Business & Financer

Choosing a Payroll Provider Isn’t Always Easy


Anyone who runs a business can tell you that payroll is one of their least favorite tasks. Not because they don’t want to have to pay their employees, but because it can be extremely time-consuming and prone to human error. In fact, errors in payroll are so common that in the United States, the Internal Revenue Service penalizes one out of every three businesses due to payroll errors.

In addition to mistakes costing a business in fines, it can also cost in terms of morale; few things can kill a worker’s spirit like worries over the paycheck.

To alleviate the stress involved with payroll, and to focus on the business of running their company, many firms turn to a payroll services provider to handle the tasks needed to ensure that everyone receives pay accurately and on time.

“One of my rules is if you have one employee, get a payroll service,” says Rhonda Abrams, president of the business services site The Planning Shop and author of the guidebook Hire Your First Employee. “The penalties for screwing up are so much more expensive than the cost for payroll.”

But choosing to outsource your company’s payroll to someone who specializes in this service is one thing. Choosing which payroll service to use can be a much harder decision to make because there are so many out there to choose from.

Finding the right payroll service

“There’s three things that payroll should do for you,” says Ken Darrow, editor of Payroll for Dummies, and group marketing manager at Intuit Payroll. “It pays employees on time, it pays your payroll taxes on time, and it actually files your payroll tax forms on time. You want to do all three of those to be compliant with the law, and you also better do the last two or you’ll get fined.”

So this would serve as a minimum– the foundation on which to start from your vetting process. Any payroll service that cannot accomplish these three things for you should not make it on to your short list.

From this list look for things that can be shady or lead to errors. For example, some services take the data you enter and have someone on their end re-enter it into their system. This added step provides an opening for human error that can be avoided simply by transferring the data your company inputs electronically.

Another thing to look at are the services you need. Some companies will put together packages of features and services that many businesses can do without. The problem comes when you have to pay for services you can’t or won’t use. If there are no packages available to suit your needs, or you can’t purchase services a la carte, then look for another provider.

Another thing to be aware of is that some services impound your taxes at the time of payroll and hold on to them until they’re due to the federal government. Basically, they are making extra income by collecting interest on your money. There’s nothing illegal or immoral about this, but they should be honest with you if they practice this; it might be a negotiating point you can use later.

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