“One of the best parts of running a small business is figuring out payroll and staying aware of changing tax regulations,” said no one ever.
Let’s face it. Entrepreneurs start businesses because they are passionate about their product or service. They would rather spend their time growing their business and providing top notch customer service than dealing with the tedious data entry for payroll every pay period.
Business consultants generally recommend outsourcing of non-core functions. A non-core function is a part of the business that is not a profit center (meaning you don’t charge customers for it). For most businesses, this includes back office and administrative functions, such as payroll. You may already be considering outsourcing your payroll activities, but do you know what to look for in a payroll company?
Payroll information involves very private data for individuals, including name, address, contact information, social security number, and hourly wage or salary information. This information, considered “personally identifiable” by privacy experts, is subject to many regulations covering the storage and processing of data. These regulations come from various federal agencies along with state and local agencies. You should look for a payroll company that is knowledgeable in the area of information privacy and is compliant with data storage and processing.
Data Integration Capabilities
Processing data can be tricky. You want to find a payroll company with the expertise needed to handle data conversions and integrations with your payroll, HR, and time tracking systems. Mistakes in data integration can cause inaccurate tax withholdings and contributions, leading to costly audits and fines. You want to make sure your payroll company understands the importance of error-free data integration and conversion.
Knowledge of FICA Regulations
The regulations governing withholding from an employee’s paycheck are complex. The money withheld from an employee, as well as the contribution of the employer, must be calculated accurately. These contributions, which fund programs such as Social Security, Medicare, and Medicaid, are generally the same rate for the employee and the employer but sometimes not.
With the passage of the Tax Relief for Americans Act of 2013, there is an additional Medicare tax for employees after reaching a certain wage threshold.
This threshold is determined by the employee’s wages and the employee’s tax filing status. There are costly fees and fines associated with inaccuracies in record keeping and reporting of tax information.
You want to make sure your payroll company stays aware of current legislation so your company will remain compliant with these regulations.
Ease of Use
Payroll functions can be tedious and the complex nature of integrating payroll data with tax withholding, employer contributions, as well as HR systems can lead to an overly complicated environment.
After all, the whole point of outsourcing your payroll is to take the burden away from you so you can concentrate on other business functions. You want to find a company who is highly skilled with managing payroll functions with as little attention from you as possible. Look for clean, intuitive interfaces and highly responsive customer service teams.
Does the payroll company have a good track record for serving businesses like yours? You want to make sure a company is known in the industry as having knowledgeable employees, secure data systems, prompt and accurate service, and a high level of customer satisfaction.
There is no doubt that outsourcing your payroll system is a good idea. It saves you time and money, provides top tier security for private information, and helps keep you compliant with tax regulations. Best of all you can keep your focus on what you like doing -- growing your business and providing best of class service to your customers. If you are ready to outsource your payroll to a company that is knowledgeable, secure, reliable and sensible, we are ready to help!
Check out our comprehensive employer's guide to payroll taxes - a structured and simple overview of what employers need to know about the taxes that flow through payroll - on both the employer and employee side.