By Kellie Ferry
Many small businesses choose to outsource payroll and the related tax duties to a third party and there are many compelling reasons to do so. Business owners find it a huge relief not to have to concern themselves with tax deposit deadlines and preparation of the seemingly endless stream of payroll reports that show up in the mail. The decision to outsource becomes even easier if the business has employees in multiple states.
However, business owners should temper that sense of relief with some caution. The responsibilities related to payroll do not transfer to the third-party service provider when the contract is signed. On the contrary, all responsibility and liability remain with the employer and vigilance is required to ensure compliance with all local, state and federal laws. Below are some suggestions intended to help you make sure you don?t run afoul of the law. · Educate yourself! This is one area where ignorance is definitely not bliss! Auditors may claim to understand when you use this particular excuse, but they won?t absolve you of responsibility. You must take the time to learn the rules that apply to your business. Do not rely on ?industry standard? to keep you out of trouble. Just because other businesses do things a certain way doesn?t make it right! · Obey record-keeping rules. Again, educate yourself on what is required and follow through. Don?t forget the rules apply to business owners receiving paychecks, even if they are the only employees of the company! · Track hours worked. Technically this falls under the record-keeping rules but is worth emphasizing. Some employers think they don?t have to do this because their employees are paid based on production. However, actual hours worked are required for some tax calculations and the records will be needed if you find yourself in court because some employees think they weren?t paid overtime to which they were entitled or claim they were paid less than minimum wage. · Make sure tax deposits are made timely! Timely deposits are not guaranteed just because the third-party service provider took the money out of your account; you remain liable until payment is made. Therefore, you should take the following steps to help protect yourself: o Make sure the address of record with the taxing agencies is not changed to that of the payroll service provider. Otherwise you will not receive notices and won?t be aware there?s a problem until it?s too late. o Ask the provider if they have a fiduciary bond. This may provide you some protection in the event of default. o Request that the provider use EFTPS (Electronic Federal Tax Payment System) for your federal tax deposits. This system allows you to view 16 months of payment history so you can verify deposits are being made timely. · Make sure voided and hand-written paychecks get posted. It?s a case of out of sight, out of mind and results in incorrect tax deposits and payroll reports. This particular oversight gets expensive fast if the error isn?t caught until W-2?s have been prepared. Not only will the service provider be forced to re-run or amend all the year-end reports at your expense, you may also be assessed late deposit penalties. · Review, review, review! Carefully review the payroll reports delivered with the paychecks and compare them to the records used for data entry. This is an important element of internal controls and should not be done by the employee responsible for preparing payroll.
While not comprehensive, these suggestions should help you ensure that payroll processing continues to run smoothly and you don?t find yourself in the crosshairs of a taxing agency.
We have several staff members with extensive payroll experience that would be happy to help you safeguard your payroll processes. Please feel free to contact us with any related questions. |
