What to Consider When Choosing a Payroll Processing Service
Getting your payroll done should be an efficient and secure process. And you should not need to get bogged down dealing with federal, state, and local tax filings and payments. Whether your business is big or small, outsourcing payroll processing to the right provider offers many benefits. To take advantage of those benefits, you need a payroll processing service that offers easy technology, a high level of customer service, and a long history of integrity and honesty.
But what should be on your payroll service checklist?
There are many issues to consider putting on your checklist, but let’s first review the topic in broader terms by answering…
What Types of Companies Offer Payroll Processing Services?
Accounting Firms – Some accountants will handle payroll processing needs for clients, usually only if the client is a very small company without a lot of complexity or multiple tax jurisdictions. It may be difficult to separate the fees for the payroll services from the accounting services fees, making it hard to know what the payroll services actually cost. Government regulation that affects payroll has become very complex making it difficult for an accounting firm to stay current since it is not their specialty. It is unlikely an accounting firm will offer any technology to track employee time worked, which means you’ll need to get software for that purpose or utilize an Excel spreadsheet and then communicate the time worked to the accounting firm for payroll processing.
Professional Employment Organizations (PEO) – This is only right for a select group of companies. The company’s employees are paid under the PEO’s employer identification number potentially creating some savings for group health insurance. However, PEO’s bundle a lot of other employee related services that the business may not need, but yet have to pay for, making the PEO inefficient from a fees standpoint. And a PEO is not typically a specialist in payroll processing, in some cases PEOs will outsource payroll processing to a payroll processing service. Also, as with the accounting firm, tracking employee time worked could be an issue.
The “In-house option” – This can be accomplished with various types of software specifically for payroll processing and many accounting packages like QuickBooks offer a payroll processing module. Doing it yourself means you will need to also manage the all federal, state, and local tax filings and payments. Making mistakes on forms like the IRS Form 941, and/or being late can create penalties with the various tax collection agencies like the IRS. And as with the accounting firm you’ll need to make special arrangements with additional software to track employee time worked.
Payroll Processing Services - There are many qualified to choose from. What most payroll processing services do in addition to payroll is offer integrated software for human resource information and employee time tracking software that use electronic employee time clocks. Some time tracking systems enable time and attendance to be tracked using a PC or other device like a Smartphone. These payroll firms are specialized and offer the types of services and software that will streamline tracking employee time and attendance, paid time off, and take away the burden of dealing with federal, state, and local tax filings and payments. You won’t need to know the IRS’s phone number. So, if you’re asking the question “How does an employer know how much taxes to take from an employee?” or “How do I report an employee’s wage to the IRS, state, and/or local tax agencies?” the shortest and best answer to both questions may be – “hire a payroll service.”
So, if you’re leaning towards choosing a payroll processing service you’re going to want the answer to…
How do I choose a payroll service? And what features should I be looking for?
Integrity – Look for a firm that has a long history (10-15 years) of honesty and integrity with its customers. A firm that has a long track record of handling federal, state, and local tax filings and payments accurately and on time. Ask if the firm encourages and helps its customers to verify payroll tax payments using the Electronic Federal Tax Payment System® (EFTPS) system.
Insurance – A qualified payroll processer will have errors and omissions (E&O) Insurance, fidelity bond for crime protection, and cyber liability.
Reputation – The right firm for you should be able to provide you with more references than you have time to call.
Great Customer Service – You should explore this in detail with the references the firm provides to you. Here are some of the questions to ask the payroll provider’s references. You can make these suggested questions into a brief questionnaire to use when you contact references.
Up-to-date Technology – The firm should have easy to use online technology that integrates payroll processing with employee time tracking and human resource information, as well as offer your employees the ability to view their pay and other information in a private employee self-service portal. And the time system should be able to help you track employee time worked from home using GPS technology that pinpoints an employee’s location. A good time and attendance system will be your best way to track employee attendance; hours worked, and paid time off. The human resource information system should provide the ability to keep track of an employee’s training as well as licenses and certifications.
