When President Bill Clinton nominated Zoe Baird to be attorney general, the news media commented on her strong qualifications. So everyone was shocked when Baird withdrew her name because she had failed to pay unemployment taxes for a domestic helper.

Clinton’s next nominee, Judge Kimba Wood, also highly qualified, also had to withdraw her name when it surfaced that she too had failed to pay unemployment taxes for a nanny.

“That’s where the whole idea of starting a company to pay the ‘nanny tax’ came into being,” says Martha Burman, the owner and chief executive of Custom Payroll Services. Like many first-time entrepreneurs who suddenly have an inspiration, she thought this was an idea that could work.

Burman had thought about starting a payroll company before, but was a little put off because most of the payroll companies were large regional and national firms. But the more she thought about it, she realized she could do it, especially if she found a niche. People needed to pay the nanny tax, so why couldn’t she help them?

She did her homework and invested in a payroll system that would do the job and more as she expanded. The next thing she had to do was get a phone number so people could call her.

“I wanted to get a phone number that was easy to remember,” she says. “The problem was all the good numbers were taken. I finally came up with the number 1-800-4-PAYPLUS.”

Armed with an easy to remember phone number, Burman ordered radio ads in major cities across the country. However, she was a little surprised when she didn’t get the overwhelming response her market research had predicted.

“Later, we discovered that since the ad was on radio and not in writing, people were dialing [the word] ‘four’ instead of the number four, and getting the message saying that there was no such number in service,” she says.

But even those who managed to dial the right number didn’t buy the service. They’d call and Martha would patiently explain all the service entailed, which included paying the tax, the quarterly reports. And, of course, the money paid to the nanny would be taxable.

“When people realized it was going to be such a hassle, even though we were going to do the work, they just said ‘no thank you’ and hung up,” Burman recounts.

Burman was disappointed but undaunted. Then, in February 1995, she got the call that all entrepreneurs dream about.

“I picked up the phone,” Burman remembers, “and a man with the most lovely southern accent asked me if we could do the payroll for his company. I’d never thought about doing company payrolls, and I really didn’t know what to ask him. Finally I blurted out the question, ‘How many employees?’”

The answer was 350, and the caller, the program director for a government agency in Virginia, hired Burman’s new little company.

Burman smiles: “They’re still a great client.”

Now she had a business, two wonderful employees, Connie Mullen and Rebecca Koenig, a terrific payroll system, and one customer. She had to grow the company. She started making cold calls.

Martha Burman founded Timonium-based Custom Payroll Services after two Clinton nominees for attorney general were forced to withdraw for having failed to pay taxes for their nannies. Photo by Max Franz

“I was totally unqualified for this,” Burman says. “I was used to being treated like a consultant. Now, I was making cold calls and having people hang up on me.” She laughs. “It was very disheartening.”

However, Burman’s persistence paid off and she began to land other clients. She gave them the best service she could, and soon she began to receive referrals. By the end of 1995, she had 25 new clients.

For a payroll company, technology is a critical factor. Burman faced a major challenge several years ago as advancing technology made her original payroll system outdated. She faced an issue many companies face that use extensive IT: conversion. This can be a massive job, and a firm can lose clients quickly if the conversion goes badly. During this time, Burman wisely focused on the conversion and marketing took a back seat.

“We didn’t want to try to take on new clients during the conversion process. We wanted to make sure the conversions went just right,” she explains.

The conversion was a complete success.

Fire drill

Burman focuses on being readily available and responding quickly.

“We’re a service business, and we interface with our customers’ largest service department, their payroll department,” explains Burman, pointing out that since a company’s employees are an entrepreneur’s most valuable asset, seeing they are paid fairly and on time is crucial.

“We want the employer to look good to their employees,” Burman explains.

To this end, Custom Payroll is built on a model that supports their customer reps.

“Everyone in our company strives to make sure that our customer reps are well supported. After all, they’re our strongest link to our customers.”

Since the conversion to the Millennium system, Burman and Custom Payroll have enjoyed 20 percent annual growth. At the end of 2004, Custom Payroll was servicing almost 400 companies out of its Timonium office.

Burman is justifiably proud of Custom Payroll’s client retention rate that exceeds 98 percent.

“In the last five years, we lose a client only if they go out of business or get bought by a larger company. Sometimes, the larger company becomes a client, too.”

Among Custom Payroll’s clients are such Baltimore landmarks as The Baltimore Museum of Art, Center Stage, Notre Dame Preparatory, the Ruxton Country School and St. Timothy’s. Its corporate clients span the spectrum from a large chain of nursing homes, to Group Benefits Services in Hunt Valley, to the Shakespeare Theatre in Washington and Durrett Sheppard Steel in East Baltimore.

Through the years, Custom Payroll has primarily grown by referrals and it was in 2004 that Custom Payroll added two sales executives to its permanent staff.

Today, as Custom Payroll enters its second decade, the company offers a variety of tools to help clients manage the administration of payroll and benefits. HR Office is a high-end Windows human resource system that incorporates online enrollment for benefits. Among other systems it offers is an electronic, real-time time system that can run on the web. Custom Payroll also offers various types of services to assist their clients who don’t have the time or desire to handle some aspects of the payroll service.

Among the books that have made a lasting impression on Burman are “Good to Great: Successful Habits of Visionary Companies,” by Jim Collins and Jerry I. Porras, and “Built to Last” by Jim Collins. Both of these texts emphasize the importance of recognizing the value that your employees add to the organization. She has a perfect understanding of the concept. If you put your employees first, they will take care of your customers.