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 Quick Books 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.

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