Selecting a payroll service provider

A professional payroll service can save your business time and money. Preparation of payroll, the associated tax returns and remittance of the related taxes can be stressful for your staff and uses up their available time needed to perform other important tasks.

The payroll tax rules can be complicated and there are numerous due dates for the different type of payroll taxes. Staying current on all of the federal and state payroll and payroll tax regulations can be a real challenge for your payroll clerk, which is often times the business owner.

Most outside payroll services are ethical and operate in a professional manner. Occasionally, you hear of a payroll company that has absconded with payroll taxes underpaid or unpaid. Unfortunately, the U.S. District Court and the Court of Appeals have ruled that using an agent to handle tax obligations does not relieve the employer of responsibility for those obligations.

When a business contracts for payroll services, typically the payroll service will debit the bank accounts of the business when payroll is prepared for the gross amount of the payroll and the related employer taxes. The payroll service then pays the liabilities to the appropriate agencies. This procedure, however, does not relieve the employer's responsibility to assure the payroll taxes are paid in full and paid timely. There have been many cases where employers have been required to pay the payroll taxes a second time when their payroll service has failed to properly pay the tax. This could also include interest.

A business that is looking to turn over such a vital portion of their financial responsibilities to an outsider must perform due diligence before engaging the payroll service provider. Some steps to take prior to selecting a payroll service are:

– Ask for referrals from other area business owners or your professional consultants

– Verify the credentials of the service provider

– Check to see that provider is insured (bonded)

– Ask for references and speak to other satisfied users of the service

Once the payroll service provider has been engaged, if any payroll tax notices are received by the employer, do not rely on the payroll service provide alone to respond to those notices. There is a phone number to call on most notices and the employer should confirm with the IRS or the State Agency that the issue has been properly settled and there are no further taxes due.

Remember, the business owner/employer has the ultimate responsibility for seeing that all employment taxes are paid timely and in full. This is true for all payroll liability accounts including deferred compensation, Friend of the Court and any other withholdings from the employees' paychecks.

As with any services you contract for, it is essential to do your due diligence before turning over your money and reputation to an outside service.

Mary F. Krantz, CPA, is a partner at Dennis, Gartland & Niergarth in Traverse City. She oversees DGN's BizTek department as well as its Professional Office niche team. She is also a member of the Audit department and the Government/Nonprofit niche team.

Cindy Blaum, CPA, is the BizTek manager at DG&N. She is a member of the Professional Office niche team and is a Certified QuickBooks ProAdvisor. For more information, call (231) 946-1722 or dgn@dgncpa.com.

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