Payroll services companies feel the pinch of rising joblessness

As unemployment in the Reno-Sparks area rises it stood at a record 13.7 percent in January payroll service providers feel the effects immediately.

Despite new clients, payroll companies in the Truckee Meadows say revenues for the year will be flat or down because so many existing clients downsized their staffs. Payroll companies typically charge a flat fee per company with an additional fee per employee.

Mark Clason, president of Payroll Systems of Sparks, says one industry bellweather, the average number of pays (paychecks cut) per company, is down about 15 percent.

But many clients simply closed up shop, Clason notes. Payroll Systems saw the largest declines in local employment beginning in the fourth quarter of 2007 and continuing in early 2008. One day companies would call in payroll, Clason says, and the next they'd cut their entire workforce.

Dave De Rosa, managing member with Nevada Payroll Services, agrees the biggest reason for lost accounts over the past 18 months has been from companies going out of business.

"It kind of went in waves. The first thing we saw is mortgage companies, and that led into construction companies and other industries," De Rosa says. "We had companies with a hundred or more employees that no longer exist. The mortgage industry was the same way."

Joe Foti, owner of Tax Consulting Group, says payroll services only account for about 10 percent of his company's revenues but that number has been halved over the past year due to clients going under. And some companies have reduced staff size so much that they have taken on the payroll function themselves, while others have stopped cutting payroll checks entirely.

"They have laid off all their people, and they are the sole owner now and are not even drawing a salary," Foti says. "It has just collapsed on us, and there is no where to go to get new business."

De Rosa says revenues actually increased from 2008 to '09, but he's predicting 2010 as a year of no growth. Nevada Payroll Services clients include construction and mortgage clients, as well as professional services such as doctor and dentist offices.

"They have held up better than other business sectors," De Rosa says. "They have tightened their belts, but not like the construction industry."

Foti, whose clientele comprise a diverse mix of smaller Reno-Sparks businesses, has seen the most cuts in companies related to sales, from restaurants to carpeting to construction equipment.

"It seems like almost every industry is somehow dependent upon construction," he says.

Many new clients using payroll services have come from companies outsourcing payroll after eliminating an office manager who handled that function, De Rosa says.

"They get rid of a $40,000 a year salary for $1,500 a year for a payroll service."

Clason also says that a significant number of his new clients are larger businesses with more than 50 employees that have eliminated bookkeeping positions. He predicts Payroll Systems will see grow in 2010 due to further increases in outsourcing.

Nevada Payroll Services contracts with business in 30 states, with business coming primarily through client referral. Despite a year of flat revenues, De Rosa says the local economy seems to have stabilized from its low point in November 2008 when companies were reducing staff en masse.

"It was, 'Hey, we need 40 or 50 final checks.' It was just company after company that was laying off or going across the board and reducing salaries by 30 percent," De Rosa says. "When you see it from a micro basis, company by company, it really hits home that people are hurting. We are right on the front line with them."