ALEXANDRIA, Va. - CUSOs can assist credit unions in providing payroll services to CUs' business members, however says NCUA, they cannot provide them directly to credit union members. In a letter to NCUA Associate General Counsel Sheila Albin, NACUSO General Counsel Guy Messick proposed a situation where members would contract with an FCU for payroll services. The business member would maintain a payroll account at the FCU, and the FCU would make disbursements from this account to the business employees for each payday. The FCU would deduct the appropriate amounts for income taxes and employee-paid benefit premiums. The FCU would then contract with the CUSO for assistance in providing the payroll services. CUSO staff would work with FCU staff and provide advice and any hands-on assistance the FCU needs to implement the payroll service. Citing 12 U.S.C. 1757(17) of the Federal Credit Union Act, Albin said it allows FCUs to "exercise such incidental powers" as necessary to carry on its business. NCUA's incidental powers regulation, she wrote, includes a list of categories of activities that meet this test and are preapproved as incidental powers for FCUs. Preapproved activities, she stated, include electronic financial services, payroll deduction and tax payment services to members.Providing payroll services to members includes elements of electronic financial services, payroll deduction and tax payment, "and we conclude it is a permissible incidental power for FCUs. In addition, Albin stated, "We conclude an FCU may use a CUSO to market the service on behalf of an FCU and implement the payroll services." She wrote that, "According to your description, the CUSO's role would include advising credit union personnel and providing hands-on assistance as needed, in addition to marketing the service. The FCU Act requires that the business of CUSOs "relates to the daily operations of the credit unions they serve" and any CUSO services must be "associated with the routine operations of credit unions." .The CUSO regulation includes categories of preapproved activities for CUSOs.We believe, if structured as you propose, the CUSO's role is permissible, because its activities fall within categories of activities preapproved for CUSOs to offer to credit unions." NCUA cautioned though that the CUSO may not provide payroll services to credit union members directly. "NCUA's longstanding view is that clerical, professional and management services and electronic transaction services are preapproved activities for CUSOs only if the services are provided to credit unions. A CUSO may not provide these services directly to credit union members," Albin concluded.