules and requirements.
But there is a simple and elegant work-around, depending on the software you use for processing clients’ payrolls.
The MTLs Come for PSBs
This flurry of regulation was triggered by adoption of the Model Money Transmission Modernization Act (MTMA). This initiative by the Conference of State Bank Supervisors explicitly included payroll processing in the definition of money transmission.
Until this point, the definition of money transmitters had been limited to operations like banks and wire transfer services that move money as a standalone function. While PSBs receive funds from clients and disburse them to the clients’ employees, they also administer the funds; managing taxes and other withholdings and submitting those to the appropriate entities. So PSBs and other HR Outsourcers (HROs) that provided payroll services had been excluded from the category of money transmitters.
With the new, expanded definition—and the variety of regulations across so many different states—PSBs are faced with the prospect of mountains of paperwork and onerous licensing fees. In many cases, the licensing process needs to be repeated every 1 – 2 years.
The challenge can be more than an unwelcome hassle. Most PSBs operate on extremely thin margins. Covering the added expense of obtaining and maintaining these new licenses could drive the cost of their services over the limit of what clients are prepared to pay. And that could cost PSBs their business.
Protecting Margins and Your Business
But, what if it was possible to process clients’ payrolls without handling their money? PrismHR’s HCM (Human Capital Management) system enables just such operations.
PrismHR’s HCM is cloud-based software; that is, it is not on the PSB’s premises. It enables users to manage virtually every aspect of a company’s employer functions, including time capture and payroll processing.
Within PrismHR’s HCM payroll function is a virtual escrow. While the PSB directs the administration of clients’ funds, they never actually take possession of them. For this reason, they don’t transmit them either. The banks handle the transmission under their MTL.
This should relieve a PSB of responsibility to register as a Money Transmitter and remove any obligation to be licensed as one. [PSBs should consult with their legal and financial counsel regarding the specifics of their circumstances.]
This arrangement still gives regulators and authorities the transparency and audit trail they seek through MTL regulations. If anything, it simplifies those transmissions and the resulting record-keeping. This can be a win for everyone.
Sunny Days Ahead
But PrismHR’s HCM is so much more than a payroll platform. As a full-featured HCM, it can manage every HR function from recruitment through retirement, including onboarding, time tracking and attendance, benefits elections for employees, and benefits administration for employers. Because it automates so many routine employer functions, compliance is virtually baked into its operations while newfound efficiencies increase profitability for the HRO managing the accounts.
All these capabilities allow PSBs to customize packages for their clients. Each can represent a new revenue stream. So instead of having unwarranted license fees suck the lifeblood out of your business, you can infuse it with new vitality.
To learn more about PrismHR’s HCM and what it can do for your business, visit us at prismhr.com/software/hcm.
