Choosing a Payroll Provider —

There comes a time in every small business owner’s life when they start thinking about moving payroll from their living room computer into the hands of a hired professional.

Figuring Payroll

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Shopping for a payroll professional, as well as anything else, requires a little research.

Having just moved my company largely online with on line everything (including payroll) I thought I should put some information out for everyone. So, here are some key questions everyone should ask themselves before choosing a payroll provider.

Before you commit to a payroll provider, ask these questions.

1. What type of payroll provider service will address my needs best?

With traditional payroll services, you phone in, e-mail or fax your payroll information every pay period. These methods require you to establish a set time every pay period for you to submit your payroll. Traditional services also calculate taxes and other deductions and offer various payment methods for employees.

Online payroll has been available for nearly a decade. This service usually allows you to enter payroll hours from one Web site and will make all payroll tax calculations and deductions. Paycheck stubs and W-2s are available for employers and employees on a secure Web site, and direct deposit is usually included. Some, can and will file and pay payroll taxes on your behalf. (L & R Tax preparation now offers this service)

Payroll software, like online payroll, allows you to enter payroll information at your convenience and will perform necessary calculations. However, you are responsible for debiting your bank account, printing checks or arranging for direct deposit and handling IRS penalties and notices.

2. What are the biggest concerns about outsourcing payroll?

Most people agree that payroll would be an easy if it weren’t for payroll taxes, withholdings and other calculations such as 401k, or accrued leave time. If you don’t want to stay on top of strict IRS rules and regulations, choose a payroll service that will do the work for you.

Additionally, if you’re considering software or a phone/email/fax solution to process payroll, make sure they offer direct deposit. You’ll save your employees time, and you won’t have to be in on payday to hand out checks.

Although you probably won’t think of it immediately, online access for pay stubs and payroll records can save hours of tedious work. If an employee has ever asked you to provide the last six months worth of pay stubs for mortgage purposes, you know the advantages of offering employees self-service payroll accounts.

3. What if something goes wrong?

If it’s important for you to be able to speak with someone on the phone when you have a question about payroll, ask if they offer live, U.S.-based customer support. And if you’re one to work on Saturdays, you’ll want to make sure someone will be available to assist you then.

Phone support can be a lifesaver if you receive IRS penalties and notices. It’s not uncommon for businesses to receive these penalties or notices in error. If you don’t want to be on the phone directly with the IRS resolving the issue, make sure your payroll service has tax experts who will work with the IRS on your behalf.

Fitting in time for a call about a small payroll question is not on most small business owners’ lists of top priorities. Make sure your payroll service offers a comprehensive, easy-to-use online help database.

4. How does outsourcing my payroll help me stay in compliance?

Many services calculate payroll and provide direct deposits but don’t handle payroll tax deposits or filings. They may say they assist with those tasks, but if you want the most inconvenient and riskiest part of payroll off your plate, make sure your provider will deposit and file federal, state and local payroll taxes on your behalf.

If payroll taxes are the riskiest part of payroll, new hire reporting is the second. In a recent poll, 95 percent of business owners were not aware that federal and state law mandates that all new hires be reported to the state in an appropriate amount of time. To alleviate worries about compliance, select a payroll provider that reports new hires automatically.

Some payroll services offer more than payroll compliance. For example, your business must post the appropriate labor law posters. If you don’t want to worry about costly fines, ask a potential provider about labor law posters and poster updates.

5. Is it worth it?

Regardless of the method you choose — phoning-in, e-mailing, faxing, or entering payroll online or into software —outsourcing payroll is always faster and more reliable than doing it by hand. Homemade spreadsheets are useful, but a transposed number or erroneous formula can translate into a payroll nightmare as you try to rectify an employee’s pay and amend taxes.

If there’s one thing you can always count on changing, it’s tax laws. And they don’t always change at the beginning of the year. Outsourced payroll, even payroll software, spares you the burden of keeping up-to-date with ever-changing tax tables.

Some closing thoughts.

Outsourced payroll is the same as other outsourced services: You can’t put a price on more time to grow your business and service for your clients. That’s not to say the most expensive payroll service will provide you with the most free time. For example, traditional payroll services are usually the most expensive, yet they require you to set aside time during normal business hours to fax or phone in payroll. Likewise, the cheapest provider may save you money but will likely leave you scratching your head trying to decode payroll tax and compliance laws.

Look for the provider that meets your specific needs. Don’t pay for a service that charges for extras you won’t use. Likewise, don’t try to save money by selecting a service that meets just most of your needs. You want a service that handles all your needs. When you find the right payroll service, the benefits will justify the cost

© 2010 – 2011, Bruce McFarland. All rights reserved.

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1 Comment

  1. June 25, 2010    

    Amen! Payroll compliance is just too much to expect from a business owner. It is a full-time job and best left to a professional service. It will pay for itself if you avoid just one agency’s fines and penalties for missed or incorrect filing.

    Make sure the service does ALL the filing for your location. A large three-letter company will not file Washington State Labor & Industries quarterlies, and a lot of people assume that the service takes care of everything and don’t know know to do their own L&I. Hilarity does NOT ensue ;)

    Great article!


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