65.3 F
Los Angeles
Wednesday, Dec 6, 2023

Small Biz




More and more small businesses are recognizing that outsourcing non-strategic functions can positively impact their bottom line.

One of the first areas that many companies identify is the payroll function. Payroll filings and taxes are complicated tasks that are stringently regulated by both the federal and state government. Frequent new rules and regulations, often times, require expertise beyond the accounts payable and receivable tasks of a bookkeeper.

And the consequences of making even a small mistake can mean hefty penalties and fines.

As more businesses recognize the complexities of payroll calculations and taxes, they are turning to outside companies to handle their payroll service. This need for service has spawned many large and small payroll service companies.

Some are national in scope, with offices around the country, others are banks that subcontract with outside payroll services, and still others are small, independent businesses.

If you’re searching for a payroll service, you should get some answers to the following questions:

1. What do they provide?

Payroll service companies offer a multitude of services, which you may or may not need. These services can include accounts receivable, accounts payable, general ledger, retirement plans, human resources, and free seminars conducted by attorneys and pension administrators.

2. What are the extra charges for changes?

Occasionally you may discover that payroll data is incorrect and needs to be altered. Some payroll services assess substantial charges for simple changes of payroll checks.

3. What reports will you receive?

Payroll services pride themselves on the reports that are available. However, many of the reports are unnecessary and you may find that others are difficult to read. Make sure that the reports you receive are worthwhile and easy to understand.

4. What assurances does the company give you that the money impounded for payroll taxes reached the government?

Some services segregate the taxes into a trust account. Unfortunately, some companies have found that their payroll taxes were usurped by the payroll service.

5. What services are included with the base fees?

Some payroll companies charge extra for every additional service, such as W-2, direct deposits, tax deposits and late payments.

6. Does the company do electronic filing (EFTPS)?

As of July 1, 1997, if you pay more than $50,000 in federal employment taxes, you must pay all federal taxes electronically. Be sure that your payroll service provides electronic payment capabilities.

7. What happens if you decide to leave?

You may encounter two problems:

a) Payroll companies impound money for taxes that are not due at the time of impoundment. This money may be difficult to retrieve. Request that the payroll company refund unpaid tax money within three business days of notification that you are terminating their service.

b.) Most payroll companies issue employee reports once a quarter. If you decide to leave in the middle of a quarter, this can be problematic. Make sure that the payroll company will release a year-to-date employee report if you decide to close your account in the middle of a quarter.

Unfortunately, some companies that use payroll services find themselves in a nightmare of inaccessible account managers and inaccuracies in their accounts.

One way to elude this problem, is to ask around before you decide on a payroll service. Most people are familiar with the major services or know someone who is.

Once you’ve selected your payroll service, carefully monitor the level of service in three areas: responsiveness, employee longevity and mistakes.

Track the following:

1. How long does it take to get a response from a telephone call on a question about your account?

Some services won’t return calls for days. You can gauge the level of responsiveness even during the interview process when you may find that your calls go unanswered. If you can’t get information from a payroll service when you’re interested in giving them business, it will probably take them longer to return a telephone call when you have a question.

2. How long does your account manager stay on your account?

You may discover that the employee who handles your account one month is gone the next month. Frequent changes can be frustrating, especially if you have customized needs. You end up teaching someone new about your account. Keep track of how long an employee stays with your account.

3. What is the average number of mistakes made on your account every month?

Many payroll services have low-paid employees who perform data input. Inaccurate processing can delay your checks and become a nightmare if the mistakes are made frequently.

Once you select a competent payroll service, you’ll find numerous benefits, such as personnel who are accessible for questions you may have, accurate checks, competitive prices with low or no fees for changes, and timeliness and accuracy of payroll tax deposits and filings.

Whether you have one or 100 employees and you are considering a payroll service, careful selection of the company will ensure that you’ve made a wise choice.

Larry Wayne is a certified public accountant and a partner with the Beverly Hills accounting firm of Lerman, Wayne & Umanoff.

Small Business is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact Dan Rabinovitch at (213) 743-2344 with feedback and topic suggestions.

Previous article
Next article

Featured Articles

Related Articles