Payroll service companies can be a big help when it comes to calculating and filing your company’s payroll taxes, printing checks, and being available to answer important payroll-related questions. Industry-leading companies have streamlined processes and controls that lead to greater efficiency and fewer errors, which can save your company time and money.
When considering payroll service options, it is important to choose a reputable company because ultimately your business is responsible for paying the taxes, not your payroll company. That means you must do your homework to ensure the payroll company is compliant with regulatory standards and that your taxes are paid in full and on time.
Choosing a payroll company
One of the best ways to find potential payroll service providers is to ask other business owners or payroll professionals who they recommend and why. Hearing directly from a company’s customers is a great way to evaluate the company’s processes and service levels.
You can also look up reviews of companies with the Better Business Bureau. Search for “payroll service” or a company name, based on location, and the BBB will provide a grade and information such as how long the company has been in business, contact information, and consumer reviews.
Additionally, software review sites like Capterra and industry directories like the SHRM Vendor Directory are helpful in gaining the perspective of the company’s customers, especially as it relates to the payroll system itself. You might also find reviews on Google and Facebook that are helpful.
Once you’re ready to start narrowing down your choices, ask these additional questions to determine if the company will be a good fit:
- What services do you offer and what certifications do staff members hold? It’s important to know what you’re looking for from a payroll company and whether those needs go beyond the basics. The company should have a CPA on staff, and other professional certifications (like Society of Human Resource Management or American Payroll Association) are a good sign of a quality organization.
- Is the company bonded and insured? Find out how much the company is insured for and request a certificate of insurance.
- What security measures are in place to protect my payroll data? Companies should have antivirus and antimalware programs, firewalls, encrypted data, secure data storage with redundancy and employee training on data security. They also should perform background checks on all employees.
- How often are internal controls audited and do you provide the results to customers? Payroll companies should perform audits at least annually, and they should provide a copy of their SSAE 16 report to customers if requested.
- How do you remain up-to-date with regulatory requirements? A considerable number of federal, state, and local regulations affect your payroll processing, so it’s important to find a company that has an airtight process for staying up to date on all of the changes from thousands of jurisdictions.
It's a good idea to request a copy of the company’s customer service standard or customer service agreement, which should include information on the level of support provided, call-back times, etc.
Additionally, make sure the agreement you will sign with the company includes their data security and privacy standards. Read all documents thoroughly before signing.
Benefits of outsourcing payroll
One of the biggest potential benefits of outsourcing payroll is saving your company money. According to the IRS, in 2016, more than 5.8 million penalties were assessed related to employment taxes, for a total of more than $6 million. Outsourcing payroll tasks may help prevent your company from making costly errors on payroll taxes. The systems and controls in place for processes and compliance make them more likely to stay up-to-date with federal and state regulations thereby reducing penalties.
Alongside saving money, using a payroll service can save time. Reducing inefficient payroll tasks from your in-house team’s to-do list can free them up for other tasks.
Risks of outsourcing payroll
There is a certain amount of risk associated with outsourcing payroll. You’re trusting another company to handle a very important task that affects your employees, your cash flow, and your reputation with the IRS. So choosing the right company is essential.
Additionally, if you don’t understand the services included in the contract, you could end up paying for services your company doesn’t actually need. Make sure you understand what you’re paying for, and if a company can’t work with your company’s needs, go elsewhere.
See Also: 8 Payroll Myths Debunked
Protecting your company’s interests
While your payroll company can take on many payroll tasks, your company is still responsible for making correct, timely employment tax payments. Reputable payroll companies will pay penalties if it turns out it was their mistake. So be sure to ask before signing the agreement.
Even with a reputable vendor, you should take precautions to protect your company.
- Enroll in the Electronic Federal Tax Payment System. Your payroll service can do this for you, but make sure you receive an EFTPS PIN so you have access to the account.
- Ensure tax notices are sent to you and not the payroll provider.
- If you receive a notice from the IRS about a problem with your payroll taxes, contact your payroll service provider as soon as possible. Mistakes happen for various reasons, and a good payroll provider will handle the notice and keep you in the loop on the progress to resolution. Find more information about notices on the IRS website.
- If the company backs up their tax filing with the promise to pay for their mistakes, including IRS penalties, ensure that happens.
Choosing the right payroll partner is good for your bottom line
As with any vendor selection process, it’s important to complete proper research and ask the right questions when considering payroll service providers. Because of the regulations covering employers and payroll taxes, you want to be sure you are making a good choice.
Understand exactly what you’re paying for. Review all related service agreements, and hold the provider to them. Know your options if problems arise.
The good news is that following these steps will likely save your company time and money and give your team more flexibility to work on other important tasks.