A local lawmaker is sponsoring a bill that would allow small payroll processing companies to fulfill bonding requirements by pooling their resources.
Rep. John Robinson (R-Raymond), through the Business, Research and Economic Development Committee, has proposed legislation to create the Payroll Processor Recovery Fund. While continuing to protect employers from payroll theft, this fund would make it affordable for processors to become bonded, to the extent required by law, by allowing them to purchase a $10,000 bond or to provide a letter of credit and to pay an annual fee of up to $5,000 into the fund.
Payroll processor firms handle payroll services for other companies. Up until recently, these firms were regulated by a simple registration program operated by the Maine Department of Revenue.
But in 2003, Harmon & Baert, a former payroll company in Saco, was convicted of stealing money from dozens of companies they serviced. In order to protect employers, the state Legislature responded by passing legislation that required processors to obtain a specific surety bond that doesn’t exist on the open market.
“It’s an example of a bill with a good intentions creating bad legislation,” Robinson said.
Robinson first learned of the problem last summer when he was contacted by Dave Gowen, of Gowen, Turgeon & Luetje, in Windham. Gowen, whose 40-year-old CPA company has been processing payrolls for 20 years, said that some payroll companies have sold because of the unobtainable bond requirement.
“We were pretty upset,” Gowen said. “We felt we were getting forced out for nothing we did.”
Although payroll processing is only one part of his business, Gowen is troubled by the requirement’s effect on potential on other payroll processors.
“I have a concern that someone looking to do this for a living is never going to be able to afford to do this,” he said.
Robinson, along with Sen. Bill Diamond (D-Windham), Rep. Gary Plummer (R-Windham) and Rep. Mark Bryant (D-Windham, Gray) met with Gowen several times before drafting this new legislation with the assistance of William Lund, Esq., director of the Maine Office of Consumer Credit Regulation in Augusta.
In a recent phone interview, Lund said that many of Maine’s 100 licensed processor companies never handle actual funds, making this bill unnecessary for them. But for the 10 to 15 that have the ability to handle funds, this legislation will make it possible to survive.
“This is a guarantee fund,” Lund said. “A proposal to permit the state to step in and serve the role the surety bonds cannot cover.”
Having no model on which to base their legislation, Lund and Robinson examined similar risk pools created for different types of risks when crafting their legislation. In their proposal, the Finance Authority of Maine would hold the funds and the Office of Consumer Credit Regulation would administer them.
“It is doubly unique,” Lund said. “Maine is the only state to take an active role in regulating payroll processors.”
Because of this, Lund says Congress and large national companies are looking to this legislation in Maine as a prototype for future state or national legislation.
In Augusta on Wednesday, Gowen testified along with several others in a public hearing. Although he is pleased with the bill overall, he expressed that the cost is too high for some smaller processors.
“There should be a relationship between payrolls they do to price they have to pay,” he said.
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