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Quick Guide to Payroll Services

Processing employee paychecks can be a time consuming and tedious task. Computations can be a maze of paperwork, transfers of funds to different bank accounts, employee savings accounts, and different government agencies. All businesses are required by law to pay certain employee taxes, and to provide end-of-year wage reports (for example, W-2 forms). These tax amounts can change when employee gets married, has a child, or elects to change exemption status for any reason, and the implementation of new regulations (for example, the increase in the federal minimum wage) usually requires immediate compliance.  Filing late or error-filled documents results in expensive penalties and fees.

Hiring a payroll company is the solution to many of these issues. A payroll service company is a business that handles a variety of payroll and paycheck processing issues. A payroll company can calculate tax amounts, process employee paychecks, and even generate job and project cost reports. Using a payroll outsourcing company, you’ll save both the time it would take to process payroll documents and any costs associated with learning how to do it yourself.

Payroll service companies perform several functions, including employee wage calculation, tax withholding computations, and savings and account transfers.  All of these amounts are paid by your business, so a payroll company will need access to employee wage information and access to funds for deposit.

Some payroll processing companies make payments out of an account held by your business, while others make payments from their own account after you deposit funds. Most companies require you to set up an account that they have access to- you may need to maintain a minimum balance or keep a specified “reserve” to draw on if deposits aren’t made in time for pay disbursements. If you offer a direct deposit feature, you need to provide employee bank routing numbers to the payroll company.

Before you begin using the payroll service, you should become familiar with the procedure for “calling in” payroll information or relaying hours worked for each pay period. Some companies allow businesses to set up an automatic notification system (if you have salaried employees whose wages each pay periods will rarely change). This can be convenient if you are out of the office or unable to personally relay paycheck or wage information.

Outsourcing payroll isn’t only convenient, it can also lead to significant cost savings: most payroll companies will be able to find tax savings you may have missed. A payroll company can also aid in reporting on job costs, as well as offer up-to-date staffing information such as employee sick and vacation time, productivity (based on sales made or jobs completed) and other important data that can aid you in strategic decision making. Some of the most popular payroll service options include:

  • Tax Processing: Most basic payroll processing packages will include the computation and payment of employment taxes. Payroll companies typically also compute withholding amounts based on employee salaries and W-4 forms.
  • Cost Reporting: Reporting services can help you determine how employee costs (wages, benefits, commissions, etc.) contribute to total business expenses. Businesses that offer commissions and bonuses to employees can tell if these incentive structures are working as intended.
  • Direct Deposit: Depositing employee wages directly into bank accounts is a highly valued feature. Most banks actually require direct deposit as a condition of offering “free” checking accounts. Direct deposit also especially convenient for companies that hire seasonal staff or those with many employees that are not scheduled regularly- it saves workers the extra trip to pick up a check if they are not scheduled for a shift.
  • Online Account Access: Both business owners and employees can opt for an online access payroll package, which allows you access to pay information at any time. For businesses, this feature is especially convenient- you can track payroll information from any location, and make changes that are implemented immediately.

Benefits of Outsourcing

Outsourcing payroll is a smart idea for any business owner that doesn’t have the time or expertise to perform complex tax calculations. By hiring a payroll company, you get access to expert knowledge for a low price.  Here are a few more benefits of outsourcing payroll:

  • Staffing concerns: Outsourcing is much more cost effective than hiring an in-office payroll bookkeeper. Smaller businesses often don’t have the budget to hire a full-time bookkeeper. An outsourced payroll firm performs all of these duties: preparing employee paychecks, depositing tax amounts, and administering employee benefits. Payroll services can also process checks for far less by taking advantage of economies of scale: instead of printing 5 checks each pay period, they print 50,000 or more for different businesses at the end of each month- the per-check cost is far less expensive for each business.
  • Expert knowledge: Payroll calculations can be difficult and complex for many business owners who are not familiar with tax regulations and accounting principles. Hiring a payroll company is one of the best ways to make sure calculations are done correctly.
  • Save time and money: By eliminating the need to perform payroll functions yourself, you’ll save a tremendous amount of time- and a lot of cash. Smart business owners assign certain tasks to the employees that will perform the job the most effectively. Outsourcing payroll is the same- a payroll company can process employee checks, administer benefits, and perform other tasks much more effectively than most small business owners would be able to do on their own. Administrative functions can be difficult for many business owners: they take up valuable time and can interfere with the process of actual business management. Hiring a payroll company allows you to leave the administrative tasks and tedious paperwork to an expert, freeing up time for business owners and managers to perform other tasks that are essential to the running of the business.

How to Find a Vendor

Choosing the right vendor is important. Not only will they have access to very sensitive company information, but they are also responsible for employee wages and deposits- a miscalculation can result in angry employees or even tax penalties. Make sure you check references, investigate the company history, and compare at least 3-5 different vendors before making your decision. Our Buyer Guide to payroll services provides more information on choosing a payroll vendor.