Now you’re wondering what’s a payroll processing service going to cost. What are the fees? What’s included? How do they typically charge for their services? And how do payroll services make money?
It’s important to first understand how payroll processing services work, operate, and as a third party payroll provider what are their responsibilities.
How they work and operate: To simplify something that is actually very complex – the payroll processing service knows enough about labor law and payroll tax laws (federal, state, and many locals) to create software technology that takes in basic pay information (like hourly rates and/or salaries, benefit deductions, etc.) and calculate all the employees’ gross and net pay, as well as calculate the employer’s tax responsibility. The service than needs to have the technology horsepower to orchestrate a multitude of transactions to collect payroll and payroll tax funds from the customer’s account and then get employees their pay via multiple methods (live checks, direct deposit, pay cards, etc.), know when and where to remit taxes electronically, provide the customer reports, and file the appropriate tax documents to the various agencies accurately and on time. They usually have software that enables the customer to maintain employee information and to enter pay details for each pay period to start the calculation and distribution process. That process is supported by customer service and technical support staff.
Third party payroll provider responsibilities: This varies somewhat, so when you are interviewing a prospective service provider you should ask a lot of questions. A good provider will offer a lot of help at the time of startup with their service. Usually gathering data from you and entering into their system. When a business has had payroll prior, a good provider will be able to import employee and pay data directly from the previous payroll system that was used. This is especially important if you are not starting with the new payroll service for the first payroll of the year. In that situation, the new payroll service will need all of the year’s payroll history to be able to accurately complete yearend tax services and produce your employees’ W-2s. The new payroll service may perform an audit of the way taxes were calculated and paid in the past and uncover issues to be corrected during the new setup. In addition to being responsible for what is outlined above in How They Work and Operate, the payroll processing service’s other big responsibility is to accurately calculate payroll tax payments, collect those funds from the customer, and remit them on time to the appropriate agencies.
So, this sounds expensive to you… right? And you’re really wondering, what’s this going to cost? Unfortunately, there isn’t any standard formula you can use to calculate your fees. However payroll processing services typically adjust what they charge based on the number of employees you have, and sometimes, will factor in the number of payrolls you run. If your payroll processing needs are fairly straight forward and don’t have a lot of complexity, often charges will be a flat monthly fee with an additional monthly fee for each employee. Primepoint uses that method and you may view the detail by clicking here. More complex businesses that require tailored solutions will need to request a detailed proposal. Primepoint provides this information to its prospective customers on a regular basis and you may get that process started by clicking here.
Assuming that you have decided to move forward with choosing a payroll processing service let’s wrap this up with a payroll service checklist.
___ How long has the service been operating as a payroll processor?
___ What type of insurances does the firm have to protect your business?
___ What sets the firm apart in the industry?
___ Find out what other services the firm offers in addition to payroll processing.
___ Can the different parts for their technology be integrated into one system?
___ Is their software in the cloud and accessible using a web browser?
___ How flexible is the software and does the firm tailor it to meet a business’s unique needs? What are some examples?
___ Has the firm ever had any issues with remitting tax payments to the various agencies
___ Ask for a lot of customer references of businesses similar to yours in size and call at least three. Use the questions presented earlier in this article to create a brief questionnaire. Add some others that may be unique to your business or industry.
___ Ask how customer service and technical support are handled.
___ How do they charge for their services?
___ What items do they charge for that are not in the basic fees they are quoting in their proposal?
___ How often do they raise their fees for existing customers?
___ When was the last time they raised fees for existing customers?
The Employee Experience is becoming an important concept in the business world. The right payroll and HR systems company can help you to create a better Employee Experience for your staff. Of course, a basic component of creating a good Employee Experience is making sure their pay check is correct and on time, but there are many other aspects of the Employee Experience. The right payroll processing service with technology for timely/accurate payroll, easy to use employee time tracking systems, and an employee self-service web portal will go a long way to making your job easier and creating the Employee Experience you need.