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Why You Should Use a Payroll Service

September 14, 2012

Companies sometimes ask why we are fans of using a payroll service. The answer is simple–because payroll is so complicated. Every employee has different withholding, different benefits, and a different salary schedule. It is truly an accounting nightmare to keep track of all the combinations and permutations of data.

Keeping on top of payroll and accounting via a payroll service.

Further to the point, doing a half-baked job in this area can come back to haunt a firm, and even put the Controller (or its equivalent) in hot water, if it is mishandled.

How your $100K travels through many gates, and why a payroll service can manage it best

You have certainly noticed the “missing” dollars between the weekly salary you earn, and what ends up in your pocket on payday. Most of us know this “gap” is comprised of various taxes, withholdings for social security, plus one’s own choices of insurance, pension deductions, and so forth.

One person falls into the bucket of married, another is single. How many withholdings are being claimed? Could be anywhere from zero to … yes, it could be large. Payment for one set of workers could be monthly, while others are paid bi-monthly. Commissions are paid out quarterly, but only to those eligible to receive commission. There is an array of life insurance choices, various medical and dental plans, options for personal disability or pension … you see my drift.

If you actually tried to chart this out, you would quickly see boxes checked in a wide array across a matrix. So “wide” (think haphazard) that you would like to consider a third party to manage it.

Further, as a firm increases headcount, not only do more people make more varied choices, but the buffet of plans and benefits that your firm offers tends to increase, too.

Tracking the remittances of what you owe the IRS

In addition to being responsible for tracking and managing payroll and benefits, a company has the obligation of tracking what is owed the IRS, state and local authorities. This requires nearly a separate set of accounting books. Amounts of withholding on behalf of state and local authorities varies according to where the employee lives, which becomes more complicated as an operation expands beyond a single locale. Yet even in a single office, for example, if one employee lives in Yonkers and another in New York City, different schedules of withholding apply.

For all this tracking and segmenting, a firm must mail withholdings quarterly to the relevant entities, and then use the system to pull up the top-down numbers in a W2 prepared for each employee, at year-end.

If a firm fails to properly remit to the IRS and state revenue agencies, a proprietor or owner can go to jail for that.

Moreover, the corporate veil will not protect an individual from irregularities in this area. An officer can be personally liable for taxes withheld from individuals. And while that money sits in a bank account under the company’s name waiting to be remitted, it can be very tempting if there are not strict procedures to ensure it is not “borrowed” or some such.

ADP and Intuit are frequently mentioned payroll services

If you feel fatigued reading the list the duties, then no doubt you will be on board with the idea of using a specialist, i.e. a payroll service with sophisticated computer systems and software to track and manage payment.

The big player in this area is ADP, but Intuit started offering two variations — full service payroll, and assisted payroll. Intuit targets small companies for their service.

If your good company is not handling this seamlessly, why suffer the hassle? Use a payroll service.

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