How Does Payroll Outsourcing Work?

Payroll can be prepared by workers within a business or can be outsourced to a payroll outsourcing service provider. Many organizations have found that contracting payroll to a consulting service potentially saves the business time and resources.

Employee Costs For In-House Payroll

When an organization decides to prepare its payroll in-house there are workforce costs for the preparer, such as payroll, social security and Medicare premiums, employees’ compensation insurance, future medical or retirement benefits, and training. If a company hires an employee to control the company’s payroll, the employee must be qualified in accounting to be able to calculate payroll and deductions, compile payroll reports, and make timely tax deposits.


Avoid High Penalties

The company shall be liable for any mistakes committed by the employee. These mistakes will be expensive if taxes are not property filed or deposited, even if the figures are inaccurate. Reputable payroll providers promise their job and can pay fines, provided that their mistake has happened. It is completely possible for a business to potentially spend more in fines per year than would have been the expense of outsourcing payrolls. If they had used a payroll agency, either the mistakes would have been stopped or the payroll provider would have been eligible for fines.

Duties of Payroll

Payroll responsibilities include the writing of checks on workers, the correct measurement of pay and payroll taxes, the prompt supervision of tax deposits, and the maintenance of accurate reports. If the person responsible for processing the paychecks is sick, the paychecks will have to be released. Payroll providers guarantee that payrolls are released on schedule for each pay period, with limited work on the part of in-house staff.


Cost of Outsourcing

The cost of recruiting a payroll service is generally dependent on the number of workers. As a corporation signs up for a service, the company’s bank accounts and payroll services are created, enabling payroll services to issue paychecks and tax deposits. Few businesses prefer to have the paychecks sent directly to the company, where the checks can be signed and distributed to the workers. Some businesses allow the payroll provider to send or deposit the checks directly to workers.

Getting Started

When setting up an account with payroll outsourcing, business tax records and W-4 employee forms are issued to the service, along with the pay rate for each employee. During each pay period, the company contacts the payroll service and tells them about how many hours each employee has performed during the previous payroll period. The payroll service then measures the pay, all payroll deductions, and also initiates a federal tax deposit. Payroll outsourcing systems will also file and issue W-2s and 1099s, along with monthly, quarterly and annual payroll and tax reports.

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