State to conduct study on payroll-servicing industry after MyPayrollHR scandal

The New York State Department of Financial Services (DFS) will conduct a study on the payroll servicing industry following the MyPayrollHR scandal, which caused “major financial disruptions for workers and small businesses.” 

The office of Gov. Kathy Hochul on May 6 said she has signed a bill requiring the study.

DFS, in consultation with the New York State Department of Taxation, will conduct a study regarding insurance or other risk-mitigation tools and third-party payroll servicers providing these services to “ensure the health of the industry and the existence of sufficient consumer protections.” 

The superintendent of financial services will then submit a report of findings and recommendations to the governor, the temporary president of the New York Senate, and the speaker of the New York Assembly. 

“Workers and small business owners in New York were devastated by the collapse of MyPayrollHR and it’s crucial we have all the information to understand what led to this crisis,” Hochul said. “The first step in any process is gathering all the information on what’s occurring, and using that data to create a plan moving forward and that is exactly what this legislation will do.”  

In 2019, federal authorities found that the president of MyPayrollHR, an upstate New York payroll management company, redirected $26 million in payroll funds to his personal account. 

This led to a freeze on MyPayrollHR accounts and distribution of paychecks with funds that did not exist. These transactions were then reversed, resulting in heavy overdraft fees for the workers involved. 

The legislation will require DFS to work with the state Taxation and Finance Department to conduct a study on the industry, a first step in reviewing this incident and “seeing what possible prevention techniques may exist,” Hochul’s office said.