Five Things to Think About When Considering a Payroll Service

Is it easy keeping up with approximately 400 legal and regulatory changes every year or making up to 268 tax calculations annually? Are routine administrative tasks preferable to servicing customers? It’s unlikely any business owner would answer “yes” to those questions.

For most business owners, these issues are among the very last things they want to deal with. And yet, they’re exactly what is needed when a company processes its own payroll.

Sooner or later nearly every business owner realizes it’s time to let someone else handle the time-consuming, risky and unproductive task of processing payroll to a specialist provider. But how to choose the right one? When making that decision, there are five key things to consider – and to ask potential providers about as well.

Tax Liability

Tax issues are probably the number-one pitfall of handling payroll yourself. Every year federal and state penalty notices, levies and legal action not only reduce productivity, but put many small companies out of business entirely. Often the business owner was trying to do everything correctly, but was simply unaware of all the rules for calculating paychecks, timing tax payments and filing.

If a CPA or accountant is hired to do the books, that person can handle payroll as well. However, that individual isn’t going to pay the penalties and interest if something goes wrong. A professional payroll service company will. And a good one will even work with the tax authorities on behalf of their client if there is ever a payroll tax problem.

Payroll Expertise

Any reputable payroll service will be able to cover a company’s basic needs, such as calculating hours and vacation time, cutting checks and mailing them to your employees. The trouble is, those might not be every business’ needs. An experienced, trained payroll professional will get to know the business, understand what it requires, and work with business owners to make sure the payroll solution is a good fit. For example, combining online banking with online payroll processing or offering employees a 401(k) plan is something a payroll service can handle that is outside of the standard services.

A Trusted Provider

Of course, the provider needs to be someone trustworthy. For something as critical as handling payroll and taxes, look for an established brand with a solid history, extensive resources and experience, and a reputation for great service. The last item is particularly important since at some point there is likely to be an urgent situation: if an administrator unexpectedly went into labor tomorrow, could the provider step in and make filings on time?

The Right Features

All businesses have different needs, but those of small companies are especially diverse – and are becoming more so. These days, even with just a handful of employees you might need payroll deductions for 401(k), a flexible spending account and perhaps a health savings account (HSA) for your health plan, plus direct deposit. Because every minute spent on administration keeps business owners away from their core business responsibilities, it’s vital that it all work as smoothly as possible.

There are a number of reputable companies that specialize in payroll services. In addition, full-service banks can offer payroll services that have some unique advantages, such as tying payroll directly to online banking for maximum convenience.

Cost Effective

Considering that one in three business owners will face a tax penalty each year, hiring a payroll provider may just be worth the cost. After several years the question every business is likely to face these penalties – it will simply be a matter of when. Even for a very hands-on manager, working with the IRS or state agencies on payroll issues is one task that can be a huge burden. When that time comes, the pennies per week spent on payroll processing may turn out to be a company’s best business investment.

By Lester Romero, Assistant Vice President, Wells Fargo Bank