It’s no secret that in-house payroll can be a time-consuming headache for employers. Outsourcing payroll has many benefits, from increased productivity and enhanced security to peace of mind that your employees are paid timely and accurately. The most important part of outsourcing, however, is working with a reputable provider.
Since your company’s payroll tax responsibility ultimately lies with the employer, it reinforces the importance that you only outsource to a trusted payroll vendor. Unfortunately, there are small businesses who have been burned by unreliable payroll companies who closed without warning or were found guilty of mishandling payroll tax funds.
Following are tips for employers to protect themselves when outsourcing payroll:
1. Do your due diligence.
Fully research the company or companies you are considering. Ask for referrals. Go beyond their website. How long have they been around? Do they have experience in your industry? What do their online reviews say? Are you comfortable with their technology and data security measures? Are their services scalable to handle your business growth? What is their customer support like? Are they a member of a professional payroll organization? Are they backed by a partner CPA firm, which are typically bound by AICPA’s code of ethics and have the resources to keep up with tax laws?
These are just a few questions to consider in your research process. You are putting a lot of trust in your chosen provider, so don’t make the decision lightly.
Further Reading: When to Say Goodbye to Your Current Payroll Provider
2. Consider different levels of service.
- Fully outsource. While this is the most streamlined and time-saving option, it also requires the most trust. With full tax service, the payroll company collects all tax funds each pay cycle and then pays from the payroll company’s account when deposits are due.
- Direct tax. The payroll company submits tax payments on the employer’s behalf, but the funds are debited directly from the employer’s own accounts.
- No tax service. A last option is to completely handle the tax payments yourself. With this option, the payroll company prepares everything and provides it to the client to make their own tax payments and file their own returns.
3. Elect to receive mail and email.
Register your EIN with the EFTPS to be able to monitor deposit activity and receive email confirmations. The IRS also suggests refraining from substituting the third-party’s address for the employer’s address. This way, you the employer will continue to receive bills, notices and other account-related correspondence from the IRS, giving the employers a way to monitor the payroll provider and quickly observe any problem or improper diversion of funds.
4. Be involved.
Just because you outsource, you don’t have to be on auto-pilot. Stay in regular communication with your payroll specialists for added peace of mind. In addition to making sure you receive direct correspondence from the IRS and EFTPS, bookmark the IRS’s Small Business Tax Calendar to be aware of key due dates.
If you suspect your payroll service provider of improper or fraudulent activities involving the deposit of your federal taxes or the filing of your returns, you can file a complaint using Form 14157 Complaint: Tax Return Preparer.
The whole point of outsourcing is to be more efficient, so make sure your service package is customized for your company. Don’t pay for extras that you don’t need or use. In addition, select a company that is scalable as your business grows, so you don’t have to upgrade to a new provider down the line (and research all over again). This can include HR service offerings that you might not need now. You may require more support as you bring on more team members.
You also want to vet the payroll provider’s technology to see if it’s compatible with your organization’s accounting software.
Businesses have been counting on Abacus Payroll for their payroll, HR, and workforce management needs for 20 years. Our specialists will ensure a smooth transition keep your payroll as hassle-free as possible each pay cycle. To get a quote, fill out our contact form or give us a call at (856)667-6225.