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How To Choose a Payroll Service Supplier
IRS regulations governing payment of these taxes are strict. If, even through an unintentional error, a tax return is filed just one day late, the penalties are stiff.
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Business New Haven
11/22/1999
By: Susan Banfield
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These days fewer and fewer companies still do their own payroll. Anyone still on the fence about outsourcing this aspect of their business should note that there are good reasons for a wholesale move to using payroll service providers.
First among these is the fact that using a service provider mitigates a company's risk of exposure. Payroll nowadays is a complicated affair, and usually includes the filing of quarterly and year-end taxes as well as the distribution of paychecks. IRS regulations governing payment of these taxes are strict. If, even through an unintentional error, a tax return is filed just one day late, the penalties are stiff.
A payroll service provider, as part of its contract, promises to absorb the cost of any penalties that might be incurred as a result of an error on its part. This guarantee alone makes outsourcing payroll worth it to many business people.
Another important reason to outsource your payroll is cost. Processing payroll requires a great deal of expertise. As most companies do not have someone on staff with the requisite knowledge and background, they are required to rely on the services of their CPA. Yet for this kind of work, a CPA's time is too costly. A payroll service provider is a more economical solution.
Yet another reason, increasingly common, for enlisting the services of a payroll service provider is mounting pressure from the federal government - and now from the states - to file tax returns electronically. The date by which this will be required at the federal level has been pushed back several times. Currently it is July 2000. It may possibly be pushed back yet again, but sooner or later required electronic filing will be a reality.
Some state governments, too, are also moving toward instituting an electronic-filing requirement. This is something a service provider is set up to handle easily. Nowadays, 90 percent of companies that employ a payroll service provider have their taxes filed electronically.
Some companies may balk at the fact that payroll providers usually impound funds with every payroll so that they are available for electronic filing. The truth, however, is that while it may seem advantageous to have those funds floating until the filing date, chances are in most cases that they would simply sit in the business checking account where they would earn no interest anyway.
If the above reasons have convinced you to begin outsourcing your payroll, you need to keep several things in mind as you shop for a service provider. While costs do vary some, price should not be the determining factor in which company to hire. First of all, payroll processing is a very competitive business, and costs are not likely to differ all that much. More important, however, should be your concern with the reputation and quality of the firm you engage.
Payroll is a very sensitive area. Any lack of professionalism or inaccuracy in how it is handled can seriously damage your company's reputation, especially with employees. So you need to be sure you go with a quality provider. A recommendation from your CPA is a good guideline here.
Another factor to consider is a potential provider's expertise with companies of your size. Some payroll providers specialize in handling payrolls of one to 100 employees, for example. Or, if you are a very large company, you may want to go with an outsourcing firm capable of developing customized software tailored to your specific needs.
Lastly, you will need to consider which of the various extra services offered by most payroll providers should be included in your contract. Many providers today can administer employee benefits, retirement plans, direct deposit and pre-tax deductions for medical insurance or child care. If it is important to you to outsource any or all of the above, be sure you choose a firm that can meet these needs.
Many payroll providers also offer flexibility in how you can furnish them with the data they need every payroll period. The traditional way was by phone. Now, however, you may prefer a firm that can receive your information via fax or e-mail. Again, know your needs and choose a firm accordingly.
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